Saturday, February 02, 2008

Taking ST Engineering to the next phase

The latest Raffles Conversation profile in Singapore's The Business Times today.

Taking ST Engineering to the next phase

Tan Pheng Hock, ST Engineering president and chief executive officer, tells WONG WEI KONG that the defence conglomerate has reached a stage where it is ready to shape the market

SINGAPORE Technologies Engineering (ST Engineering) used to set the pace for other blue chips by being the first to announce its results every year. A few years ago, it stopped doing so. An increasingly complex business spread across the group meant that it had to take more care - and time - to get its numbers right.

But being first just for the sake of it has never been Tan Pheng Hock's way. 'Fast is good, but it is secondary,' he says in an interview with BT. 'Our first criterion is to have a robust set of numbers that we can sign off and say, 'This is it'.'

'Put it this way, we are a big group now. It is not just about cultural diversity but differences in practices, environmental issues, local regulations, practices and procedures.

'When we were Singapore-centric, that was easy because we have been together for the last 30 to 40 years and we have an established set of processes and procedures. However, when you add on companies, you can't say that anymore. So we also have to address these concerns because being first is not necessarily the most important. More importantly is to make sure you have a robust set of numbers.'

Emphasising the process and not just the outcome is at the core of defence and engineering conglomerate ST Engineering, says Mr Tan, 51, who became its president and chief executive officer in 2002. It defines how the group is run, how it interacts with its customers, and how it bids for contracts and makes acquisitions. It is also something Mr Tan learnt from - you wouldn't expect it - his days as a minute-taker.

'One of the values I learnt in my younger days as an engineer was from writing minutes. I used to be arrowed by my boss to write minutes. All of us hated to write minutes. Writing minutes is not fun.

'I realised that if I take it as just writing minutes, it is really no fun. But if I start observing how issues are being discussed, how people make decisions, how people manage dissenting views, how they arrived at the conclusion, then, there is actually a lot of value in it.

'So I said, 'I better observe how things are being done'. I used to sit in meetings chaired by Philip Yeo, Kua Hong Pak or Ho Ching. You learn from people who are already there - they don't teach you, but you can observe how some people make decisions so fast. These are valuable lessons that people don't teach you, that no courses really teach you, but are invaluable.

'So I also try sometimes to get engineers to sit in meetings and say, 'Look, writing minutes is not important. What's important is what you get out of it. Do you get the essence of the three-hour discussion?' In that way, people don't feel like they are being arrowed but view it as recognition, a development rather than a task. So I'm appreciative of that and now I know why I was given that task.'

Years removed from his minute-writing days and as chief operating officer of the group, Mr Tan was to see ST Engineering and its Bionix Infantry Fighting Vehicle lose out on a US$4-billion US Army contract for light armoured vehicles. It was a major disappointment, but Mr Tan says the outcome did nothing to detract from the value of the process.

'Actually we got lots of value out of it - not in dollar terms. ST Engineering created a name in the US that we never had before. Although we didn't win, you can now see politicians and defence industry leaders acknowledging ST Engineering's capabilities. The US Department of Defense has acknowledged that we have good solutions.

'Having done that, we may not bid for the next vehicle but we may work with local industry players as partners as they now know our capabilities. Not all US defence companies, for example, produce vehicles. But they do system integration - add electronics and weapons - so this is where we can complement them.' And notwithstanding the Bionix disappointment, the US has become the biggest market for ST Engineering, accounting for 33 per cent of the group's revenue.

Doing things right, and not taking short-cuts, is the best way to win over the market, Mr Tan says. 'We want the market to trust us. If there is a thing that cannot be done, we'll explain to you why it cannot be done. We are not always right, but we give you an honest view of what can or cannot be done and we are open to your suggestions. We want people to see us as a trustworthy partner, who will not just take a project because we want it but who will take a project and make sure you understand where the limits are, what the challenges are, and the value we bring to you. We want people to know that ST Engineering is a partner, a trustworthy partner, not just a buyer or seller but a partner that will go in with you and take risks with you. We will be there in the long haul with you.'

This approach has helped ST Engineering build an enviable reputation in the market place. Over the past 40 years, ST Engineering has evolved from a local company to today's integrated and globalised company with a work force of 18,000 worldwide, with over 100 offices in 20 countries, including the US, Panama and China. The group's core capabilities are well recognised in four areas - land systems, electronics, marine and aerospace. Building on its defence heritage - it is the principal supplier to the Singapore Armed Forces - ST Engineering has established significant commercial operations which now account for 70 per cent of revenues.

'In the early days we were what I call metal bashers. You have got to start somewhere, and it was more hand and leg work. The second phase was around the 80s when we looked at upgrading and modification work, a bit more engineering work, a bit more value added. The third phase was in the 90s when we started to develop our own system, our own solutions, and our own intellectual property. That was when people started to see us as a creative, innovative company as we developed our own unique solutions.

'In the next phase for ST Engineering, people will no longer see us as takers in the market, and we will no longer be one that waits for the market to change. I strongly believe that we have now reached a stage where we can be a leader in some areas, where we can shape the market, and where we can position the market.'

