TEACHING ELEPHANTS TO DANCE
© R. Dixon
Thayer
Change Management – Getting it down in
the organization.
There are numerous books, articles, and consultants espousing the
doctrines of how to re-invent, restructure, and reengineer a company’s
strategy. However few if any have focused on how to really get such change
effectively down into the organization.
Senior management declarations of change are not enough. The most
elegant strategic reengineering plans are quite worthless without specific
processes to lead the total organization through the change to a new beginning.
This outline is intended to help “leaders of change” to apply specific
tools and processes to move organizations, large and small, from one way of
viewing their work and doing their job to other, more effective and aggressive
ways. These tools are effective
regardless of the degree of change desired.
Organizations requiring a wholesale “rescuing” of their business and
organizations just looking to “nip and tuck” their existing acceptable (but not
yet world class) business may both find help from this outline.
Four Key Blocks of Work:
Getting change down in an organization requires focus on four key
elements:
1. Getting the best
Leadership Team money can buy.
2. “Re-engineering
the P&L (and Balance Sheet)” to be reinvestable.
3. Identifying and
strengthening the “Core franchise” before looking to expand.
4. Developing a
relevant “Growth Roadmap” (strategic growth plan).
The following outline will take each of these four points and break
them down to: why the block of work is critical; How to do the work; and key
“rules of thumb” and cautionary notes based on years of experience in the world
of defining and implementing significant organizational change.
WHY?
Homogeneous / myopic
Politically distracted or directed by
career jockeying
Complacent / protective of their personal
success and positions
This is particularly true for those who
find themselves in need of significant change or reinvention.
B.
Regardless of “conscious
intent” it is virtually impossible for an existing leadership team to reinvent
itself. There must be a significant
seasoning of the soup with highly motivated, highly proven external talent to
create the necessary critical mass to give no hope to others of reversing,
reducing, or merely outlasting the change in direction and momentum.
C.
The fact that the
business requires significant reinvention suggests strongly that something or someone
is missing in the senior ranks of leadership.
D.
Why not? There is no good reason to accept less!
HOW?
A.
CEO / Board
appraisal of where the biggest problems of the business are and what roles or
functions have been missing their measurable goals. In general, most CEO’s know in their hearts where they could
stand to trade up in their leadership teams.
B.
Retain more than
one professional recruiting firm (competition promotes speed, and facilitates
total market coverage) to fill the weak areas, as well as to assess current
leaders in those and other roles.
C.
All candidates for
the top two tiers of leadership must be screened by the CEO (one on one), to
establish crystal clear understanding of the new mission, as well as a singular
loyalty to the mission (and CEO).
D.
Don’t recruit or
promote based on “learning curve potential”. Let others develop leaders. Hire
only those who are ready to apply their accumulated experience now – day one!
1.
Turnarounds have
failed by overlooking the difference between good leaders in historically good
companies running historically successful divisions or departments; versus
leaders with a proven track record of fixing sick businesses and departments.
I recall
the time when a high visibility “turnaround CEO” recruited a Manufacturing Leader to join our turnaround team. He
came with impeccable credentials from a well respected, competitor. His failure to fix the manufacturing
operations cost us one year and over 50% of the equity appreciation. The CEO had made a subtle but significant
mistake. Someone that has worked most of their career in a well-run company
usually only knows how to manage well-run plants. We needed someone who had the battle scars of fixing sick ones.
The skills of a
“fixer” are quite different from the skills of a “maintainer”.
2.
Establish clear
expectations and understanding of what you are demanding of your new leadership
team, such as:
a. Move
fast
b.
Manage ambiguity
c. Get
it right at least 70% of the time first try.
d.
Create a “no
excuses culture” (i.e.
teams that will go full speed but also acknowledge when they are wrong – early
in the execution – and make required changes to correct for the remaining 30%
on the battlefield).
(See
Section 2, “Reengineering the P&L”, for specifics)
E.
Be conscious of the
dynamics between “tribes” as you build the future leadership team.
1.
The “veterans”
2.
The “new
professionals”
Rapidly refocus them by making them both
significant owners (shareholders) of the business.
1.
Career path
politics and jockeying must be replaced with the pursuit of rapid personal
financial security.
a.
