adminFrom the look of things most companies are still struggling, with some big companies reporting losses surpassing US$1 million.
Noted with concern is that some of the companies facing the difficulties were viable in the Zimdollar era when everyone was blaming the currency for problems they faced in business.
Now that it’s been more than four years since the economy dollarised, one wonders whether these businesses will ever be viable again, if so when and how.
While others are resorting to offloading the burden to other non-suspecting business buyers who only know of the company’s yesteryears hype, some listed conglomerates have never gained even a cent since the reopening of the local bourse.
There are so many bad stories to reflect on which is a direct result of lack of innovative strategies. This gives us many issues to talk about, especially the issue of including financial engineering in corporate strategy. This brings back the notion that there is high need to re-engineer the business processes and come up with better effective strategies.
Financial engineering
There is clear need for leaders of successful businesses to make far-sighted investments to support and develop their core competencies and acting quickly to ensure that short-term obstacles do not disrupt their long-term strategies.
In conceiving and implementing corporate strategies, managers have always drawn on the skills of many specialists, from marketers to production experts.
Now a small but growing number of senior managers have found that practitioners of a new technical specialty — financial engineering — can help them achieve their companies’ strategic objectives.
They have found that, like other technological breakthroughs such as cheap computing power, financial engineering has the potential not only to reduce the cost of existing activities but also to make possible the development of new products, services and markets and boost profitability and improve share prices.
The notion that financial engineering can advance a company’s strategic goals might contradict the impression one gets from stories in the Press worldwide about financial engineering which turned sour. When misguided trades backfire, surely companies can lose millions.
The impression that financial engineering is not used or rather should not be used by non-financial companies to advance core business goals is misinformed .
Be visionary
Forward-looking managers need to keep abreast of their rivals’ successful uses of promising breakthroughs like financial engineering.
Unfortunately, the use of financial engineering by companies mostly remains untold due to some fear of unknown. Were they to be told, managers would learn of leading organisations that have used financial engineering to solve classic and vexing business problems.
These are not narrow finance problems that involve shedding transaction exposures arising from sales abroad.
Rather, they are broad strategic problems in marketing, production, human resources, investor relations and strategic restructuring for which advanced financial techniques have offered new solutions.
Close collaboration between general managers and financial engineers can help create a competitive edge in a variety of ways: by differentiating products through enhanced price and delivery options, by increasing production capacity with flexible alternatives to capital investment, by changing the risk characteristics of holding stock, or by keeping strategic mergers on track through the creation of win-win situations.
The trick here is to follow the eye of the financial engineer who thinks like a strategist (or the strategist who thinks like a financial engineer).
That may mean following the risk through the process of identifying the sources of risk, evaluating the strategic advantage of bearing the risk, creating financial instruments to transfer risk, and using financial markets to value and shed the risk.
Embrace technology
In this environment it is imperative that Zimbabwean companies learn to do more with less resources as business has decreased, funding sources have dried up and head-counts have shrunk.
Here, companies want to look for wasted work and where processes can be streamlined. Each process should add value to the business and make it more effective.
Technology can then be applied to make the remaining processes more efficient.
Many companies can achieve a higher level of effectiveness through understanding current processes, and redesigning those processes to take advantage of advances in technology, elimination of wasted work, better alignment of human resources and improved internal controls.
The case for parastatals
Producers and distributors of regulated products or services, such as water or electricity, have not generally been known for their sophisticated marketing programmes.
There was little need or incentive to differentiate their products. But price de-controls, open distribution systems, and market economics have changed.
Now in order to be competitive with other players the company must either be the lowest-cost provider or distinguish its product from the competition and yet it would seem almost senseless for a company to establish a brand name for a product like electricity.
This was the challenge confronting Enron Capital & Trade Resources, a diversified natural gas company that explores for and produces gas, operates pipelines, and builds and operates power plants around the world. ECT’s success in the natural gas business can be attributed in part to its ability to create a line of product and service options by using financial engineering.
This is the strategy that we can also apply to some of our parastatals who have been folding hands on the back of Government- backed monopoly.
Let finance be engineered!
Thomas Muserepwa is a Financial Engineering student at the Harare Institute of Technology and president of the Financial Engineering Society. He is currently attached at GMRI Capital.
Disclaimer
At GMRI Capital, we pride ourselves on the quality and depth of our research and analysis. This means digging deeper than our competition for information and generating more useful reports.
This article is provided “as is” for informational purposes only, not intended for trading purposes or advice. Prior to execution of any security trade, you are advised to consult your authorised financial advisor to verify the accuracy of all information. Neither GMRICapital nor any independent provider is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein.
Facebook: http://www.facebook.com/GMRICAPITAL; Telephone: 0778409875
Online Reporter