Competitive advantage is now shifting to the Supply Chain

Article written by Matthew Webber

We are living in very uncertain times, driven by the various disruptions that are playing out in front of our very eyes. The level of disruption is often overwhelming, and the certainty, safety and security of our supply chains are under threat. It will be those organisations that can bring a level of consistency and reliability in their supply chains that will most certainly be well positioned for competitive advantage.

“Insights from Matthew Webber | Matthew Webber is a specialist in strategy, program delivery and training, focused on driving business performance by developing commercial, operational and innovation capability. With over twenty years international experience, Matthew has worked across the globe with organisations undergoing immense change and comprehensive transformations. Inspired to create a world championed by kindness, where equitable opportunity is available for all - Matthew shares his vision through best-selling books and his sought-after keynotes. ”

Disruption has also created a level of complexity in our Supply Chains that is confusing our decision making, impacting our opportunity to service or even to manage costs in an orderly and sensible manner. The complexities often have impacts that reach far greater than the organisation itself, and often are impacting communities and environments that are not in close proximity at all. Organisations that develop Supply Chains that can address this complexity, and make it on surface seem simple, are placing themselves in a strong competitive position.

We are moving from a world of industrialisation to digitisation. The impacts of this is in itself uncertain and complex – but it will most certainly have an impact on the way we work, the way we manufacture, the labour we use, the skills we acquire, and most certainly the geographies we operate in.

How organisations design and execute their supply chains will be the fundamental source of competitive advantage going forward. Supply Chains that are value and demand driven will certainly place themselves at an advantage over slow and reactive supply chains.

Let’s look at some strategic levers you can consider as you lead your organisations supply chain transformation strategy for competitive advantage.

Make data and digital your friend

Big data, artificial intelligence, the Internet of Things (including tagging, sensors and geolocation technologies) and blockchain are all means by which organisations are transforming their supply chains. Of course, on their own, these means are worth little, the value comes in the way that the information can be captured, disseminated, visualised, shared and acted upon.

What needs to be appreciated is the amount of information that flows across the entire Supply Chain and the awareness of how the ability to access this data in a meaningful way can add to the value proposition.

The manual collation of data and information is an inefficient way of doing business which exacerbates risks in the supply chain by delaying information flow and visibility.

Organisations are innovating to be able to operate with decisive speed, ensure that they are meeting and exceeding standards and providing customers, partners and other important stakeholders on demand information that meets compliance standards or reinforces messages on promises made.

With the amount of data and information being used, shared, and published – security is also becoming of paramount importance. Not only is there an expectation that the information is trustworthy, and able to be relied up so there needs to be integrity in the information (which can be potentially met with block chain technology), organisations also need to guard themselves from misuse of the information, ensuring that the information is used in the right context for the right permissible purposes. They also need to guard against cyber-attacks.

There are a number of ways that you can start making data and digital your friend;

1. Build an information strategy that provides for the on demand access to information and insights across the entire Supply Chain - create opportunities to share and collaborate on data and information sources to aid the operational planning and execution, network configuration and control of the Supply Chain;

2. Develop data capturing methods, activities and devices to be able to capture useful data, automating the collation and production of key insights and reporting;

3. Identify the areas of key risk and opportunities in your Supply Chain – ethical, operational, commercial and develop predictive modelling to leverage insight capability and to sense supply chain disruptions ; and

4. Establish safeguards to ensure the security of data and information.

Start Automating

There are many reasons why Supply Chains are transforming towards Automated and Robotics solutions. Access to reliable labour sources are becoming a challenge particularly for countries where there is an aging population, competing demand on labour, the lack of skill generation (or potentially the reverse where labour resources are upskilling to less labour orientated vocations), there is safety reasons, and cost imperatives that are also driving the push towards automation. On top of this is the exponential growth in ecommerce and the need for fast, reliable, consistent and accurate operational performance.

It would be difficult to envisage operations that are completely automated. By definition to automate something, you need to be able to provide the instruction on what the activity is that needs to be completed, how to complete the activity, when to complete the activity and so on. This requires human intervention and input at some level. Toyota have a principle of ‘autonomation’ which is basically automation with some human touch. This would involve approximately 80 to 90 % automation of process with the allowance of human engagement for improvement to the system.

 Whilst there may be significant impacts to employees, and potentially economies relying in the use of manual labour to provide these services that can now be automated – the counter argument of improvements in productivity, reduction in safety issues, job creation in the innovation and delivery of automated solution, and the reinvestment of capital into more meaningful (and often more impactful) ways.

There are a number of ways that value can be created through Automation;

1. Building an automation strategy that provides for reduction in manual tasks that may create safety, reliability, accuracy, efficiency and service bottlenecks;

2. Redeploy resource into value adding activity which has customer focus;

3. Partner with automation design experts; and

4. If you want to be successful at automation, you must place people at the centre of automation – that may seem counter intuitive, however it is people that make automation successful, not robots

Design your Supply Chain with adaptability in mind

A one size fits all strategy for a modern Supply Chain will simply not work. Customers are becoming increasingly demanding upon what their requirements are, and how they want their expectations fulfilled.  

This resonates on so many fronts for the supply chain strategy. How products are made, where you source from (and from who you source from), what geographies you operate from, how you manufacture and how you manage logistics, the depth of your relationships and the integrations of your systems will all have a significant bearing on how you can customise your offer to your customer, and how you diversify your supply chain accordingly to meet this requirement.

Supply chains need to be configured around the channels, clusters and customer experience expectations. Essentially customers need a supply chain menu, where micro segments are offered to meet the customer experience requirements of the customer and the efficiency requirements of the organisation.  This could mean many things to many organisations – but as a start you could be thinking about different supply chains based on product characteristics, channel (such as physical or online) or even the velocity and predictability of the demand.

Technology in manufacturing and production needs to be leveraged to be able to deal with complex, unique and customised designs. Additive manufacturing (commonly referred to as 3D printing)  and rapid prototyping techniques are enabling a “fail fast” mentality, more complex design, smaller parts and less waste.  This will have significant bearing on size, scope and location of manufacturing facilities and where and how products are sourced, milled and configured.

With the vast amount of data available, and the ability to link this data, and collaborate with this data – the opportunity to build more demand driven supply chains is realistic. Whilst the concept of demand driven supply chains is not new, it has in many circumstances been unachievable because it has relied on historical data sets. With embedded sensor activity, remote engagement and instruction, predictive analytic models and the ability to scrape social media data and collect data from open sources the ability to predict demand, recognise patterns and anticipate changes is greater than ever before providing for the ability to customise solutions.

There are a number of ways that this value can be created through designing an adaptable Supply Chain;

1. Building a diversification strategy supply chain strategy that provides for the ability to respond, build, distribute and satisfy customisation needs;

2. Establish a multi geared, multi clustered supply chain that is linked to the customer experience anticipated;

3. Establish data collection capability from multiple sources that can be collected, curated and  managed; and

4. Realign manufacturing and production footprint, methods and location to create the ability to customise based on customer preference and volatility in demand requirements

Together is better than alone so collaborate

The benefits of collaboration have long been recorded in the world of global supply chains. Collaboration provides the opportunity to share the weight of common problems, develop more insightful solutions, leverage the various perspectives and intellect from across the supply chain, to share the investment and resource allocation and of course to build value and share in the spoils in very fair and reasonable manner.  

Collaboration is a hot topic for the current environments, and for reasons no more important than the fact collaboration is the core ingredient to innovation and developing solutions to fast, complex and spread problems that have infiltrated the supply chain. For many of the new and emerging technologies to function they need a higher degree of collaborative effort.

