Archive for the ‘Corporate Strategy’ Category

The Art of Being Acquired

Sunday, May 6th, 2012

Depending on your perspective, being acquired is either the reward for building a successful business or the penalty for failure.  Either way, it is an experience that most senior executives will go through during their careers.  In technology companies, an integration is often treated as an engineering challenge of rationalizing product portfolios, organizations and business systems.  A detailed integration plan with financial synergy targets is put in place and the management reporting begins.  However anyone who has been through a few acquisitions knows that success depends not just on good project management but on people management, particularly at the executive level.

A while ago I spoke with Harry Page, CEO of UBM TechInsights about the challenges of managing acquisitions.  He’s been through a number of them and has a perspective from both sides of the table.  I’ve shared similar experiences at Allstream (acquired by MTS) and Mitel (which acquired InterTel).  We agreed that the responsibility for a successful acquisition is shared between both the acquiring and the acquired executive team.

The process of integration is particularly difficult for the acquired company.  Harry pointed me to an article called “The Art of Being Acquired” written by RHR International, a leading management psychology consulting firm, which offers some good advice to acquired executives on ensuring a successful outcome:

1. Guard against performance decrements in the acquired business

2. Accept the additional responsibility for making the integration successful

3. Embrace the acquisition

4. Take symbolic steps

5. Keep ego needs in check

6. Accept the inevitability of new systems

7. Embrace new cultural practices

8. Appreciate the other side

9. Anticipate and be graceful about the power shift

10. Ratchet up the ability to compromise

11. Help the rest of the organization adjust

To be fair, the acquiring company must do its best to set clear expectations for how the acquired company will be run after the transaction.  But ultimately, it’s up to the acquired executives to channel the passion for their business into ensuring a successful integration.  Their choice is between creating a combined company that is a work of art, the piece de resistance of their careers, or one that is just a paint-by-numbers testament to resistance to change.

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Too Many Cooks

Saturday, April 7th, 2012

How many people are gathered around your senior management table? This is an important question in the effective operation of any growing organization. Having more managers around the table creates diversity of perspective (a factor in quality decision-making) and commitment cultivated through participation.  The downside, however, is the difficulty in developing consensus and making decisions. The risk, as Grandma might say, is that “too many cooks in the kitchen spoil the broth”.

This hazard is even greater in the absence of a common vision or clear strategy.  It’s tough enough trying to prepare a meal with cooks bumping into each other, but without a shared recipe it’s hopeless!  Sure, everyone gets to be in the kitchen where the action is, but nobody is having fun, and not much is getting cooked.

There’s a good reason that commercial kitchens employ a hierarchy of staff (sous-chefs and line cooks) supervised by a head chef.  When the heat is on and there are hungry patrons in the front of the house, clarity of purpose, well-defined roles and effective decision-making is essential to managing a complex, time-sensitive, production process. A ship has a captain, executive officers and crew for the same reasons.

A good chef, captain or chief executive frequently solicits the advice of trusted staff members but doesn’t allow consultation to obstruct formulating strategies or making decisions. Even in this age of social media and the democratization of ideas, the most successful companies, the icons of modern business, have been built not by broad managerial consensus but through the iron will of inspired leaders.  Google, Facebook, Microsoft and Apple have each had just one (or two) “executive chefs” setting direction and calling the shots.  Investors, the board of directors and employees invariably look to a compact C-level executive team to take ultimate responsibility for the success of the business.

So, by all means, foster managerial participation.  But be careful not to undermine the C-level leadership needed to move the business forward.  Most managers enjoy sitting at the table when it’s time to plot strategy and argue tactics. But their satisfaction will be short-lived if they find themselves mired in endless debate without making progress towards a common goal. Any cook would agree that there is no sense wasting time in the heat of the kitchen if the meal never gets served.  And your hungry clients certainly won’t wait around while you argue about what’s on the menu!

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Survival Is Not Mandatory

Sunday, October 23rd, 2011

It is not necessary to change.  Survival is not mandatory. – W. Edwards Deming

I recently went for a walk while listening to a pre-recorded podcast on my iPod.  At the end of the podcast there was an advertisement for an App to get the podcasts live.  So I unplugged the earphones from my iPod and into my smartphone.  Two minutes later I was enjoying the latest podcast on my phone.  I haven’t taken a walk with my iPod since.

