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SMRT lessons in Leadership

The best leadership lessons are the ones that are picked up from the failures of great leaders. As a business entity, SMRT Corporation has grown from strength to strength after its listing on the Singapore Stock Exchange in 20001&2. Its network is continually expanding to encompass more of the island, with the latest line, the Thomson-East Coast line expected to be completed in 2024. Revenue has grown from SGD 413 million in 2001 to SGD 1,236 million in 2015. Arriving at the position it occupies today was not easy and, SMRT faced a number of problems in recent years such as breakdowns in services and, more recently, an exposé on a number of faulty China made train carriages.

(Featured Image: mothership.sg)

In this latest controversy, the ire of citizens was raised when a Hong Kong based newspaper revealed that 26 out of 35 China made trains were defective and were being surreptitiously returned to the manufacturer to rectify its flaws while still under warranty. Although the actions of SMRT were completely above board, Singaporeans felt slighted at the seemingly disingenuous statements given on the state of the state’s railway system, especially when news of the defective trains came to light.

In 2015, were disruptions in SMRT’s train service almost every month3&4. Following this, there were also confusing reports and statistics such as “Rise in major breakdowns but MRT gets more reliable: LTA”5. It certainly did not help that that the LTA dismissed cracks in the train carriages as “non-critical”, and that the air conditioning system started blowing shards of ice in a subsequent series of malfunctions. With the final straw being pictures of the faulty trains being returned to the manufacturer under camouflage8 as reported by an overseas media outlet, confidence in Singapore’s only subway transport provider was irretrievably undermined.

mrt-train-disruption-singapore

(Photo: Vulcan Post)

A spot of bad luck perhaps, but many were beginning to call into question SMRT’s leadership, especially in the light of former military menbeing seen to be ill equipped to head private enterprise.

Singapore’s Mass Rapid Transit (MRT) system come into operation in 1988 to alleviate the problem of road congestion, especially commuter traffic coming into city. Incorporated as the Mass Rapid Transit Corporation (MRTC) and wholly owned by the government on 6 August 1987, the company’s sole focus, was to develop and maintain an island-wide public subway network. Its current incarnation as SMRT was incorporated on March 6th 2000, and listed on the stock exchange 4 months later. Having had 4 CEOs in the last 20 years with one serving less than a year and another for 10, SMRT is in every sense very much a transport company, as it is itself a company in transition.

For more than a decade, the original lines were not expanded, until the opening of the North East Line in 2003. Indeed, even the original rolling stock and rail assets were still in service, albeit fully functional under a long established maintenance schedule. It was business as usual. As it had always been. In 2002, after the speedy departure of yet another CEO, BG Boey Tak Hap, Ms. Saw Phiak Hwa took the helm of leadership. As a consummate business woman with many years of heading a profit making corporation, DFS, one can only surmise why she was chosen to take up the job, if not to focus on the company’s net worth and increase shareholder value. To this end, she performed an admirable job. Then, first train disruptions occurred in 201110, after 2 decades of reliable service. By the beginning of 2012, her position was untenable and she was gone. What are we to make of these developments? Where had SMRT gone wrong?

carrots-not-sticks-motivate-workers

(Photo illustration by G.L. Kohuth via Michigan State University)

Motivation

How does a company induce desired behaviour11? In a nutshell, the premise of behavioural science in the workplace boils down to incentives and disincentives – carrots and sticks. The idea is simple but the application is anything but. At the simplest, there are performance bonuses as an incentive and employment termination for serious instances of dishonesty as disincentives. Ironically, there is a whole method of objective setting that is built around the acronym S.M.A.R.T. which stands for: specific, measurable, attainable, relevant and timely. SMRT is evidently missing out on the “A”, and attaining a disruption-free service record similar to its earlier days in operation has eluded them

It cannot be said for certain here what list of goals, KPIs (key performance indicators) and targets used to influence corporate behaviour but 2002 marked the year SMRT began long term plans to diversify its income stream into commercial property by developing “lifestyle hubs” within MRT stations1&2. In the years 2004 until 2012, an increasing number of MRT stations were refurbished each year to maximise commercial space from 23,000sqm to 34,400 sqm. The first was Raffles MRT, then 11 other stations in 2005 and gradually increased to 43 stations in 2012 alone. By Dec 2011, just before Ms Saw’s departure, SMRT stock price saw gains of 230% (including dividends issued) since FY 200313.