Like the Apple iPhone requires the collaboration with app builders to make the iPhone an attractive value proposition (without the apps they are just another phone), supply chains require the collaboration of key elements to make a fast, agile and responsive supply chain work. It is near on impossible to run every aspect of the supply chain on your own, the sheer scale makes this unachievable. You need systems, service providers, suppliers, finance and so much more to connect the supply chain and bring value to life in the global supply chain. 

Cost driven, transactional style relationships with partners and providers is a significantly outdated and inappropriate course for a supply chain strategy dealing with disruption and realignment. You need meaningful relationships, insights, technologies and operational capabilities to actually be able to create value. Toxic relationships, and ones with no trust, are not only exhausting, distracting, expensive and unreliable – they are a threat to your brand and ability to drive social impact and to do the right thing.

Digital and data capabilities will of course make the collaboration effort easier, and more powerful with the aggregation of information that on its own is nothing special but combined becomes a source of insight and considerable strategic advantage. The magic happens when there is alignment with supplier performance and consumer behaviour. 

There are a number of ways that this value can be created through collaboration;

1. Building a collaboration strategy that provides for the ability to innovate and create shared insight and value;

2. Consolidate your partner base to provide the opportunity for deep relationships that enable collaboration practices to evolve and thrive;

3. Develop data, insight and best practice sharing capability – including the opportunity for teams from both organisations to work in each others environments; and

4. Identify and prioritise problems that can be solved collaboratively

Don’t forget your values

There is no doubt that there is a greater emphasis of all organisation to provide a greater focus on ethical and sustainability issues. There are also greater opportunities for organisations to create competitive advantage specifically through what they value and how they go about doing business.

There are very pragmatic reasons why organisations focus on values and socially focussed initiatives. For a start putting aside competitive advantages that can be created through value alignment, organisations focus on these areas to mitigate reputational damage risks and also focus on these areas for regulatory compliance reasons.

Being Values driven and socially focussed is not an afterthought, it must be an application of intent and desire.

What it requires is an exerted effort, strong focus, consistency in behaviour and messaging and a very authentic will – otherwise it will be seen as a dressed up marketing ploy. Long consistent repetition of positive actions and behaviours are the order of the day.

There are a number of ways that this Value can be created through values;

1. Building a values and social impact strategy that provides the source and foundation to create value, and competitive advantage;

2. Create a business case that considers a holistic value concept view of value and moves beyond short-term financial effects;

3. Leadership support, communication and behaviour that is consistent with the values and social impact; and

4. A long term view of consistent, repetitive reinforcement of the values and commitment to social impact that earns the trust of the supply chain and customer community

One thing is for sure, our Supply Chains will look very different in terms of the way the operate, and how they are positioned.

The organisations that can transition effectively stand to gain significant advantage over the long term – in fact it is almost certainly becoming a race, and a race that we have no choice but to join.

The race of business will be won and lost by how organisations organise their Factory to Customer Supply chain and adapt to the new environments that are upon us and can satisfy the growing demands of the modern customer and the experience that they expect. 

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LOOKING TO rethink your Supply Chain? REACH OUT.

Our leadership team at Whiteark  have decades of experience in leading Supply Chain Transformations from Factory through to Customer, developing Market and Customer strategies that ensure relevance and desirability . We design the business model to deliver commercial feasibility and  to ensure that your business is ready to not only deal with disruption, but to thrive in it. From strategy to design and execution. Contact us on whiteark@whiteark.com.au or explore our supply chain transformation services here.

Article written by Matthew Webber

What hat you wear can change the game - are you ready to play?

We know that successful companies work to proactively listen to different perspectives from across their organisation. Finding ways to do this where people feel comfortable to share their views/ideas is critical; and now with the majority of corporate employees working remotely, this creates even more of a challenge when it comes to getting people to engage…

I have a technique, that I learnt, and I now use this approach with leadership teams which elicits some exceptional and interesting results.

To apply this technique and get the full benefit we need to take you on a journey. We will take you through the journey in the next few articles where you will learn:

1. About Edward de Bono’s Thinking Hats

2. To understand the concept and theory behind each Hat through Whiteark articles and bites

3. How to use the technique of the Hats with your leadership team, wider team, workshops and the power of using it to facilitate brainstorming with a group. We will give practical real life examples of how to use it

““Creative thinking is not a talent; it is a skill that can be learned. It empowers people by adding strength to their natural abilities which improves teamwork, productivity, and where appropriate, profits.” ”

— Edward de Bono

In 1985, a man named Edward de Bono wrote a book called Six Thinking Hats. A physician, author, and consultant, de Bono is a proponent of teaching thinking as a subject in schools to help people be more successful in business and in life. He developed the Six Thinking Hats method as a way to run better meetings and make better decisions more quickly.

In the Six Hats methodology, de Bono identifies six different ways of thinking, each represented by six coloured “thinking hats.” As you wear each hat, you learn how to think in different ways to brainstorm and approach problems from various angles.

The de Bono’s thinking hats are defined in the following ways.

Whiteark is aligned with the White Hat.
Let us explain more….

We’re a team of doers led by Jo Hands and James Ciuffetelli. We don’t believe in unnecessary layers; and between us we have over 50 years of collective experience, expertise and global connections. Delicately weaving these together, we engage with you directly, with a single-minded focus on the task at hand. Collaborating at a senior level to propel organisations forward, we intricately map out and execute your next move, ensuring you’re prepared, protected and prosperous.

We’re nimble; we will assemble the best team for your problem, guaranteeing you have the skillset and people you need - no more, no less. Using data (de Bono’s White Hat) we load up your arsenal with the information needed to define and craft your next move; your strategy. Then together we’ll use this knowledge to carve out a unique set of priorities and objectives, bringing the entire team into the fold so they’re aligned towards the same targets and goal.

Preparing Your Business for Sale

The Guide to Getting Your Business Ready for Sale

To maximise the value of your business on exit it’s imperative that you commence strategic planning work at least 18 months to 2 years out from sale.

Key elements that need to be considered in your strategic plan include:

Key Business Drivers

• Understand the key drivers of the business. 

• Identify which of the drivers will have the greatest impact on the business valuation.

Competitive Environment

• How are your products or services positioned in the market?

• Who are your direct and indirect competitors?

• How does your pricing structure compare to the competition?

Global Mergers & Acquisitions

• Review global activity within your industry and understand the trends and key information.

Potential Buyers

• Understand potential companies that could acquire your business.

• What would they consider the most important value drivers?

Our 6-step guide to maximising value…

Key activities to undertake when preparing your exit plan.

Revenue & Margin Analysis

Understand which customers, products and markets generate the most revenue and the have the most attractive margins. This will drive improvements in performance, making your business more profitable and appeal more attractive to buyers.

Growth Plan & Scenario Assessment

Build a financial model that considers multiple scenarios to demonstrate how further profitable growth can be achieved to maximise your future sale value.

Overheads & Profitability

Analyse overheads and reduce fixed costs to enhance profit margins and increase the value of your business.

People

Create incentives for critical employees to remain in the business post the sale, to minimise risk for the buyer and to ensure the business valuation is defensible.

Financial Governance and Reference Books & Controls

Make sure that the business’ financial statements and accounting information is accurate. This will elicit compliance, assurance in numbers and transparency. Buyers like it when business operations run smoothly and efficiently so it is important to document business processes, review controls and update systems to improve the value and desirability of your business.

Data & Documentation

Ensure documentation required for the sale process is readily accessible to allow buyers to complete the due diligence quickly and efficiently. This will reduce risk for the buyer and maximising value for you.

