Growing pains – when success meets complexity

There is an amazing feeling for the entrepreneur and the onlooker of a start-up business blossoming and growing. We all like to hear of them starting ‘off the back of a cart’ and how they progressed to an established player in their sector. Maybe smaller than the rest, but seen as an ‘industry shaker’. A broad portfolio, employees hired for specific professional roles and ready to take on the world.

Does this resonate with your company?

The Revenue line pointing skyward, healthy forecast and a profit profile matching the upward trend, then something unexpected happens; The growth engine starts to stall, cash flows less predictably and customers drift away. Nimbleness lost.

This is the phase that I term as the ‘complexity point’.

What started as a personal business with a proprietor with focus, common sense and ultimate control, finds itself with a wide product set, creaking processes and an organisation which although taken on as human capital is looking more like a liability.

I’ve tried to reason with when we can anticipate the complexity point starting to kick in, but I have arrived at a summary conclusion that it may be different for each business, but with common attributes to what leads to the hiatus.

It is not a privilege to SMEs, complexity will exist in most of the mid to large corporates too.  And, across the sectors, there are different angles to the complexity, from capital-intensive businesses where the focus may be on the ‘plant’ right through to Professional Services organisations, but common signals will be present for each one.

There are ways of tackling the complexity challenge that requires a retrospective step in order to move forward, but my guidance at this stage is that it is not a one-off event and it happens in cycles. The important role of the Executive is to keep pace with it, anticipate that it will happen and be proactive.

A route out of recession and making it happen

Slide1It is really encouraging to see business contracts being awarded and the flow of wealth starting to happen. I always think that a visit to the local Shopping Mall is a great barometer of feeling and last weekend my local centre in Solihull was heaving. There are no major sales taking place and it wasn’t during the school holidays, just your average wet February Saturday afternoon. In fact, you could be forgiven as a Consumer if you were feeling miserable. It’s been raining for 2 months and the sky has been mostly grey, but despite that, the shoppers looked happy.

Optimism is great for the sole and a lubricator for the wallet!

When fortune returns after a recession, you have to be there to maximise your return from it. In the B2C markets, let’s say you are running a restaurant or a bar, you should be asking yourself, Are your staff ready to provide an even better level of service? Sometimes, a Customer needs to wait for a table, which isn’t a problem for a Consumer, for lots of people that is good as it means the restaurant is popular and probably has an atmosphere. However, when you wait you need to feel that there is a sense of ‘urgency’ going on around you, to look after you, drinks, seat, etc, before being taken to your table.

The above example is a simple one but can be transported to B2B markets and services as a simple model for maximising on Market confidence, through customer experience.

Now, my challenge to everyone; Are we doing enough to help Customers spend their hard earned/scarce money? My argument is, No, we are not.

Urgency doesn’t just happen, you have to make it happen!

During the recession employee training budgets were cut and the focus was on survival. Companies sought to maintain Profits but not staff levels and not staff competencies.

Survival and being Competitive are not always mutual friends, but if you want a slice of sustained growth, you need to go back to the drawing board and you need to take your staff with you. Unemployment levels are high but you will have to try hard to get the right skills to make your company work. You have to look at your business operating model and ask yourself why Customers want to do business with you. Nothing should be taken for granted, leave no stone unturned.

So as you look out at the growing opportunity from the door of your business, take a look over your shoulder at your operation and make a quick assessment whether you think you are ready to compete.

Ready? Ready, Grow

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The basic Growth model…What you have + What you need = Growth

The question in the Boardroom may be…Where do we focus?

This is a simple approach to the growth question for larger SME’s and companies in the Corporate Mid Market (you probably have a turnover of £10M or more) but whatever you do is complex because you have an existing revenue base and you have a large organisation delivering it for you.

Your Executive Team have decided that it is time for ‘Growth’, but can you execute this level of performance through your existing strategy and plan to make it happen?

Dugdale Consulting can help you focus on the Big Picture.

But only if you are ready?

Click Here to make Contact

Growth by Acquisition…doing the math

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As your company works out its growth strategy and assesses the options for inorganic growth through acquisition, the headline expectation of benefit may not be as assured as the simple math that you may see. Let’s take a simplistic view of an Acquisition or a Merger and try to answer the question chalked in the panel.

Talk of acquisition creates a special atmosphere in the buying company, sometimes both companies. Initially through the Executive Management team close to the deal, word spreads to Middle Managers and Employees.  It’s not always a good thing for Employees as you start to look towards synergies, but for now let’s take a pure and positive corporate view of this.