Dividend pay-outs, is similarly, worth consideration. From 2002 until 2012, about 20% of annual operating profit was disbursed to shareholders as dividends12&13.

The incumbent CEO at the time, Ms. Saw Phaik Hwa, was reported to have neglected the maintenance and investment in trains and tracks14. Her stock options amounted to 506,000 shares at FY 2012, after forfeited shares, trading at $1.74 on 30th March 2012. The major shareholder of SMRT is government linked investment company, Temasek, with 56% share ownership.

Unqualified assumptions aside, the dichotomy was in serving the dual interests of the public and the shareholder which, if a proper set of motivations and incentives were put in place, would not compromise one goal over the other.

The feasibility of which, can be verified in Hong Kong’s subway system, the MTR which, is also publically listed. As a matter of comparison, Hong Kong’s MTR disruption rate is at least half that of Singapore’s. The MTR also devotes more resources to maintenance, SGD 1.08 billion or 36% of revenue in 2014, against SMRT’s SGD 121.9 million or 19% of revenues15.

business-communication

(Photo: The Business Communication)

Communication

How many times have you heard of working in silos referred to large companies? It cannot be expected that the details of engineering is fully understood or managed by the CEO. A company comprises a number of functions that ideally, should work together as one team. It is through this division of labour that a company can function. As the functional head of engineering, the issue of maintenance should fall under his or her purview. That maintenance had been inadequate should have been brought to the attention of top management sufficiently for action to be taken. For the lapses in maintenance to lead to the unprecedented levels of service disruptions clearly demonstrates organisational problems in the management team.

Feedback is also a critical element of internal corporate communication. Employees closest to the ground would be most familiar with day to day issues that could eventually lead to larger problems if not nipped in the bud. It had come to light that workers trying to highlight service and safety issues were routinely ignored. There was a culture malaise that pervaded the company, where action was not taken on negative feedback16.

accountability

(Photo: insigniam)

Accountability

The accusation of lack of accountability has long plagued SMRT, but only acerbated with the spike in service disruptions since 2011. The decade of high dividend issue and maintenance expenses being partially funded by the Land Transport Authority (LTA) through taxes had long been questioned17&18. With the proposed buy-over and delisting of SMRT, it does not seem that accountability is high on its agenda, as its stated purpose is to be freed from accountability to shareholders. This reduced transparency will effectively silence questions into remuneration, dividend policy, operations, and other long standing questions.

Succession Planning

A lot of flak (pardon the pun) for the parachuting in of military men has been directed at the leadership of SMRT19. The lack of succession planning, has plagued SMRT. None of its leaders have come from within the organisation. It is also the case that none of the previous CEOs of SMRT have been a perfect fit for the job.

Empirically, external hires to a job are more educated and have more experience. However, recruiters often underestimate20 the time it takes to grasp the ropes of any business. Without any programs to groom talent from within, external candidates have been thrown in to plug the gaps. The results have so far been less than optimal.

business-core-focus

(Photo: Jane Frankland)

Core Focus

Privatisation is supposed to help SMRT focus on core business. This is a step in the right direction, given the service lapses in recent years21. However, its rental business has grown to 10 times the size of its rail operations. As of 2016 Financial year, EBIT for commercial rental was 83 mill, vs 7.4 mill for rail. 80 mill vs 10 mill in 20151. Furthermore, it has expanded its commercial forays with Kallang Wave Mall and a dedicated subsidiary, SMRT Commercial, incorporated in 2015 to run all of its interests in commercial property. This is the paradox of growth22 that its strategy of diversification has succeeded so much that it threatens its core business.