Additional Funding

Top 3 key considerations for requesting additional funding for your business:

1. You have a guaranteed return on investment (ROI): You know if you have more money to invest you will be able to make an appropriate return.

2. Improve Financial Results: Additional investment will increase the revenue and gross margin of the business to cover the fixed costs and generate positive cashflow.

3. Overheads & Profitability: Additional investment / partnership will give the business a competitive advantage through new capability and linkage to the market.

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How Whiteark can help?

With extensive experience working across a range of services, we embed ourselves within companies to drive value, and deliver on key metrics.

Maximise Revenue

o Develop future strategies for way forward
o Understand market opportunities
o Build flexible workforce planning models
o Develop strategy and plans around a Buy and Build model to generate revenue growth
o Data, analytics and diagnostic tools
o Build comprehensive strategies across the business
o Customer experience & optimisation
o Marketing optimisation
o Go-to-market approach
o Pricing and packaging
o Account based marketing model
o Develop key metric reporting, aligning incentives to drive the right outcomes

Optimise Cost Base

o Utilise data, analytics & diagnostics to fully understand opportunities
o Develop strategy and plans around a Buy and Build model to realise operational efficiencies
o Organisational re-design, including outsource options
o Sales resource optimisation, aligned with GTM strategy
o Process review and redesign
o Benchmarking of costs against other industries and similar organisations
o Marketing spend optimisation
o Contract review to drive an improvement in costs
o Activity based costing model developed to understand financial drivers
o Cost optimisation strategies around activity based costing, specific to the business

In addition to the above services, Whiteark can help you secure funding (seed, investment or debt) through our network so reach out to see how we can help you.

Reach out to us today for a no obligation conversation today.

Retail Transformation in Disruptive Times

Article written by Matthew Webber

It is both confronting and somewhat depressing to turn the pages (physically or digitally) of a newspaper to see yet another retailer fall victim to the economic climate. There is nothing nice about an empty shop front, the loss of jobs or the withdrawal of an important community institution.

“Insights from Matthew Webber | Matthew Webber is a specialist in strategy, program delivery and training, focused on driving business performance by developing commercial, operational and innovation capability. With over twenty years international experience, Matthew has worked across the globe with organisations undergoing immense change and comprehensive transformations. Inspired to create a world championed by kindness, where equitable opportunity is available for all - Matthew shares his vision through best-selling books and his sought-after keynotes. ”

It is though happening at such a rate that we are almost becoming immune to the headline story and this creates an additional challenge for us all.

These fallen retailers are often iconic brands that people have relationships with,  sometimes these brands have become national treasures, and they are employers of thousands (sometimes tens of thousands) people.   

They are in fact serving an all important role in society whether that be supplying little Mary’s bike for Christmas, putting food on the tables for everyday people, or providing clothes for everyday wear or of course for a memorable event.

Retail is indeed an institution, it is iconic, it is for many an emotional experience. It is little wonder we don’t want to see it change. The problem is though it is changing, and the ball of momentum is rolling down the hill and picking up pace.

Like any change process – whether that be for the retailers themselves, or for the customers that hold them dear we need to understand Why it needs to change in order for us to change. It is then important for us to look forward and see what the future holds, and then importantly how do we get from here to there.

Why Change?

Survival

Sometimes in life we have to make the message simple so not to dilute or cloud the message. In this instance there is no greater reason to change than for survival. It is that simple and clear.

This is, for all purposes a likened to being in a paddock being chased by a ferocious Lion – with the good fortune that you can find safety (and opportunity) though only available if you run towards it. If you stand still, your future is bleak, if you run in a direction other than the one that presents the opportunity you will also meet the same fate – albeit a little more puffed out!

Survival can mean so many things and have different meaning to different people – whether that be the ability to remain in business to fulfil a dream, having the opportunity to provide jobs, or even the in the pursuit of retail excellence to provide a great service to your customer.

What though is clear, is you must be first  concerned with basic needs, in this case survival to then meet our psychological and self-fulfilment needs as Maslow’s hierarchy of needs would suggest.

There can be no greater reason for change than survival.

What does the future look like?

The good news is that the future is up to you. You can create the future in any way that you like, and one in which fulfils your objectives. There are some guiding principles that you will need to consider though as you create the future. 

1.     Customer centricity

Having a healthy obsession with your customer is key. This is about understanding their needs, being empathetic to their problems and having the ability to design solutions that will create an experience that they can emotionally connect with.

2.     Option creator

Customers need choice to meet their changing needs. They need options that they can have their needs met.  Creating a rigid business model will almost certainly fail in a world where the consumer is craving personalised attention in a very busy world

3.     Fast (and furious)

With the onset of technological advancement, and an economic environment where the power balance has well and truly shifted to the customer – there is a need for speed. This relates to the entire experience – how they interact with you (in person or digitally), the fulfilment of orders or the creation of solutions. Your supply chain (physical, information and financial supply chains) will need to support this. Your customer needs what they want yesterday – it is the world we live in.

4.     Digital

Digital must dominate your business model – whether that be providing your customer with the ability to buy online, the way you structure your supply chain or the way that you collect insights and learnings about your customer, industry, market and opportunities. Your customer is digital, so must you.

5.     Trusted

Your customer needs to Trust that you will deliver in your promise, trust that you have their interests at heart, trust that you understand their problems and how to solve them and have trust in the information, data, and emotional insights that they share with you. The move to a faster, more digital world comes with a greater onus on the Retailer to deliver on Trust. Remember people are at the centre of Trust.

Steps you can take

Now we have a flavour for the reasons why Retailers must change and a view into the attributes that are required to establish the future vision, it is important we consider how to get from the current environment to the new world.

1.     Listen to your customer

As simple as this sounds, it is the most important thing that you can do. The trick is to listen in a way that seeks to understand (just as Stephen R Covey would suggest in 7 Habits of Highly Effective People). It is easy to listen in a way that just validates your views, but if you listen in a way that can identify their real problems and how they would like you to solve for them – value will be created.

You will need to immerse yourself in their world, understand the data (including from social media) and look to their behaviours and actions. Customers, particularly retail customers,  speak with their feet (or fingers in a digital world) so listening to your customers behaviours is one of the most powerful tools you can use.  

2.     Define the problems and Create the opportunities

Work with your customer on solutions, and trial and test concepts as quickly as you can. Set up an innovation hub, a centre of learning so that you can collaborate, learn and develop.

Scan the globe for clues in how other retailers have solved for the same problem, or in fact how other industries have solved for like type products. By all means be original but do not invent the wheel. A great deal of energy can be expended trying to be too clever. Keep it simple and relevant.

It all starts with identifying and defining the problem well. This will help you move with speed when you test and trial solutions with your customers. Having your customer provide the insight and engagement in the problem definition will almost certainly ensure that they are engaged with you on the solution

3.     Design an adaptable, and commercial,  Business Model

Design a business model that supports the future and delivers on the value proposition and build in a way that allows the business model to adapt to changes in the environment. It is also critical that you create a business model that is commercial.

Many great retailers have fallen foul of moving their business into the digital world only to realise that the cost to service and fulfil orders in e-commerce can be expensive and slow. It is important to design your business model that  is customer centric and which can actually fulfil the promises you make to your customers and people.

4.     Effect the change

You need to be able to effect the change. To effect change you need to be able to lead the vision, build confidence, empower your people, communicate effectively and build really solid teams.

This will be your internal ability to adapt, transform and execute to deliver sustained business performance. Ideas are only ideas until they are executed. Even the best laid plans amount to nothing unless they are done. For ideas to be done you need people to engage with and embrace change as opposed to fighting it. You will need to be change ready.

