According to a recent EY-Parthenon study, Transformation in Southeast Asia: Four archetypes of outperformers, companies that proactively undertook transformative actions during the Covid-19 pandemic outperformed their peers based on total shareholder returns (TSR), as compared to reactive transformers.
Some of these transformative actions include environmental, social and governance (ESG) initiatives, digital transformation, supply chain management and portfolio optimisation.
The study evaluated the top 70 listed companies by market capitalisation across seven sectors in Southeast Asia comprising Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam, and reviewed their performance between 2018 and 2021.
The seven sectors are: advanced manufacturing and mobility, consumer products and retail, energy and utilities, financial services, health care, real estate and technology, and media and telecommunications.
EY Asean Value Creation Leader Sriram Changali observes that although many businesses drew up crisis management strategies to respond to Covid-19, not all of these transformation actions 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 says.
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From the study, four types of transformation actions emerged that led to the companies’ outperformance relative to peers.
Firstly, as ‘proactive transformers’, companies undertake transformation even when they are already outperforming against the industry. These companies fare better than ‘reactive transformers’-- companies that undertake transformation when they are underperforming against the industry.
According to the report, in the periods following transformation, proactive transformers in Southeast Asia saw a 13 percentage point (pp) outperformance on TSR compared to reactive peers.
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Next, ‘serial transactors’, a subset of proactive transformers who acquire or divest more than reactive companies. As seen in the study, proactive transformers who are serial transactors in Southeast Asia transacted more than their reactive peers by 13% between 2018 and 2021 and were 23% more active during the economic slowdown in 2021.
Additionally, the results of ‘active investors’ – companies that invest more – is reflected in their TSR outperformance. The study highlighted that companies that outperformed the industry in the years following their transformation also consistently had a higher investment rate compared to their counterparts.
Fourthly, ‘holistic transformers’ undertook transformation on multiple fronts, where over 90% pursued ESG initiatives; 83% invested in digitalisation, while 51% invested in supply chain management.
Finally, the report concludes that there are five key imperatives that companies should note when undertaking any transformative actions, including aligning the CEO and board on the purpose of the transformation and the value for the organisation.
The study concludes that companies should also set aspirational targets and incentivising success over and above what is available in a business-as-usual setting, as well as setting up execution rigour and getting commitment from the top to maintain accountability.
Furthermore, companies should build capabilities to improve functional, technical and leadership expertise and calibrate the journey to balance the costs with the potential upsides while communicating with key stakeholders along the journey, according to the report.
“There is no one single transformative approach that companies should look to. Instead, it can be a multitude or combination of approaches, which include acquisitions, digitalisation or even divestments and restructuring, to help optimise the value of the business,” says Angela Ee, EY Asean and Singapore restructuring leader.
