I choose Genting Berhad as the organization for the Strategic Management report. I worked in Awana Genting Highlands almost one year before I worked in government sector. Awana Genting Highlands is one of the six hotels under the Genting Berhad. Genting Berhad is a management company and investment holding of Genting Group. It was founded by the late Tan Sri Lim Goh Tong in 1965 when he want to make a 20 km access road across mountainous which was located about 2000-metres above level sea. Tan Sri Lim Kok Thay is now the Chairman and Chief Executive of Genting Berhad. Genting Berhad is a Malaysian company with interests in a variety of fields. The group comprises of more than 15,000 employees, 11,000 acres of resort land and 156,000 acres of choice plantation land throughout Malaysia. The company is principally an investment holding and management company with seven major business divisions, such as leisure & hospitality, plantations, property, power, paper, and oil & gas. The leisure & hospitality division is represented by numerous holiday brand names. This division operates in a variety of areas, and includes the operation of over 30 food and beverage outlets. They are variety of accommodation where there have six hotels, theme park and attraction, international shows, gaming experience, leisure cruising and meetings and conventions. Their vision is ‘to be leading leisure, hospitality and entertainment corporation in the world’, (Annual Report 2008). Oil palm cultivation is the main activity of the Plantation Division. The division is made up of 41,000 hectares of plantation land. The Genting Groups involvement in the property development sector enables it to realize its strategy of holding land-based assets for long-term capital appreciation and development potential. In 1971, the shares of Genting Berhad were listed on the main board of Kuala Lumpur Stock Exchange (KLSE). In November 2007, Genting Berhad became one of the biggest listed companies in Malaysia with a market capitalization of RM29.2 billion (US$8.74 billion).
2.0 Group Corporate Structure
The Board has their own responsibilities for the proper conduct in the business. The Board meeting is usually on a quarterly basis. They have formal schedule specifically reserved for its decisions like annual operating plan, major capital projects, overall strategic direction, financial performance and monitoring of the Group’s operating. Formal Board Committees established by the Board with the Code namely the Audit Committee, Nomination Committee, Remuneration Committee that assist the Board in the discharge of its duties. In addition, The Board is responsible for the Group’s system of internal control and risk management. This is important to review their integrity and adequacy. Moreover, it is for the purposes of safeguarding the Group’s assets and shareholder’s investment. According to Nonaka and Takeuchi (1995), ‘leadership is distributed in the organization that supports the flow of knowledge from the middle to the top and down to the rest of the organization’. The Group also put in place a risk management process in order to help the Board recognizing and evaluating the managing risks. The Audit Committee has appropriate relationships with the external auditor. External auditors attended all Audit Committee meetings in order to audit their plan or report and comments on the audited financial statements. The Committee were responsible approved the internal audit for the Group and the company. They also need to authorize resources to identify any risks areas. They also need reviewed the internal and external plan for the Group and the company with the external editors. The Board reviewed the performance of the Committee every three years to determine whether they have carried out their duties. In terms of meeting, the Committees meet at least four times a year. The Secretary of the Committee prepared and sent all minutes of each meeting to the Committee members.
2.1 Lack of Understanding by the Board of Director with Regard to Internal Control
In dealing with the board’s stewardship responsibilities, the board should fully understand both the principal risks the company faces and its system of internal control. The purpose of internal control is to manage and control risk. In order to properly manage risk, an appropriate risk assessment and evaluation framework and activities would be needed. Once risks have been identified, appropriate control systems to manage and control these risks should be maintained and regularly reviewed given the company’s risk profile. The reason of internal control is to make better doing in control risk without eliminate it because it involves risk-taking business. The Board has responsible for the Group’s system of internal control and risk management and for reviewing its adequacy and integrity. The Board of Directors should aware that the system is created to control rather than get rid of risks and therefore cannot provide an absolute assurance against material misstatement or loss. To assist the Board in maintaining a sound system of internal control for the purposes of safeguarding shareholders’ investment and the Group’s assets, the Group has in place, an adequately resourced internal audit department. The activities of this department which reports regularly to the Audit Committee provides the Board with much of the assurance it requires regarding the adequacy and integrity of the system of internal control. As proper risk management is a significant part for the system of internal control, the Group has also put in place a risk management process.
In practice, businesses face risks from many sources in their dynamic environments and virtually all areas of the business are exposed to risk. In particular, the objectives of the business are at risk, and control systems are established and maintained to assist the achievement of objectives. Even though it is impossible to provide complete assurance through any control system, the control systems must be designed and applied to manage the likelihood and consequences of risk to acceptable levels. That is the cost of control should be related to the significance of risk. To manage internal control and assessing its integrity and adequacy, the company should in corporate its governess and normal management in order to meet regulatory requirements. In addition, the code details that a sound system of internal control is necessary in order to keep company’s assets and shareholder’s investment safe. Generally, internal control is created to provide reasonable assurance based on the achievement of the company’s objectives. Internal control is based upon certain fundamental concepts where it is not forms or policy manuals but is affected by people. It is not an end in itself process but it is a means to an end.