Being change ready will enable your organisation  to act with speed and agility. It means you can do more with less and importantly ensure that you are not only a retail leader, but a profitable one

5.     Do the right thing

We highlighted that Trust is an important attribute for the design of future retail models, and with good reason. As you transform you need to ensure that you transform in a way that makes customer and commercial sense, but also in a way that ensures you do the right thing by the people and communities that you operate in from Source to Customer. 

This could be how you (or your manufacturers)  treat the workers in a factory in Bangladesh, through to creating safe work environments for the people fulfilling your orders or transitioning your labour force from bricks and mortar retail to a digital one. It may even be how you use and safely store data.

There are short cuts that can be taken in any transformation, quite often at the expense of people that are most vulnerable. 

Your customers in the new world expect you to do the right thing from source to customer. You as a retail leader should expect nothing less. 

There are significant opportunities for Retailers to reinvent themselves, build relevance and create significant advantage by following some very basic principles. The future is able to be created and reimagined.

The cost of inaction is just too high.

It just requires a rethink.

LOOKING TO rethink retail? Adjust your approach and G2M strategy? REACH OUT.

Our leadership team at Whiteark  have decades of experience in leading Retail Transformations from Factory through to Customer, developing Market and Customer strategies that ensure relevance and desirability . We design the business model to deliver commercial feasibility and  to ensure that your Retail business is ready to not only deal with disruption, but to thrive in it. From strategy to design and execution. Contact us on whiteark@whiteark.com.au or explore our retail transformation services here.

Article written by Matthew Webber

Measure what matters

It seems simple and makes sense but many companies struggle to track and measure their financial and strategic performance.

At the beginning of the year, as you reset your priorities post covid-19, it is imperative that you understand the following:

•          Lead indicators of financial health

•          Key measures that are aligned to your strategic priorities

•          Targets for your key measures

•          Accountabilities for the key metrics

•          Investment required for each metric

•          How each metric feeds into the financials of the company

Having a weekly scorecard that measures your top 10-15 metrics is critical. When metrics are off target having clear accountability for someone to build a plan to address and reset expectations and understand impact on the financials.  

A very simple scorecard is a very useful tool to drive the right focus across the company. If you have too many metrics, you will lose your focus on the ones that are most critical.

Example metrics:

It is important to use a simple format that calls out variances to targets or prior comparative period. See below example.

A weekly / fortnight meeting to walk through metrics with actions and follow ups is critical to driving the right behaviour. Performance reviews and incentives should be aligned with these metrics to drive the desired strategic/financial results.

At the beginning of 2023 make sure you spend time getting this right. If you need help please reach out to us, we have a lot of experience with building metrics scorecards for companies and help drive accountability across the leadership team.

I believe driver trees are critical to determining your key metrics – please check out our recent article on driver trees here.

Advice for resetting strategic priorities

From a recent poll on LinkedIn, 50% of people responded that resetting strategic priorities was a key focus area for 2021.  It makes sense, 2020 was a very different year to what people had planned. Companies pivoted, reacted, and made decisions that were focused on survival.  Survival mode was the ultimate focus; do we have enough cash in the bank? Can we manage through this period of uncertainty and upheaval and survive to see the new world?

Everyone is excited to see the back of 2020 and focus on the new 2021. We are not back to normal and never will be, but it’s a chance for a clean slate, a chance to reset and a chance for companies to transition from survival to revival.  Resetting your strategic priorities is paramount and will ensure that you set your business up for success. Your employees are looking for leadership, vision, and a roadmap for the future. We have provided 5 key tips to resetting your strategic priorities.

5 Key Tips to Reset your Strategic Priorities

#1
Understand your customer and consumer behaviours

How has COVID changed the behaviour of your customer and consumers?  The purpose of your business is to deliver a product or service to a customer/consumer.  Understanding trends of their behaviours, expectations, wants and needs is critical.  We’ve published a range of articles on the impact of Covid, from reports to industry trends and tips on how to adapt and embrace agility - to get your hands on them, simple search our Thought Leadership articles for ‘Covid’ or click here to explore.

#2
Develop a roadmap focused on targeting the customer and consumer expectations

• A new product/offering

• A new go-to-market model

• A new pricing model

• A new service model

• A new operating model

Move quickly to get the best place in the market.  What do your customers and consumers expect, want, and need and how are you going to pivot your model to give this to them? If you are not sure, do some tests and trials to understand the reaction to some options and what gains the most traction. Explore more here.

#3
Find money to invest

This is the time to invest. If resetting your priorities is critical to ensure your business is successful, then you need to stop other things and find the money to invest for your desired future state.

Cash has been tight for businesses so you need to reassess your priorities and review all expenditure. Just because you have always spent money on something doesn’t mean it’s a good investment. It’s time to look at all expenditure and assess what is required to run the business and what can be repurposed to invest in the future.  The businesses that make this change/pivot will be the most successful. Find out more by watching our ZBB Video on YouTube or reading the Whiteark Zero Based Budgeting Guide here.

#4
Invest in your people

There are two main considerations:

• Do you need additional capability in your business with your change in approach/strategy?

• How do you retain your top talent with development opportunities within the business? Know your talent and maximise the value that the business gets from the talent.

There is a war on talent and it’s a good time to secure exceptional talent for your business. You need to understand your capability gaps and focus on getting the right people in the business to be the subject matter experts. It’s imperative that you focus on recruiting the right talent that you will need for the future, not just what you need today.

Companies spend money on recruitment but don’t invest enough money on development opportunities for their people.  This doesn’t mean formal training but internal development opportunities to work in different areas, work on projects and gain new experiences. It’s time to invest in your top talent to ensure you get the best out of them. Want to explore more? Read our article on The war on talent.

#5
Measure the metrics that matter

It’s true that what gets measured gets done.  Take time to understand the metrics that are aligned with the company’s strategic priorities – lead indicators are critical to ensure that the company is on track.  One scorecard that measures the top 10 metrics that are aligned to the strategic priorities is critical to monitoring your success. You also need to have clear ownership, roles and responsibilities for each metric. Want to explore more? Read our article on What gets measured gets done.

Resetting your Strategic priorities is critical to set your business up for success in 2021. 

Take time to reflect on what is working and what needs to change.  The 5 key focus areas above is a good structure to consider when updating your strategic priorities.

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Looking to reset your own strategic priorities? Let us help.

Whiteark is not your average consulting firm, we have first-hand experience in delivering transformation programs for private equity and other organisations with a focus on people just as much as financial outcomes. We understand that execution is the hardest part, and so we roll our sleeves up and work with you to ensure we can deliver the required outcomes for the business. Our co-founders have a combined experience of over 50 years’ working as Executives in organisations delivering outcomes for shareholders. Reach out for a no obligation conversation on how we can help you. Contact us on whiteark@whiteark.com.au

Public M&A Activity in Australia

Public M&A activity reduced in FY20, largely due to global uncertainty and economic impacts resulting from the coronavirus pandemic. The transactions accounted for in this document involve Australian ASX listed targets that were conducted (or announced as intended to be conducted) by way of takeover bid or scheme of arrangement in FY20.