A significant move
in stock price (30 – 50%) should make 25% of third tier management very
financially secure
2.
No “free rides”.
Senior Management should be challenged to anti up beyond simple risk free stock
option programs.
a.
“Two for one” type
restricted stock purchase programs with “windows” that require / reward up
front big buys are great for getting a focus shift. When you have taken a
second mortgage to max your personal wealth potential you will quickly drop
penny anti politics and focus long hours just on getting the job done.
3.
Align ALL resources
in the company to a common result by offering smaller stock option awards, as
well as a bonus program that links personal rewards to personal results within
the results of the overall company versus its goals.
F.
Maximize Senior
Leadership Team visibility, accountability, and involvement (sleeves rolled
up), in the process. The CEO must lead
from the front of the “charge”, not from the safety of the bunker behind
lines. All organizations find greater
strength and resolve when they respect and feel in touch with truly committed
leaders.
To quote General
George S. Patton: “The more senior the officer, the more time he has to
go to the front. New troops must receive aggressive leadership by all grades,
including general officers who must be seen in the front line during action”.
I have had the displeasure of having to rebuild
several sales forces and business teams annihilated by their competition
because their Leadership felt that their jobs were something other than being
in the field with their subordinates
G.
An effective way to
make immediate turnaround progress while looking for strong external talent
(and testing new potential internal talent) is to create a few key “crises
management Task Forces” to work on key change areas (see “P&L
Re-Engineering, 2.B.” for more details). Populate these task forces with the
potential new leaders, while, if necessary, maintaining established leadership
in their traditional business maintenance rolls. Tension between the two is
likely but healthy if managed proactively.
H.
There are a few
fundamental MACRO organizational structures that must be consciously evaluated
in the early stages of the process in order to have some idea of the positions
one intends to fill:
1.
Functional vs.
Product vs. Market structures
2.
Centralized vs.
Decentralized structures.
3.
Localized vs.
Globalized (for multinationals)
It’s important to have a general idea of
what you’re headed towards at the outset. However, the next reinvention
activities will help confirm or revise this en route:
1.
P&L
Engineering will show where the financial leverage will be. One might organize
for P&L leverage.
2.
“Activity Based”
Task Force recommendations will show key cross-functional work processes.
One might organize for “activity based” task leverage.
3.
Strategic Units
of Competitive Advantage (“UCA”) development will show where your core focus
should be for competitive advantage. One might organize for core UCA leverage.
A note of caution: do not fall into the “symmetry
trap”. Organizational structure
should always be defined by the critical work and processes defined in the
strategic growth Roadmap. As companies
metamorphose in their reinvention process, so should the organization.
Designing the “perfect” structure usually leads to complex top heavy designs
due to the pursuit of symmetry (all businesses / divisions looking strategically
alike everywhere in the world). This is not necessary and in fact very costly.
Nu Skin
Enterprises faced this when they saw their business shift to Asia. At
first they focused on trying to remain Amer-centric; their perceived cost of a
total reorganization to a global region entity was daunting. The answer was to
organize for Japan (70% of the shift) as a unique center of excellence; and not
to do so for each other market at this time.
With the macro structure roughly in place,
two “MICRO” structure processes can help fill in the blanks in the areas of:
1.
“Business
essential” organizational decisions
2.
Work location
decision trees
2. Re-engineer the P&L (& Balance
Sheet) to be “Reinvestable”.
WHY?
A.
To live within your
means immediately. Businesses in need
of reinvention most always have opportunities for belt tightening. Businesses in need of turnaround must see
this as one of the most important and urgent items on the agenda.
B.
To fund
regenerative growth strategy investments. Cost reduction in itself has obvious
benefits. However, the most important key to a successful turnaround is
actually the creation of effective “high octane” growth. One can’t save their
way to success. So cost reduction must be more than “doing the same old things
a little more efficiently”. It must be pursued as the most effective source of
funding for future growth.
C.
The investment community has become skeptical
of most claims by existing Management that they will successfully reinvent
themselves. However almost instant
credibility is conferred on those companies whose management achieve very rapid
realignment to and achievement of financial results that are better than most,
BEFORE they are asked to invest in promises of the future.
HOW?
A.