Some might say “big deal”, but it IS a big deal.  My smartphone has replaced not just my mp3 player but also my camera, my pedometer (I used to take both of these on walks too), my GPS unit (no, I didn’t take one on my walks) and for many people their watch. I am not privy to the market data on these products, but they’re all certainly now mature markets.  Companies in these sectors are likely facing the prospect of declining sales.

I wonder – did they see it coming?  Imagine telling a company riding the digital music player or digital camera boom a few years ago that the end was near.  But there are many cases of successful companies being surprised when something new comes along, often from outside their current market, and eats their proverbial lunch.

The lesson is that it’s worthwhile conducting a regular strategic review of your market, technology and products.  I don’t mean just which deals you lose, but actually looking at competitive/substitute products and the technology landscape beyond.  Use these products and see how they stack up against your own.  Think about how well they satisfy the customer’s needs (do they deliver the important 80% of the value for just 20% of the price – along with some unexpected novel features?).  Take them apart and dissect their technology.  Now, think of where the products and technology are going and consider what could cause your product to become irrelevant.  Companies that are paranoid enough to do this on a regular basis have a chance to respond early enough to change, and stay in business.

I’ll bet you an iPod and an old digital camera that you can think of some companies that weren’t, didn’t and now aren’t!

 

NB:  with this post, we welcome Chris Barrett, VP Engineering, to Stratford Managers.

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You Don’t Always Have to Write It Down

Monday, October 10th, 2011

People know me as a marketer but I was also trained as an engineer. Engineers are planners so it isn’t surprising that I’m an advocate of structured business planning.  I think setting a corporate strategy and underpinning it with an annual operating plan (and quarterly operational reviews) is a good way to ensure that you achieve your business objectives. But after years of participating in onerous corporate planning processes that seem to have questionable impact, I now realize that it is not enough, particularly for companies in dynamic markets.

For example, recently I’ve been working with a client management team who seem to have difficulty articulating their corporate strategy (let alone write it down).  Nevertheless, they do an outstanding job of executing it!  They are enjoying high double-digit growth, are outpacing their competitors and are accelerating their success through canny acquisitions that position them well for the future.  While they don’t have a well-articulated corporate strategy, they do have  clear (and audacious) growth targets and a strong corporate culture that guides employee behavior.

In many ways, this client’s approach to business reminds me of how Netflix manages their growth.  Stripping out the nuance, Netflix figures they can achieve massive growth in a rapidly changing market by ensuring that their employees have stunning colleagues, big challenges, significant freedom and big salaries.  This combination of recruiting, management style and compensation is designed to create a high-performance company that can manage complexity without the need for creativity-killing bureaucratic processes (including, I suspect, things like annual operating plans and ops reviews!)  Recent missteps notwithstanding, you can’t argue with Netflix’s progress so far.

A Harvard Business Review blog article entitled “Your Crucial – and Unwritten – Plan” corroborates the notion that an “unwritten” plan, one that exists in your mind as an evolving understanding of what you do, where you’re going, why you’re going there, and how you’re going to get there, is an essential complement to a formal written plan that covers only those portions of your thinking that are clear, specific and thought-through. In other words, a good written plan includes well-defined objectives, milestones, actions, and clear assumptions.  An unwritten plan is more likely to include gut feel, fuzzy goals, general direction and broad priorities – because the future, especially a few years out, is hazy.

For those of you struggling through your annual planning cycle, I’m afraid you can’t escape the need for a written plan.  You need it to keep the organization aligned on common near-term objectives.  But let’s give ourselves a break by acknowledging that a little managing by the seat of our pants, with an unwritten plan that is frequently discussed and debated, is also a valid way to prepare for the future.

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Start-Up Growing Pains

Monday, April 25th, 2011

Listening to the entrepreneur giving a presentation on his start-up business, I could sense his excitement and pride with their success.  After all, it was an incredible idea and they had executed the start-up phase flawlessly.  You could feel the audience getting caught up in his enthusiasm.  But when it came to the question period, some of his answers got me thinking.

