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.
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!
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”.
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.
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:
· 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.
· 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.
· To unload discontinued / obsolete inventory on a one time basis.
h. Customer Awareness = ƒ(Formal communication
+Informal communication X Product benefits
· 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
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.
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
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”
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.
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
· Confidentiality agreement
· Information sharing
· Negotiation of price and major terms
· Letter of intent
· Due diligence & purchase agreement negotiation
· Public announcement
· Sign purchase agreement
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.
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.