When he took over as CEO in February 2002, Mr Tan felt that the group was not bold enough in making acquisitions. 'We didn't do many acquisitions in 2001, 2002. Our strength was in buying assets or companies that were in trouble. But it was also our weakness because we were always waiting for an opportunity to arise. You are waiting and you are not making things happen, so I said you cannot grow just by sitting down. We must have a M&A team and consciously have a strategic plan.

'The staff were reluctant to buy good operating companies because they believe that the seller makes all the money, which meant they win and we lose, instead of seeing the deal as a win-win proposition. The seller has reached a point where he could not grow the company any more while we are able to take the company to the next level. That is a win-win deal. We can make money just like the seller.'

Mr Tan then led ST Engineering on the path of actively pursuing strategic acquisitions overseas to diversify its business geographically and its revenue stream. While it is linked to Temasek, the Singapore investment corporation, it has so far avoided the controversy that have dogged some other Temasek-linked investments overseas.

Mr Tan says he does not have lessons to teach the rest of corporate Singapore, but for ST Engineering, it is again all down to the process. 'I stay below the radar. You don't see me talking about companies that I want to look at specifically. I will tell you our areas of interest in general. But I don't tell you about my targets.

'I don't want people to speculate. I also go below radar because at the end of the day, I like to develop relationships with companies before I even start to do any M&A. I think it is important for us to know the people, the management, the culture, the alignment, the confidence in knowing each other. Typically, we spend 12-18 months to get to know each other before we even consider whether it is really worth buying. And you don't see us going in a big way to publicise it.

'One thing for sure is that we are very sensitive to local issues. Firstly, even before we buy, we want to be sensitive. We always ask whether there are potential regulatory or nationalistic issues. If we sense that potentially there is a problem, we may not even want to do it because it may turn out to be too expensive and too difficult to bridge it. We always use our colleagues in those markets because I think some things are easier with their own people.

'We will tackle the politicians, we will tackle the owners, and if necessary, the workforce. We want to make sure that we hear them and that we are sensitive to them. Address the issue upfront if we can, and if not, we have to give certain assurances.

'Our investment in SAS Components could have created a stir in Europe, but it didn't, because we told them, 'Let's focus on this. Let's not focus on the outside world, and we don't have to publicise it. I know we have to tell the union, but let's manage the process sensitively'.'

Does it trouble him that ST Engineering is in the business of making weapons that can be put to use in quite destructive ways? His answer: 'We save lives, we don't kill lives. ST Engineering is not about just a weapons supplier but more. That's why you use the word defence. It is about how you can save lives, and how you can prevent conflicts for example. In our own way, we prevent tensions. I think that is what Singapore is all about as well.'

Mr Tan points out products from ST Engineering which have helped to save lives, including the Sars test kits and the Bronco supply carriers used in the tsunami rescue operations. 'So I think it is beyond just weapons, it is about coming up with a solution that can prevent catastrophe, looking at solutions to save lives. Many of our solutions are utilised in disaster recoveries.'

An engineer by training, Mr Tan graduated with first class honours in marine engineering from the University of Surrey, UK, after securing a Colombo Plan scholarship. In 1993, he was conferred with Master of Science (Management) from Stanford University, USA. He also attended the Advanced Management Program at Harvard University in 1999.

Mr Tan has spent more than 26 years at ST Engineering, his first and only job. He began his career with the group as an engineer in Singapore Technologies Marine Ltd in 1981. During his 16 years there, he advanced from one senior position to another and last held the appointment of executive vice president for yard and business development.

Prior to his current position, Mr Tan held the positions of ST Engineering's group president (June 2001), president and chief operating officer (July 2000), and COO (February 2000). Before these various positions in the corporate office, he was president of Singapore Technologies Kinetics Ltd (formerly known as Singapore Technologies Automotive Ltd) from September 1998. He was named president, corporate affairs, to assist in the integration of the various sectors of ST Engineering during its formation in 1997.

He says that being very much an insider and his exposure to various positions have given him an intimate knowledge of the operations of the group. But it has also not kept him from making tough calls.

He says: 'I assumed the job (as CEO) on Feb 20, 2002, and I already saw that customers' needs were changing. I was a bit worried about one or two of our businesses and one of them was an ammunition plant, about the things they do. Things were getting smarter but we were doing more conventional requirements. At the same time, those were people who had been with the group for a long time, since 1967, 68 or 69.

'The difficulty was that we needed a changing model. So there was the issue for me, 'Do you do the right things or do you do things right?' Doing the right thing was to restructure, retrench, reshape. Doing things right could be continuing to execute things very well, but where are the customers? In October 2002, I had to retrench 460 people.

'It was difficult because you could say that it was not their fault, because the market shifted but we didn't shift fast enough. But at the same time, we had to do the right thing for the company. It was very difficult because it happened in less than one year after I assumed the CEO post. It was not very popular when you did things like this.

'It was the most difficult decision in my life. No one knew how much I agonised over it, because I didn't show it openly. But deep inside, I could not accept having to ask staff to leave. I hope those affected understood why I had to do it and will forgive me.'


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