This company is so busy dealing with all kinds of opportunities and issues, it’s difficult for them to recognize the signs that they’ve entered a different stage of their business evolution – the growth phase.  I’ve spoken with a number of successful start-ups and there are some common indicators that it’s time to think about managing the business differently:

You’ve grown your revenues and your organization but haven’t quite hit the breakeven point. Be careful – you can’t make it up in volume if you’re continuing to add costs along the way!  Once you’ve hit the growth stage you need to be making money at a reasonable level of sales.  That means getting economies of scale in R&D and production plus using more efficient means of generating new sales. Effective marketing can provide a constant flow of leads that ensures you are making the best use of your sales resources.  Think about alternate channels to market as well.  Can you sell on-line, for example?

Your objectives, if you’ve had time to set them, are solely revenue based.    Of course you have to meet your revenue targets – that’s like breathing.  But also set strategic objectives that reflect your broader ambitions for market penetration, product expansion, cost structure and organizational growth. When you’re clear on your strategic objectives, you’ve provided important guidance for planning across the company and have set the tone for your brand and marketing message.

Sales are going well so there’s no time to think about marketing plans. Actually, now’s exactly the time to build on your early sales success with a comprehensive marketing plan that keeps the leads flowing in and enables you to tackle new markets.  Remember, ‘failing to plan, is planning to fail’ when it comes to growing your business.

You’ve hired your first marketing person but it’s just not working out. Did you hire a junior person to handle marketing communications tasks when you really needed a more experienced marketer to define and execute the strategy?  Either way, the marketing plan will help you determine what type of skills to hire and when.

Recognize any of these situations?  If so, it’s time to start running your business with a little more structure to ease the transition into the growth phase.   Rather than creating bureaucracy, some much-needed process will actually reduce the level of frustration your team faces as it struggles to cope with success.  And if you do it gradually, it won’t interfere with the vibe of entrepreneurship that you cherish.

With proper planning, attention to your cost structure and go-to-market effectiveness, your short-term start-up growing pains can result in some very impressive long-term gains!

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Get With the (Strategic Accounts) Program

Sunday, March 13th, 2011

Often when I coach a VP of Sales I get asked lots of questions about strategic accounts:

  • What percentage of our overall business should come from strategic accounts?
  • Should we choose a certain number for the whole company or some for each salesperson?
  • Should we have strategic accounts for every product line?
  • What criteria should we use to pick them?
  • How often should we review and change our strategic accounts?
  • Are all strategic accounts of equal importance?

There are many ways to answer these questions depending on the situation. However here are some of my guidelines when it comes to strategic accounts:

  • Potential strategic accounts should be identified through a Marketing-generated segmentation analysis that singles out the key players by market. This data should be filtered through your company’s competitive strengths and weaknesses, then accounts picked with the best chance of long-term success
  • Strategic accounts don’t normally generate revenues immediately – typically it takes 6-18 months depending on your products or services and their sales cycle. So be patient
  • Over time, expect 80% of your business to come from a select group of accounts – this helps stabilize your business in the long term. But if a single customer is contributing more than 25% of overall company revenues then you’re in a risky situation
  • Success at strategic accounts can reduce your overall cost of selling since it is often more efficient on a revenue/head basis
  • Senior management should meet once per quarter to review strategic account plans, progress, roadblocks and funding. These meetings should help drive differentiation of overall service compared to non-strategic accounts
  • The number of manageable strategic accounts is based on the resources available to properly service them. Picking lots of accounts and not treating them with “special service” defeats the purpose
  • Don’t change strategic accounts very often – I suggest an annual review with the majority staying on the list
  • Since strategic accounts follow directly from a company’s overall strategy, they must be linked closely with annual revenue targets and forecasted growth rates

To be effective with strategic accounts requires investment. You need a well thought-out and executed strategic account program to ensure they become a key factor in how large and how quickly your company grows. But it is worth it. Remember the old saying “To be a winner, play with the winners!”

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Selling Out & Starting Up

Friday, November 5th, 2010

This post is an excerpt from an article published Nov. 1, 2010 in the Ottawa Business Journal

We often hear about local high-tech companies being bought, usually by foreign companies. There are inevitably opinions describing this as a loss to the region and to Canada.