This is not the end of the line for SMRT. Its journey is not a single trip ticket but one intertwined with that of the ones it serves – Singaporeans, and indeed with that of Singapore itself. When SMRT halts, the nation itself halts, economically, figuratively and literally.

It has, in the past, made good on its original covenant to serve the people. This, it seems, is exactly what the current leadership wants to bring back. It has signaled its dedication to win back the people with outreach programs such as art initiatives in the stations23. SMRT is finding its way back to its core business. It is trying to mend its trust with the people, as it mends its tracks.

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REFERENCES

  1. https://www.smrt.com.sg/Portals/0/InvestorRelations/Annual%20Report/2016/SMRT%20Annual%20Report%202016_LR.pdf
  2. http://www.smrt.com.sg/corporate/our-business
  3. https://en.wikipedia.org/wiki/List_of_Singapore_MRT_disruptions
  4. http://singaporealternatives.blogspot.sg/2015/07/mrt-mess-failure-of-leadership.html
  5. http://www.channelnewsasia.com/news/singapore/commuters-outraged-as/1968302.html
  6. http://www.straitstimes.com/singapore/transport/rise-in-major-breakdowns-but-mrt-gets-more-reliable-lta
  7. http://www.straitstimes.com/singapore/transport/ice-showers-from-air-con-vents-of-some-trains-trigger-fleetwide-checks
  8. http://www.todayonline.com/singapore/smrt-found-cracks-26-trains-delivered-chinese-manufacturer
  9. http://www.theonlinecitizen.com/2016/07/05/did-smrt-and-lta-hide-defects-of-china-manufactured-trains/
  10. http://www.theonlinecitizen.com/2016/08/06/military-top-ranks-should-not-be-given-top-jobs-straightaway/
  11. https://en.wikipedia.org/wiki/List_of_Singapore_MRT_disruptions
  12. https://www.linkedin.com/pulse/importance-behavioral-science-business-management-fareed
  13. http://dollarsandsense.sg/should-smrt-be-paying-out-such-high-dividends/
  14. http://www.nextinsight.net/index.php/story-archive-mainmenu-60/912-2011/4705-smrt-how-it-has-done-financially-under-saw-phaik-hwa
  15. http://www.theonlinecitizen.com/2015/05/07/dividends-paid-to-smrt-and-sbs-shareholders-could-have-paid-for-1000-new-buses-almost-twice-over/
  16. http://mothership.sg/2016/05/how-successful-is-hong-kongs-mtr-compared-to-spores-mrt-unbelievable-out-of-this-world/
  17. http://www.theonlinecitizen.com/2015/07/13/ex-smrt-engineer-speaks-out-about-the-frequent-breakdowns/
  18. http://www.theonlinecitizen.com/2016/07/17/ltas-new-rail-financing-framework-rewards-smrt-at-taxpayers-expense/
  19. http://humantransit.org/2010/02/privatized-transit-and-or-vs-the-public-good.html
  20. http://www.theonlinecitizen.com/2016/08/06/military-top-ranks-should-not-be-given-top-jobs-straightaway/
  21. http://www.forbes.com/sites/susanadams/2012/04/05/why-promoting-from-within-usually-beats-hiring-from-outside/#21f2d5f33fb2
  22. http://feedstuffsfoodlink.com/story-growth-plans-fail-due-lack-focus-0-98579
  23. https://www.linkedin.com/pulse/paradox-focus-what-means-revenue-strategy-timothy-gendreau
  24. http://www.artoutreachsingapore.org/wp-content/uploads/2013/01/Art-in-Transit-Circle-Line.pdf
  25. http://www.transitioning.org/2011/12/20/seven-major-failures-of-our-mrt-transport-system/
  26. http://www.straitstimes.com/business/companies-markets/smrts-privatisation-9-things-to-know-about-the-deal
  27. http://www.straitstimes.com/opinion/returning-smrt-to-the-state
  28. http://www.straitstimes.com/opinion/rail-breakdowns-where-does-the-buck-stop
  29. http://ifonlysingaporeans.blogspot.sg/2012/07/mrt-breakdown-coi-release-of-report.html

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