To successfully
execute “P&L Engineering” one must:
·
Rapidly create a
Profit
Culture among the core
leadership team, and install process to drive this visibly down through the
organization
·
Develop a MACRO
economic model of the “desired end state”.
This is best achieved when a process is used to force outside the box
thinking. Otherwise one risks getting either disconnected wish lists or even
worse, hundreds of small efficiency ideas when what is needed is a few big
ideas that truly move the needle.
The single most important starting point is
the bottom line. Always start here and
always remain focused as a “bottom up” leader, nothing else matters. There are only 4 relevant profit thresholds
to keep in mind:
1.
“World Class”
( top 10% of the Fortune 500 rates)
2.
“Reinvestable”
( better than most other investment options; Return on investment significantly
exceeds the Cost of Capital; with a positive “EVA”)
3.
Break-even (not
reinvestable, but not going out of business yet).
4.
Losing money
(Net operating profit and or Net Income are in the red).
As far as I’m concerned, anything less than
“reinvestable” is not acceptable! Making a weak company less weak is like making the holes in
a sinking ship only a little smaller.
The critical process for driving the
organization to go beyond normal boundaries in this work is to solve for net
operating costs, by working back from desired margin applied to legitimate
sales revenues. Too many
restructuring exercises pursue improvement from where they are today, when what
is needed is to set the bar for cost by working back from acceptable
(“reinvestable”) earnings, given a realistic view of Revenues.
The process for completing this exercise is
as follows:
1.
Establish a “minimum
ROI / EVA target” by benchmarking yourself to:
a.
World Class
companies (Microsoft @ 40%; GE @ 37%)
b.
Your relevant
industry competition
“Competitors”
and prospective “Casualties”
2.
Conduct a rigorous
“Cost of Capital” analysis (to assess the cost of incremental investment). From
this establish acceptable rates for anticipated future investments such as:
a.
Profit adding
projects
b.
Profit sustaining
projects
c.
Environmental
compliance projects
3.
Review historic
“Cost of Equity”, “Cost of Debt”, and acceptable industry “Leverage” ratios to
identify the gap between where we are today and where we need to be.
4.
Develop a
historical “Working Capital” benchmark.
5.
Establish the
desired earnings per share for the existing business (if a publicly traded
business).
a.
Owners stock appreciation
& dividends expectations.
b.
Less the Wall
Street expected multiple for the industry
6.
Establish “real
revenues” level
a.
Discount revenues that
are not likely to ever be reinvestable, such as:
1.
“loss leader”
customers
2.
“loss leader”
products & businesses
3.
“loss leader”
geographies
Don’t
accept “strategic value” excuses without a big fight. If there is little confidence that a particular entity can be
brought to at least the ROI of Treasury Bonds then it should be, for purposes
of this stage of the engineering, be discounted at least 50%.
7.
Establish what each
of the other P&L line items should roughly be to make the numbers work
between the top line and the bottom line, (using some established reinvestable
business’s “rules of thumb” for particular line items, such as “acceptable
SG&A % of Revenues ratio.
8.
Benchmark this
“desired P&L” to:
a.
The current actual
P&L.
b.
The top 3
competitors in your industry.
c.
A relevant
collection of World Class performers.
9.
Develop
understanding of where the elasticities / big globs of cost and opportunity
reside. Look for realism and opportunity to do even more on each line item
I recall a situation at a major appliances
manufacturer where the manufacturing cost reduction plan was so unrealistic
that the forecasted product costs could not be met even if labor headcount was
reduced to zero, and the products magically assembled themselves.
10.
Complete the same
exercise with the Balance Sheet.
Again, it cannot be overstated how critical
it is to work back to “Cost” from the perspective of acceptable ROI for
realistic Revenues!
B.
Establish cross
functional Task Force Teams, led by the most effective “fixers” in the business
regardless of their level in the organization. These teams must be challenged
and given the accountability to “attack” each and every major Cost, Price
realization, and Productivity opportunity identified. Each must have a goal that is tied to realizing a specific
measurable element of the new reengineered P&L.
1.
There are really
only three primary “Levers of Profit” in P&L
re-engineering”:
a.
Cost Reduction
b.
Price Realization
c.