But is this really the case? Cisco established itself in Ottawa with the purchase of Skystone. Alcatel-Lucent acquired Newbridge Networks. IBM broadened its footprint in Ottawa by acquiring Cognos. All of these organizations have flourished under the new parent. Other examples include the acquisition of Lumenera by Roper Industries and the purchase of Semiconductor Insights by United Business Media (UBM). Both have grown substantially since their acquisitions.

In these cases, and many others, it could be argued that the acquired company benefited from the buy-out. Moreover, the acquisition created significant wealth for the founders and investors, many of whom went on to help start up or invest in other companies.

So are acquisitions good or bad?  That’s like asking if mothers-in-law are good or bad: it all depends!

Many acquisitions happen because the acquired company wasn’t able to get traction in the market or stumbled. In that case, the acquired company may have been bought for the technology rather than the business as a going concern. In this situation, the local region probably won’t benefit that much. On the other hand, had the company not been acquired it likely would have failed anyway. So, better to be acquired.

Some acquisitions leave most of the local management team in place or allow members to expand their mandate, taking on larger assignments that give them more experience. Not everyone continues to reside in town, but those who do develop a better base of experience and a richer network of contacts to offer to their next employer. The local community certainly reaps the benefits.

While individual acquisitions aren’t necessarily bad for the local economy, we certainly will be in trouble if we don’t foster the creation and growth of new companies.

A recent study by the Ewing Marion Kauffman Foundation showed that in the US between 1977 and 2005 the only net new jobs were created by start-ups. This is counter-intuitive because we expect companies like Google and Apple – high-growth, larger companies that have been around for a few years – to drive job creation. They do, but at the same time, companies like Ford and GM destroy jobs. On average, older companies destroy more jobs (e.g. through layoffs) than they create (e.g. through hiring). Only start-ups create more jobs than they destroy.

What this means for the local economy is that we shouldn’t worry too much about acquisitions as long as we have a healthy start-up environment. It is the start-ups that will drive job creation. The acquisitions will help feed the start-ups with talent and money.

The good news is that there are many exciting start-ups today in Ottawa. These are supported by excellent government assistance schemes like the SR&ED investment tax credits and other directed programs like IRAP. What we lack is availability of angel and venture capital. Last year, VCs invested about half as much per capita as compared to the United States. Without this capital to fuel growth, local start-ups are at a disadvantage compared to their international competitors.

If only we could sell more companies, generating better VC returns and providing more experience and wealth for the founders and other investors!

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Turning Start-Up Dreams Into Reality

Friday, July 16th, 2010

The following piece appeared in the July 12, 2010 issue of the Ottawa Business Journal

 

Karim and Bill have been friends since high school. While Karim went on to an athletic scholarship that morphed into an executive sales position in the consumer electronics sector, Bill parlayed his stellar undergraduate software engineering degree into a Master’s degree.

They have always wanted to start a business together, and feel the time is right. Bill has just received a notice that his position, along with his whole R&D group, has been “offshored” and Karim can’t seem to break through into upper management. In his last evaluation, his superior noted that Karim’s sales talent (consistently in the top percentile of sales executives) should not be wasted in management.

But before getting started, they are looking for some direction.

 

This dynamic duo have an intense and fun journey ahead of them. There will be days of euphoria and days of despair. During the ride, they need to develop their corporate and product strategies while staying focused on execution. No easy job!

1.  BANG! Revenue, profit

As soon as the starting pistol fires, it’s a mad dash to revenue and then profitability. Don’t get side-tracked. Don’t forget. Don’t slow down. Don’t sleep. Get to revenue. Get to profitability. Go!

2.  Differentiate or die

Karim and Bill need to understand their competitors’ offerings (“We have no competitors” actually means “We just don’t get it.”). Then they need to understand how they are going to differentiate. A common mistake is to compete on the same basis as everyone else (e.g. “ours is the best”). If Karim and Bill were to do that, they would see their profits quickly eroding just before they got eaten alive.

3.  Learn to dance with the numbers

Strategy is rooted in the financial statements of a company. Karim and Bill need to understand how the company’s finances work today and in the future. In particular, what are the key financial metrics upon which the success or failure of the company depends? For example, if they plan to charge a subscription fee, they’ll probably need to finance the first few months for each customer. One of their barriers to growth will be the availability of cash.

