Wilson Perumal & Company - firm overview

Strategy • Execution • PerformanceCreating Value in a Complex World

Wilson Perumal & CompanyFirm IntroductionMarch 2016

2Wilson Perumal & Company, Inc.

OverviewWilson Perumal & Company

1. Simplifying your Customer Offer (Markets, products, and pricing)2. Optimizing your Operating Model (Assets, governance, partners, organization)3. Strengthening your company’s Management Processes (Management System)4. Realizing a Culture of Operational Discipline5. Understanding and Managing Complexity (across all areas)

Key areas of focus

Publications • Waging War on Complexity Costs, McGraw-Hill 2009• Growth in the Age of Complexity, McGraw-Hill 2016

Offices • Headquartered in Dallas, TX• UK subsidiary based in London

Clients• Typically mid-large companies (>$500M in revenues), private equity firms and

select areas of the US government• Across industry with significant experience in industrial sector manufacturing

(i.e., pumps, HVAC, packaging equipment, coatings, wire & cable, tools, etc.)

Point of View

Recognition • Best Small Strategy Firm to Work for, 2014, Consulting Magazine• One of 12 to Watch (Seven Jewels edition), 2012, Consulting Magazine

Complexity is destroying many organization’s ability to create value. Lacking organizational and operational capabilities to deliver on market value-add variety, and weighed down by the cost of internal complexity, companies need different tools, approaches, and strategies.

A strategy consulting firm helping clients create value in a complex world

Wilson Perumal & Company, Inc.

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Complexity is exceeding the capabilities of many organizations…

Complexity is the number of “things” you have to manage

The impact of complexity is higher cost and risk and a reduced ability to grow. Complexity is the opposite of scale!

4Wilson Perumal & Company, Inc.Source: Company Financial Statements; WP&C analysis

…and likely why a surprising number of S&P 500 companies are failing to achieve economies of scale

Economies of scale

DIS-economies of scale

S&P 500 companies with economies (or dis-economies) of scale9 years financial data as of January 2015

n = 423

Almost half of S&P 500 companies are actually

becoming less efficient as they grow


But not surprising is that economies of scale leads to significantly higher stock price appreciation

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50.00%

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150.00%

200.00%

250.00%

300.00%

350.00%

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450.00%

Companies with greatest economies of scale

Companies with least economies of scale (dis-

economies)

The top 20% of companies have 9X higher stock price

appreciation

Top 20% Bottom 20%

Stock price appreciation of S&P 500 companies (sorted by most to least economies of scale)9 years financial data as of January 2015

n = 423

Source: Company Financial Statements; Google Finance; WP&C analysis


Failing to achieve economies of scale appears to be due to an inability to control costs (not lack of growth)

• The bottom 20% of companies (those with the greatest DIS-economies of scale) actually have the highest revenue growth

– And companies in the remaining tiers have fairly consistent revenue growth

Top 20% Bottom 20%0.0%

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Companies with greatest economies of scale

Companies with least economies of scale (dis-

economies)

Revenue growth of S&P 500 companies (sorted by most to least economies of scale)9 years financial data as of January 2015

n = 423

Source: Company Financial Statements; WP&C analysis

7Wilson Perumal & Company, Inc.Source: Company Financial Statements; WP&C analysis

This lack of cost control manifests itself in one of three ways—failing to control COGS, R&D, or SG&A

• COGS is almost always the single largest cost driver in a business and failing to control COGS while revenue is growing leads to dis-economies of scale 55% of the time

SG&A 20.0%

R&D 25.0%

55.0%COGS• Companies over-investing in R&D without seeing an

associated uplift in revenue or profits is the second leading reason why companies fail to achieve economies of scale

• 20% of the time, the issue lies with SG&A– Seeking growth, companies invest in sales and

marketing but fail to see the uplift in revenue (or they add too many brands, products, or geographies which significantly hampers productivity)

– Or, companies add overhead, management, or administrative costs without considering the cost impact


In many cases, product proliferation drives such complexity and is a good place to start simplifying

• Often the most profitable 20% to 30% of products generate more than 300% of the profits in a company, meaning…

• …the remaining 70% to 80% lose 200% of the profits

• Islands of profitability in a sea of costs!