Productivity
Improvement
Many are aware of these three keys to
success, yet they fail to turn them into tangible activities. I have found that
it helps to change the language into more street wise action words such as:
a.
“Sell more”
(volume)
b.
“Get more for it”
(price realization)
c.
“Sell the right
stuff” (mix)
d.
“Spend as little as
possible doing so” (operating & investment cost)
You should be sure to test the list of Task
Forces against these areas to be sure of a balanced result (see “F” in this
section for more details). Note that:
1.
One can’t “save
their way to success”,
2.
Or ask the Customer
to “pay for your inefficiencies,
3.
Or hope to ask
resources to do more with less for any extended period of time.
You need a balanced job!
2.
Task force Leadership
must not be status quo leadership. Take risk on innovators and entrepreneurs at
this stage. You need “outside the box” thinkers on this work. They may (or may not) be the right
implementers or leaders of the future organization, but you need them now.
a.
Overlap between Activity
Based Costing (“ABC”) Task Forces and functional P&L Task Forces is OK at
this stage. You are trying to max ideas and opportunities to choose from.
b.
If necessary, back
them up with contracted external support that has the experience and
intractable commitment to the goal and the CEO. They must be advocates of
change to the management that must implement the plan, and NOT advocates
of parochial Management agendas to the Leadership Team.
c.
Include
representatives of your labor force selectively (and carefully) if possible. To
include them now is to build allies to change in the implementation phases.
Especially when they see you attacking white-collar management (ratios) with a
sharper ax than that used on their ranks.
C.
Cutting heads seems
to be the most visible traditional expression of Management’s commitment to
restructuring companies with poor results. However, this is appropriate only if
the total SG&A is too high versus the goal. Also remember that asking inefficient
management to do more with less will only result in worse performance in the
marketplace. One must restructure / eliminate the work simultaneous with
reducing heads. Or at least improve the focus, capability, and productivity of
the resources that remain. “Intent” to do so, versus doing it, is not
acceptable.
D.
Also note that one
can’t ask tenured Department Managers to restructure their own departments.
Most all will preserve their own job while cutting lower level workers to
achieve visibly lower headcount. This is a double miss because workers cost
less than managers (less savings opportunity), and workers usually have more
direct impact on the day to day operations of a business than their manager.
One must follow a rapid iterative top down / bottom up process to get rid of
whole blocks of work or Departments.
E.
Shock the culture
into “life boat” teamwork.
1.
Articulate strongly
and frequently how bad things are, or could be. A little overstatement is not a
bad thing. You are verbally “burning
the ships upon arrival to the New World”, as Pissaro did. It’s critical you put
a stake in the ground regarding when the whole process will be complete. It must be less than 12 months to minimize
workforce paralysis or organizational skepticism.
2.
Initiate a few
“public hangings” of visible blockers and fence-sitters. This may sound a little draconian but it’s a
psychological imperative that task forces have the event to:
a.
Witness the new
protocol – results are the only key to success; and this work can’t be
outlasted.
b.
Have tangible
events in which to shed past behaviors and other baggage via the
personification and expulsion of them.
3.
Focus the resources
on a common enemy. And visibly live as you expect others to in this new
environment:
a.
External vs.
internal Competition
b.
Financial waste and
largesse (for example: How many individual subscriptions to the WSJ are there,
at company expense?).
In
our GreenLeaf LBO, the CEO and COO created a fun undeclared
competition BETWEEN EACH OTHER to see who could spend less while traveling.
Soon the whole company was booking travel in advance on line, staying at Super
8 Motels and renting cars from Budget agencies. The “Profit Culture” was
established firmly through small acts like these, from the top.
F.
Establish the
ground rules for Leadership success such as:
1.
Predictable
Leadership goals and focus: “max shareholders equity” immediately by
reducing costs and dramatically increasing revenue and price realization
(results vs. effort).
2.
Time
compression: “Do it once; do it quickly, and go deeper than is required”.
3.
Managing
ambiguity: No time to sit back and study or outline the whole process of
reinvention before taking the first step.
a.
Business “Paradox
Navigation” skills are
critical
b.
No learning curves.
Paying for application of skills.
c.
“Above the
waterline” risk taking.
d.