Source: Australian Public M&A Report 2020, Herbert Smith Freehills

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TOTAL DEAL VALUE: $13.4bn
FY19 was $45.9bn / (FY15-FY19 average: $36.1bn)

ANNOUNCED DEALS: 51
FY19 was 63 / (FY15-FY19 average: 57)

SUCCESS RATE: 63%
FY19 was 74% / (FY15-FY19 average: 71%)

MEGA DEALS >$1bn: 2
FY19 was 8 / (FY15-FY19 average: 7)

DEALS INVOLVE A PRIVATE EQUITY BIDDER: 29%
FY19 was 21% / (FY15-FY19 average: 17%)

FOREIGN BIDDERS BY VALUE: 60%
FY19 was 80% / (FY15-FY19 average: 65%)

UNSOLICITED TAKEOVER BIDS: 29%
FY19 was 62% / (FY15-FY19 average: 37%)

MEDIAN TARGET VALUE: $124m
FY19 was $109m / (FY15-FY19 average: $102.1m)

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• The significant reduction in total deal value ($13.4bn) relative to the number of deals (51) highlights the absence of mega deals (>$1bn), with only 2 mega deals announced - the lowest recorded in 12 years.

• Private equity emerged as a keen capital provider, with the ability to look beyond the pandemic in making investment decisions.

• There was a steep incline in the number of deals announced in the second half of FY20 -- prior to January 2020, 18% of deals were unsolicited and post January 2020, 43% of deals were unsolicited.

• Cash has re-emerged as the preferred form of consideration, with 74% of all deals offering shareholders only cash (66%) or a choice of cash (8%) as consideration. Deals were more likely to succeed if cash was offered as a consideration.

LOCATION OF TARGETS PER STATE

VALUE OF DEALS PER SECTOR

10 LARGEST ANNOUNCED DEALS

Looking for some help with M&A? We’re your people.

Whiteark is highly experienced in providing services to Private Equity firms and has had great success at driving an improvement in returns through involvement in portfolio transition and transformation projects. We understand that execution is the hardest part, and we roll our sleeves up and work with you to ensure we can deliver the required outcomes for the business. Contact us on whiteark@whiteark.com.au

Managing Uncertainty: Three Key Strategies

A recent survey by Whiteark found that people in business were more concerned about uncertainty than any other issue.  This is understandable given the shocks of the past year, including extensive, tragic bushfires, the COVID-19 pandemic, an economic recession, and electoral mayhem in our most important ally, USA.

When business executives are confronted by increased uncertainty, many seek to cut costs – both operational and marketing – which is usually not an optimum strategy.

We seem to experience major shocks about once a decade and there are smaller unexpected disruptions more frequently.  I have listed the major such events that I can remember in Appendix 1.  As in 2019-20 there are times when we have to cope with more than one disruptive factor.  Other potential catastrophes and their impacts are listed in Appendix 2.

Can we predict shocks such as these, and so prepare?  If not, how can we survive such shocks?  Why do some companies get stronger during a period of uncertainty?  Before addressing these questions, it important to consider the types of uncertainty that we may encounter.

Types of uncertainty

Reports that say there's -- that something hasn't happened are always interesting to me, because as we know, there are known knowns; there are things that we know that we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns, the ones we don't know we don't know.

Donald Rumsfeld (then US Defense Secretary) in February 2002, speaking about the lack of evidence linking the government of Iraq with the supply of weapons of mass destruction to terrorist groups.

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

— Mark Twain

It is a shame that Donald Rumsfeld was not more familiar with Mark Twain’s writing as he may have realised that there are two types of known knowns.  One is true known knowns and the other is fallacious known knowns.  The latter often stems from a false assumption or theory that has become a strong belief (had he known about the latter category, perhaps Rumsfeld may have referred to it as unknown knowns).

Economist Frank Knight, in 1921, defined risk as a quantity which can be measured while uncertainty is not measurable.  That is, we can compute the likelihood of a risk event occurring in a given year (perhaps on the basis of past frequency of occurrence) but uncertainty does not have a known probability distribution.

There may be some factors or events which are impossible to imagine and so these are completely uncertain.  This is most likely because they have never happened before.  They are the “Black Swans” of Nassim Nicholas Taleb or the unknown unknowns of Donald Rumsfeld.   Taleb, in his books Fooled by Randomness and The Black Swan, describes Black Swan events as having three characteristics.  The first is that nothing in the past could have convincingly pointed to its possibility.  Secondly, the event has an extreme impact.  Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the event – retrospectively making it appear to have been predictable even though it wasn’t predicted.  Technological developments can be Black Swans when it comes to long-term forecasting – for example, it would have been very difficult for someone in 1945 to imagine that in less than 60 years  there would be cheap, very small and powerful personal computers with high bandwidth links to billions of others.

There are some events which we know can happen but we don’t know where or when and how severe their impact could be.  These could include extreme weather events (such as hurricane Katrina) and other natural events such as volcanic eruptions, earthquakes, tsunamis, large solar flares, collisions with large meteors or comets.  Then there are disease pandemics and terrorist acts.  While these are highly uncertain, we know they can happen and may be able to take some precautions – such is improving the levee banks for New Orleans, constructing resilient buildings in earthquake prone areas, developing tsunami and volcanic eruption warning systems, and developing new medicines.

Financial markets and consumer markets can also suffer from events which we know can happen, but we can’t predict their timing or likely severity.

Then there are changes which are slow moving and there is little uncertainty about their impact – and yet we take little or no precautionary action.  The only uncertainty is when we will act.  Examples of this type of change are provided in Appendix 3.

Can we predict shocks and so prepare for them?

Yes, we can predict some types of shock and we can have some idea of their likelihood.  The following is from the editorial of The Australian Financial Review of 4 July 2011.

“Imagine this. The year is 2017 and a virulent strain of H5N1 avian flu has jumped from poultry to humans in the crowded southern Chinese city of Guangzhou. The virus quickly spreads across the porous border into Hong Kong, then sweeps rapidly through the rest of Asia. The World Health Organisation declares the outbreak a pandemic as governments around the globe break open their vaccine stockpiles in an effort to protect their citizens from the deadly virus. But the measures taken by health authorities do little to stop the spread of the virus. The pandemic ends up killing more than 50 million people around the world, transport and trade systems grind to a halt, and the global economy tips into a recession more severe than that caused by the financial crisis of 2008-10.”

The 2020 pandemic occurred three years after that posited in this scenario.  It was not avian flu, but a corona virus – although it did transmit from an animal and probably started in China.  As at 30 November 2020, 1.46 million people have died rather than 50 million but 63 million are known to have been infected.  The current global recession is indeed more severe than that of the financial crisis of 2008-10.

The scenario cited by the Financial Review was from an OECD report at the time, which identified and described several other potential shocks.

The current pandemic has been described by some as a one in a hundred year event by reference to the so-called Spanish flu of 2018.  It is not!  There was a deadly flu pandemic in 1957-58 which killed more than a million people worldwide (Asian flu).  The Hong Kong flu pandemic of 1968 also killed more than one million.  In the past 17 years there have two earlier deadly corona viruses – SARS (severe acute respiratory syndrome) in 2003 and MERS (middle east respiratory syndrome) in 2012.  They petered out, but should have served as a warning.

Despite these warnings we were unprepared for the pandemic.  We did not have enough supplies of personal protective equipment and sanitiser.  There had been no pandemic rehearsal for over a decade.

Managing uncertainty means that we should treat how we managed this pandemic as a dress rehearsal and learn from the experience.  There will be another pandemic and it could be soon.