Whether you are going for Horizontal acquisition (Market Share) or Vertical acquisition (Value Chain), there is always due diligence, there are always lots of advisors, but the target Company should add something to your alchemy. What Executives are looking for in most cases is a simple Venn diagram for (a) the overlap, (b) the differentiated access to revenue and profit and (c) the cross selling opportunities of the non-overlapping areas.

So an expectation is set, established and the business case agreed. Sale! (Gavel banged, deal!). The expectation?…look towards the simple sum… ’1+1 = ?

The optimist may add up all the benefits and get to an answer of ‘2 + x‘. Value Add thinking. This is how we should be thinking, especially when trying to get out of a recession.

The pragmatist may say that it’s a simple investment, so ‘what have we bought?’ The answer is ‘2‘.  They have a model, we have a model, we are both continuing to looking after our own customers and the Value will be that we are a bigger player in the market and we may have more control of the value chain.

Then there is a pessimistic view. Your overlap causes confusion in your portfolios, customer dissent and you end up with a compete operating model with complexity. It will cost you revenue, profit, market share and your Talent will leave you. Therefore the answer in this case, simply stated is ‘2 – x‘.

In each case x can represent the integration benefit (+) or risk (-)

So what is the real difference between optimism and pessimism in the Acquisition world? Here are my thoughts on what can happen even though everyone is trying to maximize a result.

As the scouting is conducted, there are ‘Plays’ that are considered of the value of acquiring another company. The Plays get valued on a set of assumptions. The assumptions are tested again in the due diligence. The results give the Executive Team and Shareholders the confidence that this is the ‘strategic fit’ for the investment. We can ignore Acquisitions that are made for turnaround purposes at this stage, as they would not necessarily be looking at long-term growth, but pure investor value. However the principles that follows may still apply to these cases.

The purchase is made, the champagne is opened, the PR announcements are broadcast and the expectation is set by the CEO to the employees that this is a “critical investment for our future” and we will be in a “period of transition” to merge the companies activities.

If both Companies have done their homework, the first week after the purchase should see Post-Acquisition Integration teams, fuelled with your best Talent (not necessarily Senior, but empowered people who understand how both Companies work) starting a series of planned activities. They should be looking to work out how you bring capability together, what you keep apart and what programmes are required to drive the synergies. Each functional area should have a Play for what is the optimum solution to meet the investment and corporate strategic aims. Nepotism and Stovepipes should be highlighted and removed and a series of Integration Metrics agreed quickly of what ‘Good’ looks like. So on a route like this…1+1 = 2 + x is a possibility.

Let’s take a look now at what can also happen to get a reduced return.

We start with post-Acquisition Integration. You agree the merger principles, but leave the room without a plan and an end state. No plan means that you have limited ownership and you may not have executive sponsorship. The two companies continue to perform to the expectations of what they are today, with probably a little more load to Middle Management day jobs. At best you get to 1+1 = 2

The worst scenario is that you have a low intensity and low immediacy in your integration plans and the organisations start to compete. Employees and Managers get caught in the battle for delivering their own objectives and invariably, some of these Managers will fail. The lengthening process of Integration creates a noise for Managers and the finger of blame is used to defend shortfall. This is the CEO’s worst position. Unless you have an agreed play to rationalise the two organisations to a smaller but sustainable model, the payback to the Shareholder has been diluted.

What started as a Honeymoon Period could end in ‘Acrimony’. What you need is for the relationship to end in ‘Alchemy’.

So how do we keep the investment to the original strategic intent and how do we Make It Happen…Do the detail!  If you would like to know how Dugdale Consulting could help you with acquisition integration contact us.

In summary, the original ‘Sum’ was a multiple-choice question, but the real answer is in your choice for the plan you effect to determine the desired outcome.

If you find this article of value, please share it with your colleagues. Or need some advice, contact at enquiry@dugdaleconsulting.com

dugdaleconsulting.com

Business ideas…Short and Tweet

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Dugdale Consulting has a large number of readers around the globe who are regular visitors to the topical Posts on Strategy, Business Planning and Change Management. To supplement the Posts there are regular Tweets written for Executive management teams to guide them on becoming better, fitter and faster in the way they do business.

They are concise…to be Short as they are Tweet.