4.  Customers first, but…

No matter how good the product idea, it needs to be tested first with real, paying customers. On the other hand, Bill and Karim have to listen judiciously. Just because someone at a big company suggests a particular feature doesn’t meant it is a good one. See point 2.

5.  Attract strong advisors

Neither Karim nor Bill have done this before. They are starting with a deficit of skill and experience. One way to make up for this is to build a strong advisory board with people who can help keep them on the best path. Mentorship is the lifeblood of entrepreneurship.

6.  Locate the exits before take-off

Bill and Karim should discuss what they want to do with the company over time. Take it public? Sell it? Grow it as a private company? If they have an exit targeted in their minds, they’ll structure the company accordingly. If they don’t know, the simplest thing is to run the company as if they wanted to take it public. Then they keep all options available.

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Think Twice Before Going Public

Sunday, June 27th, 2010

This article is a companion piece to my March 29, 2010 post “Why IPO?”

With entrepreneurs once again having dreams of taking their company public and adding more cash into the bank, they should consider carefully the challenges of being a public company.

Once public, the governance structure of the company will require significant change, particularly if it was previously operated by a founder with little outside influence. As a public company, the entrepreneur will be required to establish a board of directors that will include a number of independent board members. Following the establishment of the board, a number of board committees will need to be created including an audit committee and a corporate governance committee. The board and the various committees will typically meet on a quarterly basis to review the financial results and operations of the company.

The financial results for the company, which were private in the past, must now be presented to the world at large including employees, competitors and customers. Each may use this information in different and unexpected ways. Along with the financial results, details of compensation levels for the top executives will also be made public as part of the annual filings with the securities commissions. The CEO and CFO will be required to certify quarterly that the internal controls were efficient and effective during the reporting period.

The filings as a public company will place an added burden on the finance team with the requirement for additional information such as the management discussion and analysis (quarterly and annually), the management information circular (annually) and the annual information form (annually). Filings will also be required for any material change to the business such as a significant contract, mergers and acquisitions, or equity offerings.

Other factors to consider are:

  • The increased insurance costs, particularly if you are listing on a US exchange
  • The challenge of short-term decision-making that may influence the stock price one way as compared to a decision having long-term benefit of the company that could influence the stock price in an opposite way. For example, many public companies are influenced by quarter end boundaries regarding product pricing and discounts
  • The management team, and in particular the CEO and CFO, will be working with a new group of shareholders and analyst who will require more attention and time than in the past.

Becoming a public company has many significant benefits but entrepreneurs need to temper their enthusiasm and carefully consider all aspects of the decision before taking this big step!

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Striving for Clarity

Thursday, June 3rd, 2010

Eric and Stephanie are getting married. They met at a dance, dated for a while and then made the big decision. They even decided to live together before the wedding. Essentially, they collected data about each other and then committed. Are they certain that their future together will be happy until “death do us part”? Of course not! There’s no way to be certain. However, they believe that they will be happy and they are clear about their commitment.

Most business decisions of any significance are just like that. You need some data to make the decision. You might try an idea out for size by modeling it or running a pilot project. But if you wait for enough data to be certain that you’re making the right decision, you’ll never act.

Tough decisions are about the future and the future is never certain. Should I hire this person? Should I invest in this new product? Should I sign this contract? Expand in this market? Acquire this company? Let this company acquire mine? Start a business? End a business? These are all tough decisions.

Get some data. Try the decision on for size if you can. But forget about certainty; strive instead for clarity.

Eric and Stephanie could have lived together for years before committing to marriage. But they didn’t. They learned about each other, tried the decision on for size and made a commitment. They are clear.

Congratulations to them both.

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Canada’s Productivity Gap, And What to Do About It

Monday, April 19th, 2010

This post is an excerpt from an article published April 19, 2010 in the Ottawa Business Journal.

Those of us in high-tech like to think of Ottawa as a Science and Technology (S&T) town. Certainly a lot of the economic growth that Ottawa enjoyed in the 1990s was due to the significant expansion of the technology sector. After the dark days of the tech meltdown and the recent scare of the recession, our sights are once again turning to the technology sector as the hope for the future.