It was possible to predict a severe economic slowdown in 2008-09, but people in power at the time did not want to see the signals.  In mid-2007, I was able to predict the slowdown in Australia and to warn my clients.  I realised that three shocks could occur together in about mid-2008 and that the combined impact would be a significant slowdown.  One was the sub-prime home loan boom in the USA, which was likely to slow their economy when the bubble burst.  Another was the Reserve Bank of Australia’s interest rate policy.  They had been lifting interest rates since 2002 in an effort to quell inflation.  I knew they would go to far and so they did, lifting interest rates in August and November 2007 and in February and March 2008.  By the end of 2004, the proportion of household disposable income which was consumed by interest payments exceeded the 9.7% record set on the eve of the recession of the early 1990’s.  By mid-2007, the burden was 11.7% and yet the Reserve Bank piled on the misery, lifting the burden to 13.3% on the eve of the GFC!  They obviously did not see it coming.  The third predictable impact was associated with the Beijing Olympics in August 2008.  I had visited Beijing in April 2007 and witnessed the huge construction boom as the whole city was reconstructed – not just sporting facilities.  A metro with 500 underground stations, whole villages demolished and replaced with apartment towers – all built using steel made from Australia’s iron ore!  It had to come to a shuddering halt before mid-2008.

The Reserve Bank of Australia did not see the GFC coming, but they were not alone in that.

Legendary US Federal Reserve Chairman Alan Greenspan said in 2008 "I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms”.  He regretted his earlier opposition to regulatory curbs on financial derivatives which left banks facing billions of dollars worth of liabilities.

The danger signs for Australia were there as I have described above, but the experts in charge of monetary policy and financial regulation were oblivious to them.  All it took was good general knowledge and imagination to develop the scenario.  Both of these skills are important in anticipating shocks.

The 2019-20 bushfires were of unprecedented ferocity, but they were predicted long in advance (see Appendix 4).  Adequate preparation was lacking, despite the predictions.

Preparing for uncertainty  

We can prepare for uncertainty by using two techniques: scenarios and peripheral vision.

Scenarios are plausible futures, like those described above for a pandemic and a significant economic slowdown.  They must be accompanied by plans for managing should they eventuate.   Developing a set of scenarios can increase resilience.  The aim is to develop plans which can succeed across a range of scenarios.  We do not attach a likelihood to each scenario because we are dealing with uncertainty but we may be able to discern which scenario is most likely as time goes on, based on a range of indicators.

Peter Schwartz wrote the early guide to scenario development, “The art of the long view” (Currency Doubleday, 1991).  He lists eight steps in the development of scenarios:

1. Identify the focal point or key decision.  This will increase the relevance of the scenarios.

2. Identify the key factors – what will the decision makers need to know when making choices?

3. List the driving forces that influence the key factors.

4. Rank the driving forces by their levels of importance and uncertainty.  This will focus the analysis on issues which are both highly important and uncertain.

5. Select scenario logics – a diverse set of plots spanning the range of plausible outcomes.

6. Fleshing out the scenarios – develop the narratives associated with each scenario.

7. Implications for each scenario – what are the opportunities and vulnerabilities revealed by the scenarios and how should strategy be adapted?

8. Selection of leading indicators and signposts – which can reveal, as time progresses, which  scenario is closest to the course of events as they unfold.

The intended outcome is plans which are robust across a wide range of uncertainty.  The individual scenarios should be rehearsed so that implementation of strategy adaptation is smooth and efficient.

Peripheral vision

The biggest dangers to a company are the ones you don’t see coming.  Understanding these threats – and anticipating opportunities – requires strong peripheral vision.
George S Day and J. H. Schoemaker in “Scanning the Periphery”, Harvard Business Review, November 2005.

Scanning the periphery is all about answering the question “what don’t we know that might matter”.  Often management reports are quite internally focused – on the business and the market in which they operate.  But demographic change, technological change, regulatory change, environmental change, amongst others can cause major disruptions to a business which are not anticipated.

Peripheral vision involves scanning the broad business and social environments for weak signals of potential change and analysing the implications.  This should be a continuous process.  Unfortunately, this activity can be seen as “nice to know” rather than “need to know” and investment in it can be seen as discretionary.  The global financial crisis which emerged in 2008 was not predicted by economists primarily because of groupthink and a failure of imagination.  Perhaps they had not invested enough in scanning the periphery.

Scanning is sometimes referred to as STEEP analysis (Social, Technological, Economic, Environmental, Political) and also has other acronyms such as PESTEL. 

Scanning the periphery differs from scenario analysis in an important way.  Scenarios start with a focus on the key decisions to be made and then identifies and qualifies influential factors.  Scanning starts with the broad business environment and then evaluates how future trends may influence the business.  I recommend that both approaches be employed as they provide complementary insights, which increases preparedness.

How can we survive during a period of uncertainty?

Some organisations lapse into pessimism and crisis mode.  They cut costs across the board, including marketing, and so hand market share to more optimistic competitors.  If the market is shrinking this is devastating and recovery is very difficult.

A study published by Harvard Business Review in March 2010 studied business responses during the three previous recessions to identify the most successful strategies.  It was found that the best performing businesses cut costs mainly by improving operational efficiency rather than by slashing the number of employees.  They also invested in growth. They developed new business opportunities by making significantly greater investments than their rivals in R&D and marketing, and they invested in assets such as plant and machinery to improve productivity.

During the current pandemic and recession governments and some businesses developed near real-time data so that strategy decisions were not based on out-of-date data.  Fortnightly data from the Australian Tax Office on payrolls was used to gauge employment and payrolls, banks provided data on consumer spending via debit and credit card records, the Australian Bureau of Statistics and private agencies conducted more frequent surveys to measure the mood and expectations of consumers and business managers.  Health departments provided daily updates on coronavirus infections.  Mobility data was provided by Google and Apple.

This is also referred to as “fast data”.  It is not only near real time, it is also more granular in respect to location, type of business and consumer demographic.

This regular flow of timely data allowed government economists, health officials, and businesses to adjust forecasts and strategy frequently – to be more agile.

Fast data is essential during periods of uncertainty and our experience in developing information systems over the past year and interpreting fast data will stand us in good stead for the next shock, when it comes.

Can we get stronger during a period of uncertainty?

Harvey Norman sales soared during the pandemic, and so did profits and dividends.  Gerry Harvey said it was the best sales growth he had experienced in 60 years of being in retail. “It started off with freezers and then it went to whitegoods and computers, then to televisions and then to furniture and bedding.  This performance was not by design, but was a consequence of working from home and compulsory cocooning during the pandemic.  Harvey Norman took advantage by strong investment in advertising from the outset.

Other retailers to prosper during the recession have been JB Hi-Fi, Bunnings, Kogan.com, and Temple & Webster.

During the global financial crisis most major brands of vehicles cut advertising investment significantly – because they were pessimistic about recent and expected future new vehicle sales.  One brand kept advertising and so significantly boosted share of voice and market share.  They have held on to that extra share ever since while one of the big brands then, Holden, have now exited the market.  That optimistic brand was Hyundai.

Nassim Nicholas Taleb, of Black Swan fame, recently wrote a book called Antifragile.  The theme is that resilience is not the opposite of fragile.  Something fragile breaks under stress, while something resilient does not: but something which is antifragile gets stronger under stress.  Hyundai during the global financial crisis is a good example of antifragility.

These successes reinforce the findings described in the Harvard Business Review article mentioned above.  Investment in growth during an economic slowdown, while also improving operational efficiency, is the best strategy for prospering during periods of uncertainty.

Key strategies for managing uncertainty

1.     Anticipate.  Use scenarios to construct a set of plausible futures complete with appropriate plans for each.  Rehearse the plans and use peripheral vision to be ready to respond quickly.  

2.     Respond.  A strategy which is a mix of improving operational efficiency and investing in growth through increasing market share or creating new opportunity is needed to survive and prosper during a period of uncertainty.

3.     Monitor and adapt.  Develop a “fast data” capability to increase agility as uncertainty develops, peaks, and ebbs.

