MAPping the Future: The Phinma story

MAPping the Future: The Phinma story on change management
Posted: 6:49 PM Nov. 13, 2005 Inquirer News Service
Published on Page B2-2 of the November 14, 2005 issue of the Philippine Daily Inquirer
URL: http://money.inq7.net/columns/view_columns.php?yyyy=2005&mon=11&dd=14&file=9

PHINMA WILL CELEBRATE OUR 50TH anniversary in November 2006. For all of these nearly 50 years until last year, the Phinma Group was known for its presence in heavy industry, primarily cement, steel roofing and paper.

In 2003, our paper business, United Pulp and Paper Co., due mainly to a major expansion completed just prior to the Asian crisis, and the resulting high debt servicing costs and foreign exchange losses, was experiencing losses beyond the company's capacity to absorb. It became evident that an infusion of new equity was needed to pay off liabilities and restore the company back to financial viability. Siam Pulp and Paper Corp., our joint venture partner, agreed to infuse the new equity needed and buy out our shares in the company.

In 2004, we also disposed of our flagship cement business, Union Cement Holdings Corp. This decision was brought about principally by the profound changes in the cement industry brought about by globalization. We discerned that in order for the company to maintain a leadership position in the industry and to be globally competitive, it was essential that it have access to the best technology, to the most competitive supply sources, and to global markets. And we concluded that these would be best achieved if Union Cement became part of the network of one of the leading global players in the cement industry.

With the divestment of our principal businesses, we engaged in very intensive soul searching to determine a path for the Phinma of the future. First, we asked whether we should simply distribute the proceeds of our divestments to our shareholders or if there was still a role for us to play. We readily agreed, perhaps somewhat self-servingly, that Phinma, through its existence, had gained a reputation not only for successful corporate entrepreneurship but also for being reputable, professional, competent and trustworthy. We believed these traits would serve us well as we tried to carve our future. It was also very helpful that we had what for us was a fairly sizable cash horde coming from our divestments.

Nation building
We have always been proud of our commitment to nation building. But while in the past we manifested this through our participation in heavy industry, today we proceed from the premise that in a world without borders, our principal resource as a country is our people. We believe that we will be able to compete globally as a nation only if we are able to develop globally competitive Filipinos, and this we believe can be accomplished by giving Filipinos improved access to the essentials of a dignified life, starting with good education.

Thus it is that we have formulated a new Mission Statement for our Group:
"Our Mission is to help build our Nation through competitive and well-managed business enterprises that enable Filipinos to attain a better quality of life. With effective management as our distinctive edge, we aim to give Filipinos improved access to the essentials of a dignified life.

We will build not only affordable and decent homes but wholesome communities in urban areas.

We will offer not only affordable high quality education but a brighter future for globally competitive Filipino professionals and workers.

We will explore opportunities in the energy sector to offer not only reliable and affordable power but more productive lives, particularly to communities in greatest need.

We will offer attractive investment opportunities and sound investment advice to encourage capital formation.

We will aggressively seek opportunities primarily in the services sector that will allow us to address the basic needs of our society while being globally competitive and generating attractive stakeholder values."

In projecting this new Mission to our various publics, we as a group have adopted the tagline: Life Can Be Better. It will take years, perhaps decades, to fully accomplish our new mission, but I am pleased to report that we have already made major strides.

Education
Let me start with Education, which is our first new field of investment since our cement divestment. Our plan is to build a network of three to five universities and colleges all over the Philippines, with a total student population of some 50,000 to 75,000. We believe that by applying sound management practices, focusing on values formation and proficiency in English and information technology, concentrating on programs with the brightest employment prospects, and strengthening our placement services through business and industry and other appropriate linkages, we will be able to provide superior value for the investment in education that our students and their parents will be making.

We are well aware that among many indigent families, the aspiration and dream of parents is to get at least one of their children to complete a college education in the hope that this will be the family's passport to a better life. No effort is spared, including even cutting down on meals, to make this dream a reality. It is not difficult to imagine then the frustration and bitterness that sets in when, after completing their education, these young men and women find themselves unemployable because they are simply not armed with the skills and knowledge required by the market. The only relevant measure of the value of college education for families like these is a good job soon after graduation.

In our first full year at Araullo University in Cabanatuan we embarked on ambitious faculty improvement and curriculum and course development programs, including sending faculty members to De La Salle and UP for doctoral studies. We extensively rehabilitated the campus, with emphasis on needed laboratories and classrooms, and making the campus IT enabled, with the introduction of a fiber optic internet connection and dozens of PCs all over the campus. We embarked on a number of aggressive marketing campaigns, including one highlighting the physical campus improvements, under the tag line "To See Is To Believe", which we conducted through radio, television, and movie ads and banners, supported further by aggressive campaigns to get high school seniors and their parents to visit the campus; this campaign was highly successful.

As a result of these successful campaigns, in our latest marketing survey, Araullo University has moved from No. 4 in top-of-mind awareness to No. 1 in our market. Since Phinma's takeover, freshmen enrollment has increased at a rate 17% per year for two years, arresting a five-year decline in enrollment.

With the improved enrollment, we were able to maintain tuition at only P10,000 per year for basic education, and for tertiary levels at the very affordable range of only P8,000 to P10,000 per semester (except for nursing), which is what it was before our entry, and still realized our modest first year profit objective of P 4 million.

We are also pleased to report some indications of quality improvement. Whereas the passing percentage in the bar exams for Araullo law graduates prior to our entry was a measly 6%, this year our passing percentage for students taking the exam for the first time was 44%, significantly beating the national average. In the recent board exams for Criminology, Araullo placed 9th nationwide. In the recent nursing board exam, our first time examinees registered a passing rate of 70% against the national average of about 40%.

In August this year we completed our purchase of Cagayan de Oro College with a current enrollment of about 5,000 and tuition for basic education at P15,000 per year, and P12,000 to P14,000 for college. Having two educational institutions under our wings gives us the opportunity to now refer to our schools as the Phinma Education Network.

Managing costs is particularly important for the Phinma Education Network, as we cater to the C and D market. Our aim is not necessarily to be as good as De La Salle or Ateneo, for the markets we hope to serve simply cannot afford the tuition needed to attain the quality of these schools. But we do hope to offer the best value for money, affordable high quality education, marked by superior employment prospects for our graduates.

To manage costs, we have centralized functions, such as accounting, human resources and purchasing for the schools, thus lowering our overhead. As a result, the ratio of non-teaching to teaching personnel in our schools is 1 is to 2.5, compared to a ratio of 1 is to 1 in the industry.

We have reduced executive overhead, maintaining a single president for the entire education network, and only one full-time vice president / chief operations officer for each school, compared to the normal practice of having four vice presidents : one each for finance, administration, academics and marketing/admission. We have likewise centralized purchasing.

By purchasing in bulk from Manila, we have minimized cost (despite transportation expenses) and improved quality. This has resulted in cost savings of 5 to 10 percent.