However we need to face the fact that we have an S&T-related productivity gap in this country. Recent figures paint a disturbing picture of the state of S&T in Canada. According to the Conference Board of Canada, Canada receives a “D” grade and ranks 14th out of 17 countries on its capacity to innovate (well behind Switzerland, Ireland and the US at the top 3 positions respectively).

The international competitiveness of Canada in Science and Technology depends on smart policy decisions. I’ve had the opportunity over the years to lead or participate in a number of technology related organizations. Along the way I’ve developed some clear opinions on what’s needed to close the productivity gap in Science and Technology with the US and other western nations.

Let’s shred the SR&ED program. Let’s take $750M out of the $3.6B SR&ED program and allocate it to something like the Technology Partnerships Canada (TPC) program. TPC used to provide funding for strategic R&D, and demonstration projects that produced benefits to Canadians. It was geared to pre-competitive projects across a wide spectrum of technological development. Which areas should we focus on? The government has already identified four S&T priority areas back in 2008 (environmental, natural resources and energy, health and related life sciences, and information and communications). Then let’s look at the other clusters in our economy that are really working and support them too.

Support more than just R&D. If we want to see better results in commercialization of S&T investments, we need to support the other core aspects of successful business: marketing, sales and operations. How can we compete internationally if we don’t have world-class business skills to complement our excellent technology?

Be more tolerant of risk. We need our leaders to take risks. Obviously this means our business leaders but we also must allow our governments to take more risks.

Appoint a scientific advisor. The government of Canada needs a scientific advisor. We are one of the only countries in the world without this type of office.

Don’t dismiss branch plant R&D. It is a reality of the global economy that foreign companies will buy Canadian companies. This is not necessarily a bad thing provided that they continue to support local innovation.

I recently participated in the Research Money conference “Industrial R&D: Is Canada Really Lagging?” in Ottawa. The theme was an acknowledgement that multinational firms now globally distribute their R&D and collaborate with partners in public and private sector institutions. This “new normal” for S&T must lead to changes in public policies. There is some urgency to make these changes if we really want to start to close the productivity gap in this country.

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Learning From Experience

Sunday, April 11th, 2010

I don’t really follow Warren Buffett (either as an investor or a business philosopher) but you can’t help but be charmed by his folksy wisdom. A Buffett quote I heard recently that really resonated with me is, “You want to learn from experience, but you want to learn from other people’s experience when you can”. These words explain why many companies choose to use consultants.

The problem is that most consultants are actually peddling someone else’s experience (i.e. a franchised consulting “formula” or the experiences of a previous client) rather than their own. That means that the advice they provide is second-hand and likely to be somewhat academic. Worse still, it means that the consultant probably can’t do much more than tell a story. They’re not really able to roll up their sleeves and work to ensure successful implementation of their recommendations.

If you think about it, when a company is looking to hire a new employee, it hopes to find someone with previous experience; someone that has actually done similar work to what is in the job description. The reason is simple. Previous real-world experience implies a greater likelihood of success in their endeavours if hired. It would make sense to apply similar criteria when engaging a consultant.

After all, in the words of the Oracle of Omaha, “Risk comes from not knowing what you’re doing.”

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Let’s Talk About the (Business) Climate

Wednesday, March 31st, 2010

The recent wonderful weather in Ottawa (20 degrees C in March!) got me thinking about the climate. If you’re like me, your enjoyment of these warm, sunny early Spring days is tinged by concern over whether this is just good fortune or a result of climate change. The thought that what appears to be good news may really be bad news in disguise, casts a bit of a dark cloud over the glorious weather.

There’s a parallel with business. Many companies are enjoying improved financial results lately. They’d like to think it is the reward for fiscal prudence, hard work and superior customer value. The question, however, is whether this improved performance is simply the result of an improving economy. Sure, we’ll take the gains when they come; but isn’t the real issue how you are doing relative to your competitors? Are you gaining market share? Do you earn superior product and operating margin?

Mixing my metaphors, they say that “a rising tide floats all boats”. In the case of your business, make sure that rising performance levels aren’t simply due to global economic warming. It is time to invest in gaining competitive advantage. After all, the objective isn’t just to stay afloat; it is to win the regatta.  Or, in the words of Warren Buffet, “You only find out who is swimming naked when the tide goes out”.

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