Article written by Charlie Nelson, Director Foreseechange

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Looking to prepare and plan for uncertainty? Let us help.

Whiteark is not your average consulting firm, we have first-hand experience in delivering transformation programs for private equity and other organisations with a focus on people just as much as financial outcomes. We understand that execution is the hardest part, and so we roll our sleeves up and work with you to ensure we can deliver the required outcomes for the business. Our co-founders have a combined experience of over 50 years’ working as Executives in organisations delivering outcomes for shareholders. Reach out for a no obligation conversation on how we can help you. Contact us on whiteark@whiteark.com.au

Appendix

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Appendix 1: disruptive shocks over the past 50 years

This list is intended to illustrate the range of shocks rather than being comprehensive.

Appendix 2: potential disruptive shocks

Every year, the World Economic Forum brings out a risks report.  Prominent on the 2020 list were a cyber attack, extreme weather, natural disasters, and human-made environmental disasters.

In 2020 Australian population growth has slumped due to a fall in net migration.  Could there be a significant decline in fertility to continue slow population growth?  It has been speculated that fertility will fall because young adults will be reluctant to bring children into a world where COVID-19 is still a threat in the short-term and climate change is a threat in the medium-term.  The recession also has the potential to cause a temporary decline in fertility due to concerns about unemployment.  Australia’s fertility has been running at around 1.8 births per woman and other countries such as Italy and Japan have lower fertility of around 1.3.  This topic has been researched by foreseechange and current indications are that a significant decline in fertility for an extended period is unlikely but cannot be ruled out.  This research is ongoing.

Solar flares are a hazard for electronic communications.  The last major disruption was the Carrington event in 1859, in the days of the telegraph.  A huge solar flare followed by a large coronal mass ejection struck Earth and induced huge currents into wires causing extensive and costly damage.  Lesser events struck in 1921 and in 1989, the latter causing a huge blackout in Canada.  In 2012, there was an event of similar magnitude to the 1859 Carrington event which passed through Earth’s orbit – fortunately, the planet was in a different quadrant of its orbit.  A repeat of the Carrington event today would severely disrupt all forms of communication, power transmission, GPS and other navigation, and damage pipelines.  The recovery time has been estimated at four to 10 years and the cost at up to $2 trillion in the first year.

In 1908, a large comet or asteroid caused a major explosion over Siberia (the Tunguska event).  The energy released was up to 1,000 times greater than the atomic bomb dropped on Hiroshima in 1945.  Fortunately the area was sparsely populated, but such an impact on a major city would be catastrophic on an unprecedented scale.

A major volcanic eruption is capable of blocking sunlight over large areas for extended periods, creating severely cold conditions.  This can reduce food production and cause illness, as well as curtailing air travel.  There have been several such events in history and they may happen about once every 1,000 to 2,000 years.

Appendix 3: slow and steady disruptions

There are changes which are slow, but steady and seemingly irrevocable – because we do too little to manage the consequences and risks.  This procrastination has current and future financial and human costs.

One of these is the ageing population, combined with still increasing lifespans.  The baby boom of 1946 to 1964 was followed by a baby bust in the 1970’s as women became more able to control their fertility.  This meant that there would be a large generation reaching the traditional retirement age around 2011, followed by a smaller generation than would have previously been expected.  This future problem was evident before 1980.  The predictable consequences were increased funding to pay age pensions, increased demand for health and aged care facilities, and a need to encourage people aged over 65 to keep working.

In the 1990’s a compulsory superannuation scheme was set up and every other predictable need was also put off.  We have not caught up with the needed infrastructure and services yet and there are too many people over 65 who want to keep working but who cannot secure a job.

Another is climate change.  The countries of the world gathered in Rio di Janeiro in 1992 and agreed to take action to reduce the risk of dangerous climate change.  In the 28 years since, the concentration of carbon dioxide in the atmosphere has continued increasing at the same rate.  Temperatures in Australia and much of the world continue to increase.  Sea levels are increasing at a faster rate.

Appendix 4: predicting extreme bushfire conditions in 2019-20

Twelve years ago, economist Ross Garnaut made a prophecy that has devastatingly come true.

In the 2008 Garnaut Climate Change Review, which examined the scientific evidence around the impacts of climate change on Australia and its economy, he predicted that without adequate action, the nation would face a more frequent and intense fire season by 2020.

ABC News, 8 January 2020

I, too, provided warnings.  In July 2011, I wrote to the Victorian water minister predicting severe drought in the period 2017 to 2022.  The prediction was applicable to much of south eastern Australia.  The reply, In September 2011, said that the driver of drought which I proposed was not considered by mainstream climate scientists to have a plausible mechanism.  The reply said that planning processes are designed to cope with variability including severe drought.

In January 2019, I again wrote to the Victorian water minister saying that my prediction had come true and that it was time my predictions were taken seriously.  I included a copy of the previous correspondence.  It was a different water minister and a government of a different political party, but the reply was almost a carbon copy:  the government works with Australia’s most experienced and respected researchers and planning processes are designed to cope with a wide range of climate futures including prolonged drought.  Only months later the many victims of the terrible bushfires would disagree with that statement!

Twenty-three former fire and emergency leaders say they tried for months to warn Prime Minister Scott Morrison, beginning in April 2019, that Australia needed more water-bombers to tackle bigger, faster and hotter bushfires.  They were not able to get a hearing.

The catastrophic bushfire conditions were caused by both extremely low rainfall and record high temperatures.  This combination of conditions was unprecedented, but predicted.  The charts on the following page show how severe the conditions were in the three years 2017 to 2019. 

Chart 1 shows the annual rainfall in the Murray Darling Basin, along with the rolling three year average.  The average over the period 2017 to 2019 was the lowest ever recorded three year period, consistent with my 2011 prediction.  Chart 2 shows the mean temperature  and the three year average.  The three year average temperature over the period 2017 to 2019 was the highest on record by a huge margin.  Even more severe conditions may be less than 20 years away!

Chart 1

Chart 2

Article written by Charlie Nelson, Director Foreseechange

A clearly defined playbook with value creation initiatives is critical for Private Equity firms

Revenue contribution to the Private Equity industry in Australia is forecast to decline 3.5% in 2020-21 due to Covid-19 disruptions, however, it is expected to grow 2.6% over the years through to 2025-26 to $725.3M.

Private Equity firms need to consider the following four actions to ensure they can add value to individual companies, outperform the market, and become an organisation that can confidently generate attractive returns:

1. Articulate a new, clear value proposition either through specialisation or economies of scale.

2. Achieve excellence in talent, governance, and organization.

3. Refine how to successfully originate and execute on deals.

4. Prepare for successful exits at least 18 months prior to a planned exit; allowing time for asset owners to shape a compelling equity story.

The pressure for Private Equity firms to achieve profitable returns is critical, even more so in today’s economic environment.  In order to be certain they can achieve consistent returns in the fund they must focus on purchasing the investment at the right price and focusing on accelerating value creation initiatives to ensure that they can sell at a significant increase in multiple.

Private Equity firms must have a clearly defined playbook which contains value creation initiatives to support the investment thesis. This provides an advantage in knowing what to pay and the level of risk. The playbook should be refreshed and prioritised for each investment.

An asset’s full potential is realised through a holistic approach that optimising operational performance, enhancing strategic capabilities and effective capital management. The efficient use of capital is also a critical component of valuing an asset’s full potential. Capital deployment is an important foundation to support strategic and operational initiatives.