Battlefield
improvisation skills are critical (to address mistakes that are found during
the execution of a particular offensive). Making mistakes is OK as long as they
are not “below the waterline”, are made at full speed, and corrected at full
speed without defensiveness or finger pointing.
Our
Mexican new business start up (Sistemas Institucionales Crisoba) is a great example of this
“no
excuses culture” at its
best. We were actually proud that we made more mistakes (more quickly) than or
competitors; and corrected them faster, in our successful quest to redefine the
market to our advantage
4.
“Join the
turnaround Team”. Let go of the
past. Don’t be defensive of prior decisions that are now “Monday morning
quarterbacked”. Don’t take it personally. Just let it go like you were a new
hire with no prior baggage to defend.
G.
Initiate fixes as
they are identified. Stick to a very short calendar for results to minimize
organizational paralysis. Visibly recognize / stroke those that show big
results early in the process, and be unbearable to those that are not on plan
at the same time.
1.
Quickly (total process getting to the bottom line in
under 6 months).
2.
Deeply (better to cut into the bone and add back
later than to have to operate again and again).
3.
Once and never again, must be made the creed or many
will remain protective or paralyzed.
To quote Petronious Arbiter, a Roman Legionnaire:
“We
trained hard – But it seemed that every time we were beginning to form up into
teams we would be reorganized. I was to learn later in life that we tend to
meet any new situation by reorganizing, and what a wonderful method this can be
for creating the illusion of progress while producing confusion, inefficiency,
demoralization and despair.” 66 A.D.
H. Some key focus
areas, and the key processes within them, are:
COST
REDUCTION ACTIVITES:
1.
Manufacturing
& Materials sourcing cost reduction:
a.
Procurement
savings.
·
Cost of
materials benchmarking & renegotiating
·
Concentration of
buying power (# of vendors)
·
Procurement
process “savings sharing” audits
b.
Material flow
& process control efficiencies
·
Work in process
(“WIP”) requirements audit
·
Raw material in
process (“RIP”) requirements audit
·
Waste and rework
rates audit
·
Other Working
capital requirements audit
c.
Make / Buy decision
models
·
When and why to
“acquire” products / assets
·
When and why to
“build” your own products / assets
·
When and why to
“contract” for products / assets
d.
Site optimization
analyses (#, location), “de-bottlenecking” and Cost “benchmarking” of:
·
Structure
·
Labor rates and
productivity
·
Fixed costs
(what are they, and why are they “fixed”?)
·
Brand /Product cost
comparisons (internal & external)
e.
Product
configuration (“Design for Manufacturability and Assembly”).
·
Specification
changes
·
Technology
changes
·
“Put-up” changes
·
Packaging
changes
2.
Administration
& Overall structural “right sizing”:
a.
Headcount rationalization
/ reduction / redeployment
·
“#” &
Structure follows: Work; Process; & Systems
b.
Eliminate core
“Icons to Corpocracy”
·
One Headquarters
(rent vs. own?)
·
Clubs /
Associations / Subscriptions
·
Travel policy
& audit procedure (Not necessarily reduction in amount of travel)
c.
Employee
Compensation & Benefits simplification
d.
White collar to
Blue collar ratios are critical to Union / Labor support. Be sure the rate improves dramatically.
3.
Advertising
& Promotion ROI improvement:
a.
“Pay – as – you –
go” funding (less than 12 months payback, on only those products that are, or
will be, reinvestable).
“Invest” should not mean, “Lose money”!
b.
Measurable goals
(“Penetration Waterfall”; App. 4_)
c.
All we want from
our Communication strategy is:
·
The most efficient
opportunity to have a meaningful dialog with the specified target Customer /
Consumer for our critical few drive brands.
And:
·
The most effective
(proven) presentation approach of our features & benefits for our critical
few drive brands, for maximizing our target Customers / Consumers intention
to purchase our products.
d.
All communication
must either be “Trial” (new products) or “repeat” (Established products)
oriented. “Brand” building is secondary
because tangible product value added begets intangible product value added.
e.
Don’t hide ongoing
price reduction expenses in “A&P”.
Spending such as “rebates” (CJD’s, SMR’s, etc.) contract price
deviations, commissions, etc. should be included in the “Net Revenue”
calculation.
f.