______________________________________________________________________________________________

@DugdaleConsult is designed to deliver Thought-leadership and Insight…

…and is targeted at Middle to Executive management teams across an organisation and for innovators and academic opinion formers.

There’s a nice archive of past Tweets to tap into and they are updated regularly. I see them as a ‘better business’ thought for the day.

Just press the Follow Button above or below to follow me and please share across your colleagues and management teams.

I am always interested in feedback, so if you have an angle that I am not covering, please reply to a Tweet.

If your Executives are looking for some specific Advice in areas where you have business challenge, just hit the Contact Tab at the top of the Page.

David Dugdale, Principal Consultant

‘Business’ inclusion in Social Problems

Today’s post is to support comments back to Michael E. Porter who presented a TED lecture on the topic ‘Why business can be good at solving social problems’.  You can see the Lecture at http://www.ted.com/talks/michael_porter_why_business_can_be_good_at_solving_social_problems.html

This was an excellent positioning of the role that Business needs to play in the solution to global social problems.

My response to Michael Porter on Twitter was too short so I wanted to get my Business feelings out on the subject for comment.

After viewing the Lecture you will I am sure be impassioned by Michael’s build to a point of view that Businesses are the solution to fix the world social and geographic problems.  My comments are much to do about the other enabling considerations to make this happen.

There are a great number of CSR programmes across the Small to Large corporations who try hard to involve themselves in the known social effects that the world suffers and there is also a huge amount of funding and volunteering programmes where Companies support NGO’s in making things happen. However, most of these would be regarded as events, activities and programmes, that at some point have an end to them.  Put to one side the carbon emissions controls that large companies are investing in, the charitable programmes do have an end.  They may be end-on-end, but they are not continuous. So aid and support to la Local or Global concern gets there now but in the turn of events at a Company it could be lessened or re-focussed.

The challenge for Business, following on from Michael’s key points, is that we need to find ways in which Companies take an active role in the end to end delivery of its products throughout the value chain and to play both an economic and a social role as this is happening. We need to ensure that all parts that flow into the gradual increase in ‘value’ also receive back from it in a ‘social value’ way so that we can all live with the basic standards, health, wealth and freedom.

Government’s do play their role but we need to raise the level of governance away from wasteful and irrelevant in-flighting, such that we have seen with the USA Shutdown, to a more productive coordinator of efforts around the world with Business being the sponsor.

Businesses also have the Talent that can help people at the far reaches of a supply chain to sustain a living or work through problems with knowledge which is taken for granted in the Corporate Boardroom, but would be life-changing in other parts of society.

Maybe one way to consider CSR would be to treat it as a COST OF SALE rather than SG&A, so it gets considered as a marginal cost of doing business?

The lecture really was a different angle to CSR and hopefully the start of a new regime of Change.  Thank you Michael.

 

 

Whatever it takes…grow the business!

Is this a phrase that you have ever heard from a Manager to express urgency?

For me this approach lines up with some of the other Business Strategy word-plays (let’s call them ‘BS Words’ for short) that are just thrown out as JDI directions to make results happen. In their correct place and in the context that the original creative author intended, they can add the drama needed to create an immediacy in the call to action. In the wrong context, they are a signal for failure. Let me explain using the Growth mandate in the headline as an example.

I am an advocate of the statement ‘Not all business is good business’. Unless you have a clear Strategy, a balanced Plan and have thought through the aspects of Change required to grow, expanding your business could have a catastrophic effect on the stability of your existing base. Taking the simple model of selling Existing Products or New Products to Existing Customers. The opportunity for predatory price competition without value creation disrupts the market. Your Competitors react and elements in all market propositions begin to fail. Customer Service becomes a costly overhead and your Cash Flow heads south. You probably don’t get what you need, neither do your Competitors but importantly nor do your Customers.

So, how should it be?

You do have to create urgency about the need for Change. In the case above it would be Profitable Growth, but whatever your transformation requires it should be based on a simple and repeatable ‘Story’, your Company’s Story, that explains the Big Picture. It should contain the reality of where you have come from, the challenges and issues you face, the critical aspects of the required Change and what strategic imperatives everyone needs to consider as they deliver, together, to make it happen. This is a leader-led and an employee-engaged way to satisfy your Plan and ultimately execute on your Business Strategy.

Of course there are a number of other pieces that come into the preparation such as Delivery and Control of your plan, but taking a little time to develop your Story and bringing your employees and senior managers with you will return more predictable and sustainable results.

Now, how would you tell your Story?

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