Strategic Levers

Drive Multiple
Transforms the Business Model

• Mergers and acquisition

• Geographic expansion

• Customer segmentation

• Strategic pricing

• Product strategy and innovation

• Aftermarket/service strategy

• Distribution strategy

• Digital transformation

• Data strategy

Operational Levers

Drivers EBITDA Margin
Transforms Execution of the Business Model

• Pricing optimisation

• Sales force effectiveness

• Product portfolio optimisation

• Operational efficiencies through optimisation – manufacturing, distribution

• Cost to serve

The business world is changing with the rapid evolution in technology, and in order for Private Equity firms to maximise the returns on their investment funds, a value creation focus in digital transformation is important.

The goal of digital transformation is disrupting existing business models, improving customer experience, and creating operational efficiency.

Strategic acquirers are more likely to pay higher multiples for successfully digitised companies, given that they are easier and faster to analyse and integrate.

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Looking to create your own playbook? Let us help.

Whiteark is highly experienced in providing services to Private Equity firms and has had great success at driving an improvement in returns through involvement in portfolio transition and transformation projects. We understand that execution is the hardest part, and we roll our sleeves up and work with you to ensure we can deliver the required outcomes for the business. Contact us on whiteark@whiteark.com.au

Guide to Zero Based Budgeting

Zero Based Budgeting (ZBB) is a method of budgeting where all expenses are justified at the beginning of each new budget cycle and all assumptions documented.

So, what exactly is Zero Based Budgeting?

• Budgets are not connected to prior year spend

• Funding is allocated to activities aligned to strategy

• Eliminates sandbagging practices - evenly distributing expense increases/reductions across business units

• Requires comprehensive understanding of activities and cost structure

• Budgets are allocated to necessary business activities and based on the levels of effort required

• Requires analysing and prioritising activities and expenses

The Benefits of Zero Based Budgeting

• Strategic priorities and focus areas can be achieved more successfully under zero-based budgeting

• Business units are forced to link their spend to focus areas/initiatives that support the organisational

• objectives

• The annual review ensures no initiatives continue beyond their productive life

• Efficient allocation of resources, as it is based on needs and benefits

• Identifies and eliminates wastage and out-of-date operations

• Drives managers to design and develop cost-effective techniques for improving processes

• Detects inflated budgets

• Promotes questioning and challenging attitudes

• Increases staff motivation because it gives them more responsibility and the ability to contribute to the

• decision-making process

• Increases communication and coordination within the organisation

The Challenges of Zero Based Budgeting

TIME & RESOURCES

• It is time consuming having to justify each expense in order to arrive at a solid foundation to support the requirement.

• A lot of manpower is required to successfully build a ZBB.

BIAS TOWARDS SHORT-TERM PLANNING

• ZBB can reward short term thinking.

• Can limit investment in growth because short-term benefits may take precedence over long-term planning.

DETAILED KNOWLEDGE

• It is necessary to train managers well as they are ultimately responsible for the management, decision-making and the communication of the entire process.

• Difficulties associated with ranking functions that are qualitative in nature mean there is a risk of cutting non-core costs that support a customer’s or consumer’s experience. This ultimately puts into jeopardy brand value in the long-term.

AWARENESS FOR DETAILS

• As the volume of the required data & forms is very large, no one is capable of knowing every detail of its content and decisions.

• There is a risk to compressing information and details because this might remove critically important data.

BIAS TOWARDS SHORT-TERM PLANNING

• Honesty and consistency of the managers must be reliable and uniform.

• There could be possible manipulation by managers to get more resources into their department.

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How to build a Zero Based Budget in 7 Steps

1. Determine Group Strategic Goals/ Priorities

2. Align investment and initiatives to Group Strategy 

3. Communicate budget process, timeline and expectations

4. Provide key assumptions and templates for each P+L item

5. Create templates for CAPEX, Balance Sheet, Cash Flow, Treasury

6. Document all assumptions and supporting data to refer to during budget reviews

7. Be courageous and curious when reviewing business unit budgets

Need help to build your own Zero Based Budget? Reach out.

Whiteark is not your average consulting firm, we have first-hand experience in delivering transformation programs for private equity and other organisations with a focus on people just as much as financial outcomes.

We understand that execution is the hardest part, and so we roll our sleeves up and work with you to ensure we can deliver the required outcomes for the business. Our co-founders have a combined experience of over 50 years’ working as Executives in organisations delivering outcomes for shareholders. Reach out for a no obligation conversation on how we can help you. Contact us on whiteark@whiteark.com.au

Digital Commerce

According to Gartner, five areas of digital commerce are being transformed due to the effect of Covid-19 on customer behaviours and businesses accelerating their adoption of online and digital alternatives.

1. Contact Purchasing

Contactless purchasing has become a preferred payment. Gartner predicts 80% of ordering and replenishment  will be contactless by 2024.

Customers:

Contactless payments and pickup/delivery

Operations:

Contactless business operations where companies can use robotics, artificial intelligence and computer vision to assist employees across the supply chain

2. Virtual Product Reviews

Currently the adoption of 2D and 3D product previews remains light.

Gartner predicts the uptake  will increase - software vendors offering visual configuration tools have reported a rise in business due to the pandemic.

Virtual Product Reviews may reduce the need for samples and showrooms and enable more customer self-service when buying configurable products.

3. Live Commerce Streaming Services

Live commerce involves video streaming to demonstrate products and interact with shoppers in real time to encourage purchases. Brands that have implemented livestreaming for selling or customer engagement are seeing early signs of success.

4. B2B Buying Experience

Businesses that sell B2B should think about transforming their shopping platform into one that has a more consumer-like feel to gain traction with younger professionals as they will expect a B2C like experience.

5. Enterprise Marketplaces

Enterprise marketplaces are online marketplaces operated by organizations that enable third-party sellers to sell directly to end customers.

Need to make the most of digital commerce trends?

Let us help. To learn more about how to leverage digital trends and pivot your business, contact us on whiteark@whiteark.com.au

How to prepare for sale?

To maximise the value of your business on exit it’s imperative that you commence strategic planning work at least 18 months to 2 years out from sale.

Key elements that need to be considered in your strategic plan include:

Key Business Drivers

Understand the key drivers of the business. 

Identify which of the drivers will have the greatest impact on the business valuation.

Competitive Environment

How are your products or services positioned in the market?

Who are your direct and indirect competitors?

How does your pricing structure compare to the competition?

Potential Buyers

Understand potential companies that could acquire your business.

What would they consider the most important value drivers?

Global Mergers & Acquisitions

Review global activity within your industry and understand the trends and key information.

Our 6-step guide to maximising value…

Key activities to undertake when preparing your exit plan.

Revenue & Margin Analysis

Understand which customers, products and markets generate the most revenue and the have the most attractive margins. This will drive improvements in performance, making your business more profitable and appeal more attractive to buyers.

Growth Plan & Scenario Assessment

Build a financial model that considers multiple scenarios to demonstrate how further profitable growth can be achieved to maximise your future sale value.

Overheads & Profitability

Analyse overheads and reduce fixed costs to enhance profit margins and increase the value of your business.

People

Create incentives for critical employees to remain in the business post the sale, to minimise risk for the buyer and to ensure the business valuation is defensible.

Financial Governance and Reference Books & Controls

Make sure that the business’ financial statements and accounting information is accurate. This will elicit compliance, assurance in numbers and transparency. Buyers like it when business operations run smoothly and efficiently so it is important to document business processes, review controls and update systems to improve the value and desirability of your business.

Data & Documentation

Ensure documentation required for the sale process is readily accessible to allow buyers to complete the due diligence quickly and efficiently. This will reduce risk for the buyer and maximising value for you.