It’s important to
distinguish / separate “A” from “P”. They are two very different vehicles and
should be valued as such.
g.
“Breeze in the
face” Promotions (temporary purchase switching devices) have very poor ROI’s
and if used regularly will lead to profit eroding “Peaking” purchasing
patterns. They should only be used
sparingly as a last resort to:
·
Keep your loyal
customers out of the market during a competitive new product launch window.
OR:
·
To unload
discontinued / obsolete inventory on a one time basis.
h.
Customer Awareness = ƒ(Formal communication
+Informal communication X Product benefits
understanding).
·
Don’t overlook
the power & effectiveness of the Informal (word of mouth, exposure in use,
and newsworthiness).
4.
Indirect
“business complexity cost” reduction
a.
SKU simplification
b.
Terms of sale
simplification (including Price sheet simplification / rationalization to
volume purchased)
c.
Customer list
rationalization / reduction
d.
Vendor
rationalization / reduction
e.
Logistics
simplification
Sales forecast accuracy and process
Customer Service integration into the total process
Warehouse
rationalization / reduction (including “lease vs. own” analysis)
5.
Innovation and
Product Development Cost control:
a.
Cycle time reduction
and management
b.
Tangible
distinctiveness vs. “Voodoo Marketing”
c.
Roadmap “toll gate”
decision tools and processes (three “economic models”).
d.
Effective
“capitalization” policies and procedures
e.
Invest in market awareness
& acceptance (trial) before “hard” assets.
6.
Balance Sheet
Improvements:
a.
Debt reduction (via
asset sales, refinancing, equity swaps, etc.).
b.
“Reserves” updating
and reappraisal (liability goes down as quality goes up)
c.
Customer Service /
Credit & Collection processes to reduce Receivables days outstanding.
d.
“Vendor financing”
of Receivables via extended / creative payment terms.
e.
Obsolete /
redundant assets divestiture.
PRICE REALIZATION (The most powerful Profit Lever of all):
1.
“Direct” Price
Increase Management:
a.
How and when to
“Sell” an increase (it’s always a good time, regardless of what anyone in Sales
tells you, if done right).
b.
Restructure /
standardize how pricing is established per Customer. Explore alternatives like
“Menu Pricing”.
(Test for “volume /
price curve” integrity across Customers and products.)
c.
Ensure all “Drive
products” and new products have a tangible competitive advantage / efficacy
that yields higher price realization to start with.
·
“Works Best”
efficacy Business Concept
·
“Costs Less”
(Cost in Use) efficacy Business Concept
2.
“Indirect” Price
Increase Management:
a.
“Price Waterfall”
modeling and management (taught in our Profit
Master program).
b.
“Mix Maximization”
modeling and management (taught in our Profit
Master program)
·
Customer
profitability ranking (even “good” products have some “bad” Customers).
·
Product
profitability (even “good” Customers may have a few “bad” products).
·
Sales Rep. /
Area Profitability ranking (even “good” reps have a few skeletons in their
closet, Product and Customer wise). It’s a statistical reality that one will
benefit more from bringing the poorest performers up to the average than
getting the best to do a little more.
c.
Sales and Marketing
“Bonus” programs alignment with EARNINGS goals of the company. The “old” sales compensation programs based
on “Units sold” or “Revenues generated” are definitely not as effective as
“Sales Contribution” type programs.
RESOURCE &
ASSET PRODUCTIVITY IMPROVEMENT
1.
Asset &
Material Sourcing Effectiveness:
a.
Activity Based Cost
(“ABC”) accounting analyses of the Manufacturing or Sourcing process for key “Drive
Brands” (SKU’s).
b.
Plant and Warehouse
“Labor Productivity” auditing ($ of output per $ of input benchmarking vs.
other sites and the assumptions made in the P&L Reengineering model.
c.
Customer Returns
analysis and minimization.
d.
“Kaizen” material
flow improvement processes.
e.
Six Sigma
continuous improvement processes utilizing the DMAIC process
f.
Install the
attitude that like learning a sport, everyone should expect to / be committed
to “Make it better for less, every day”.
2.
Sales &
Marketing Effectiveness:
a.