2.2 Internal Audit Function and Risk Management Process
The Group should have an adequate resourced internal audit department to assist the Board in maintaining a system of internal control. The internal audit department reports to the Committee and is independent of the activities they audit. The primary role of the department is to undertake regular and systematic review of the systems of internal control so as to provide sufficient assurance that the Group has sound systems of internal control and that established policies and procedures are adhered to and continue to be effective and satisfactory. As proper risk management is a significant part for a system of internal control, the Group has also to put in place a risk management process to help the Board in identifying, evaluating and managing risks.
2.3 The Board Director’s Responsibilities
In relation to internal control, the Board of Directors have to acknowledges their responsibility under the Bursa Malaysia Listing Requirements as identify principal risks and ensure implementation of appropriate control measures to manage the risks. They are also need to review the adequacy and integrity of the internal control system and management information systems and systems for compliance with applicable laws, regulations, rules, directives and guidelines. It should be noted that an internal control system is created to control risks rather than eliminate them. It should be an ongoing risk management process established to identify, evaluate, and manage significant risks to effectively mitigate the risks that may impede the achievement of Genting Group of companies business and corporate objectives. The Board has to make sure management of risks and measures are taken to mitigate any weaknesses in the control environment.
3.0 Business Operations and Performance
In terms of Genting Group’s strategy, they intend to continue growing its core leisure and hospitality businesses by concentrating on its competitive advantages, enhancing its customer facilities and improving its current offerings in these businesses. The Genting Group also plans to identify growth segments within the area of leisure and hospitality, particularly in the gaming, hotel and cruise sectors and make appropriate investments in Malaysia, and, if appropriate, overseas to expand these businesses. According to Richard Nelson (1991), ‘the resource-based view of the firm has explained firm differences by means of the cost of imitating or acquiring resources so firms that seek to acquire resources that give other firms a competitive advantage are prevented from doing so because these resources are too costly or impossible to acquire in the factor market’. Maximize returns from existing business activities by optimizing operational efficiencies The Genting Group believes that it has on average one of the highest levels of operational efficiency in its existing industrial and plantation businesses among its competitors in Malaysia. Through the continuing application of new technology and production techniques, investment in information technology and other technologies across its businesses, the Genting Group intends to further increase business automation and enhances its operational efficiencies.
The top management must either see opportunities not seen by other top teams or must be able to exploit opportunities by virtue of preemptive and consistent capability-building that other companies can’t’, (Hamel G., Prahalad 1994). Expand the Genting Group’s revenue base through strategic acquisitions and investment opportunities in Malaysia and elsewhere, in particular in the areas of power generation and supply as well as plantations. A successful cost leadership strategy usually permeates the entire firm, as evidenced by high efficiency, low overhead, limited perks, intolerance of waste, intensive screening of budget requests, wide spans of control, regards link to cost containment and broad employee participation is cost control efforts’, (Fred R. David 2005). The Genting Group believes that its strong balance sheet and stable cash flow and revenue streams from its leisure, hospitality, gaming and entertainment business enable it to expand its revenue base by growing its other business activities. The Genting Group will seek to continue building on its prudent acquisition strategy to date by viewing potential acquisitions of power generation and supply projects that display potential upside returns on investment. The Genting Group will also consider expanding its plantations business if appropriate opportunities arise. They optimize their capital structure by achieving a more balanced use of financing. The Genting Group intends to maintain a balanced financial structure by optimizing the use of debt and equity financing and utilizing a mix of internally generated funds and external financing to fund the Genting Group’s planned expansion and working capital expenditures.
Expand cross marketing initiatives within the Genting Group to increase sales to its existing customers and grow its customer base. When the firm is exposed to rapid technological change, the firm’s routine, language and embedded forms of knowledge may adversely impact firm profits, (Poppo and Zenger 1998). The Genting Group is strongly focused on taking advantage of its diverse businesses by expanding its cross marketing initiatives and having greater integration within the Genting Group businesses. For instance, the cruise line and hotel businesses will be cross marketed to existing and new customer bases by the use of the Genting Group’s World Card loyalty programme having a membership of approximately 825,000 throughout Asia as at 30 June 2003. In addition, the Genting Group’s strategy is to build the branding of World Card throughout Asia. World Card subsidiaries and businesses have commenced in Singapore and Hong Kong from 2003 and other Asian countries are identified for implementation. The Genting Group will continue to grow from strength to strength as a leading Asian multinational corporation.