“Maximize Effective
Selling Time In Front Of the Proper Buyer” process.
b.
Sales Forecasting
process improvement
c.
“Top 25” Sales
tracking process
d.
“Penetration
Waterfall” modeling and
management
e.
Relevant Customer
Communication focus and strategy
f.
“Need – Awareness –
Access – Preference” Marketing work process focus and objectivity (no “Voodoo
Marketing”).
g.
Rapid-fire
Innovation process implementation
3.
Identify &
Strengthen the Core Before Looking to
Expand.
WHY?
A.
Many businesses
migrate away or diffuse their Core business over time. It seems natural that
executives fall in love more easily with new business opportunities in markets
they are less familiar with than the one they start with. It’s a “grass is greener on the other side
of the fence” thing. The result is that all businesses must take a periodic “gut
check” to be sure they are not:
1.
Deficit funding new
non-core initiatives. It’s a Cardinal
sin to bleed one’s existing successful business to fund another more
speculative venture. New business must be funded from excess retained earnings after
funding the work required to maintain the core (people, time & money).
2.
Diffusing scarce
resources too much across too many initiatives, (thereby under resourcing the
Core). Nearly all business “thought leaders” agree that even the best companies
have a very few Core businesses (two or three at most). Too many times we see relatively small
businesses (under $1Billion) embarking on three or four very disparate business
ventures. None of which are getting
enough funding to achieve or sustain a market leadership position over time.
HOW?
A.
Re-establish (and
clearly define) the core by:
1.
Completing the
“Business Focus” and “Competitive Necessities” matrix work.
2.
Testing this work
by gaining objective (statistical) confirmation in three primary areas:
a.
Economic modeling
of:
·
The total macro
business proposition for “win-win-win” confirmation.
·
The enduring
scale of the opportunity:
Large enough target
market (Penetration
Waterfall)
Growing Target Market
The
Business expected ROI (the core must be reinvestable, now).
b.
The competitive
superiority of one’s Business Concept
·
“Works best /
Costs less” tangible efficacy.
·
Life is too
short and precious to spend it selling average products to average people at
average prices.
·
A key idea is
“better” versus “newer”.
c.
The fit with
existing customer / consumer acceptance of your Brand.
d.
Technology SWOT
analysis of what it will take / cost to stay on top, in this defined core.
B.
Establishing the
“Core Franchise Maintenance” resourcing requirements:
1.
Primary work
(leverage vs. efficiency decision trees)
a.
Also remember the
difference between “Marketing” and “Producting”. There must be at least equal emphasis placed
on strategic and tactical Marketing initiatives (such as “Price Realization”
and “Market Penetration”), as there are on Product related initiatives.
2.
Process, Authority
& Accountability
3.
People, Time &
Money
4.
Structure
C. Divesting non-core assets
1.
Quickly and
simply. Balance price received with how
“clean” and quick the break is).
2.
Divestible assets
cannot be “trashed” or ignored. Their value to others will be based of course
on how effective and “professionally” they are being run. Hold them to the same
standards of turnaround performance that your core business is held to; and
include them in the Task Force Team’s scope.
3.
Isolate them from
the Core as quickly as possible.
Maintain / install effective management (don’t pull all the good
resources out, leaving only the weak).
Give the critical few “right” leaders reason to stay, and make them
“stakeholders” in the divestiture initiative (a one-time significant bonus
program based on the financial success of the eventual sale).
4.
Set very high
standards for the speed of the completion of the divestitures, and stick to it. Sometimes an “auction” yields the best
results if managed effectively. Be very
wary of “employee buy outs”.
4. Develop a Relevant Growth “Roadmap”
WHY?
A.
Wall Street rewards
/ values companies on their earnings rate and potential X growth potential.
B.
It’s amazing how
many resource draining distractions go away when a company is growing. Customer confidence, employee politics, and
shareholder issues all come more into positive alignment when a company has a
significant (and profitable) growth momentum.
HOW?
A.
Start with your
Core.
B.
Establish a Rapid-fire
innovation capability
C.
Develop “outside
the box” creativity (vs. “extension thinking”) by exploring current
understanding of new most significant and emerging MACRO market trends from the
perspective of:
1.
Target “Consumers”
of your product
2.
Existing and
Potential “Customers” (i.e. Retailer or Distributor of your product).
3.
Current and / or
“change the game” Competitors.
4.
Technology
expertise (be sure to look outside the box as well as inside).
5.
MACRO Marketplace
trends (i.e. “the graying of the Western world”).
Refine
and incorporate the critical few relevant Macro trends into developing your
“Business Concept” for the future. Also
be sure your definition of the trend is one that will facilitate you getting
out ahead of the trend, so that by the time you’ve created your new business
solutions and bring them to market, you won’t already be behind the trend.
D.
Establish a macro
economic model for each business concept / product to ensure a connection to making
money from day one.
E.
Establish a clear
roadmap for what must be done and by whom, to get from where you are today to
where you want to be tomorrow.
1.
PERT charts are
most effective. GANT charts are only fast food substitutes. Stay with PERTs.
2.
Establish a clear
Product / Business Development process with clear accountabilities, that
address:
a.
SEARCH for unmet
needs
b.
EXPLORE alternative
solutions to those needs
c.
DEVELOP the best
solution for commercialization
d.
APPLY & ANALYZE
in the market
e.
MAXIMIZE depth
& breadth of penetration / ROI
F.
Remember the
difference between “Marketing” and “Producting”. Although a growth strategy will rely to some
extent on new products, they in and of themselves are not a complete strategy.
“Marketing” is at least as critical.
1.
Penetration
Waterfall modeling and
management.
2.
Market access
management
3.
Customer and
Competitor assessment and strategy
4.
Customer
proposition Economic Modeling
5.
“Top 25” breadth of
line penetration
G.
Consciously decide
on the balance between “organic growth” versus growth through acquisition. Each has their benefits and detriments. Here are some general thoughts on “Keys to
Success” regarding acquisition:
1.
Why acquire a
company:
a.
To gain access to
proprietary products, raw material, technologies, resources, markets.
b.
To gain access to
(or increment) capacity / assets capability.
·
If it’s more
financially rewarding to do so than contracting, or building from scratch.
c.
To gain access to
market share or earnings.
d.
To consolidate a
fragmented industry for increased procurement and Marketplace leverage.
e.
To improve Fixed
Cost effectiveness due to increased scale.
f.
To take advantage
(financial) of undervalued assets / resources (acquire to liquidate).
g.
To prevent a
competitor from achieving one of the above.
h.
To disrupt a
potential acquisition of your company (via diversifying into industries that
are not compatible with the acquirers strategy).
2.
The basic
acquisition process:
a.
Strategy
development
b.
Identification of
external growth opportunities
c.
Acquisition process
negotiations (4I)
·
Initial contact
·
Courtship
·
Confidentiality
agreement
·
Information
sharing
·
Negotiation of
price and major terms
·
Letter of intent
·
Due diligence
& purchase agreement negotiation
·
Public
announcement
·
Sign purchase
agreement
·
Closing
d.
Integration
3.
Keys to Success:
a.
Too many companies
don’t develop a sound enough integration plan BEFORE negotiation of major terms. They then only realize a fraction of the
originally expected value / synergy.
b.
Price is not the
most important element of an acquisition.
Terms of sale and “contingencies” can more than double (or halve) the
actual cash outlay depending on how well they are negotiated.
c.
It seems many
companies are either too quick to acquire, or too reticent to. Very few actually have a clear and
unemotional understanding and commitment to a balanced application of
acquisition within a complete strategy.
d.
Acquisition is a
great opportunity to upgrade your overall management talent pool. The acquiring company must be very
consciously active in managing the integration paradox of securing clear
control over the acquired company and the infusion of potentially great new
talent in the overall business. Too
many businesses either err on one or the other extreme.
Summary:
Getting change down in an organization requires focus on four key elements:
·
Getting the best
Leadership Team money can buy.
·
“Re-engineering
the P&L (and Balance Sheet)” to be reinvestable.
·
Identifying and
strengthening the “Core franchise” before looking to expand.
·
Developing a
relevant “Growth Roadmap” (strategic growth plan).
This outline is intended to help “leaders of change” to apply specific
tools and processes to move organizations, large and small, from one way of
viewing their work and doing their job to other, more effective and aggressive
ways.