Products that create profit

Products that “lose” profit

0% 25% 50% 75% 100%

100%

300%

% Total Products

0%

% TotalProfits

The “Whale Curve”

Source: Sievanen, Suomala, and Paranko, Activity-Based Costing and Product Profitability (Tampere, Finland: Institute for Industrial Management, Tampere University of Technology)


Our complexity-adjusted profitability approach allows you to quickly see product performance differently…

Square Root Costing is a faster, more dynamic way to understand and see the impact of complexity on cost

• Helps determine where the business has truly achieved scalability and where complexity costs are eroding profits

• It answers the question: at what volume would Product A achieve profitability, if at all?

While standard methodologies spread costs evenly making all products look profitable…

…Square Root Costing reveals which products are truly profitable and which are not

Square Root Costing in Action

At MillerCoors we recently determined the cost and profitability of their 1,700 products, across all nine

breweries, and down to the operating profit level

“This was a quick and painless way to understand our true product profitability, and it

challenges how we think about our business. I am

extremely pleased with the results.”

—Fernando PalaciosEVP, Chief Integrated Supply Chain Officer

MillerCoors LLC

Square Root Costing in Action

Wilson Perumal & Company, Inc. 10

…and helps companies make the right decisions in their portfolios to reduce cost AND enable growth

1. Understand how complexity impacts your profitability

• Use complexity costing to determine where the business has scalability and where complexity costs are eroding profits

2. Balance incremental revenue vs. incremental cost

• Incremental revenue: revenue that would be lost if SKU was removed

• Incremental cost: cost that would be released if SKU was removed

3. Substitutability: the unsung hero of a successful portfolio optimization

• Leverage in-depth customer research and internal analysis to ID substitutes for high-volume products (to unlock more cost w/o sacrificing revenue)

4. Don’t just “cut the tail”

• Don’t just “cut the tail”• Consider incremental

revenue & cost, and substitutability to uncover real opportunities to optimize your portfolio


McGraw-Hill, 2009 McGraw-Hill, 2016

• Complexity Costs• Product, process &

organizational complexity• Systemic issue: holistic

approach• Reshaping cost structures

through concurrent actions

• Scale vs. Complexity• The Sirens of Growth• New mindsets, capabilities• Achieving profitable growth by

understanding scale, and keeping complexity at bay

“WP&C’s approach to complexity is the most direct route to an efficient, profitable enterprise.”

—Ed Lonergran, CEO, Diversey Inc.

We are the experts in understanding and tackling the challenges associated with complexity

"At Samsung Electronics, a simple and speedy decision-making procedure has contributed to our success. Complexity is one of the biggest impediments to operational speed. The authors present a practical approach for tackling it. This book is inspiring.“ —Oh-Hyun Kwon, Vice-Chairman and CEO,

Samsung Electronics

“Regulators and government officials should read this book and take notice. Complexity dramatically increases costs and risk of failure.”

--Andy Beal, Chairman and CEO, Beal Bank

“Separating good from bad complexity costs is a critical task facing companies today, and the authors provide a compelling roadmap for solving the problem.”

—Mike McCallister, President and CEO, Humana, Inc.


When it comes understanding complexity and costing, our unique approach is gaining a following

“This was a quick and painless way to understand our true profitability, and it challenges how we think about our business. I am extremely pleased with the results.”—Fernando Palacios, COO, MillerCoors LLC


Testimonials“WP&C combines the level of talent and capability of the name-brand strategy firms with the great working relationship, partner engagement, and level of personal commitment you can only get with a smaller firm. WP&C is the best of both worlds.”

—Dave Hoogmoed, President, Land O’Lakes Purina Feed “This was a quick and painless way to understand our true product profitability, and it challenges how we think about our business. I am extremely pleased with the results.”—Fernando Palacios, COO, MillerCoors LLC

“If you take all six times where we looked at this, over the past ten years, and rolled them all up together, and multiplied by ten, it would still not be as good as this work.” —Bill McNabb, CEO, Vanguard Group, Inc.

“You are analytical and smart, but you also get things done!”

—Chris Harwood, Portfolio Executive, Doughty Hanson & Co.

“This work represents the best understanding of the ammunitions logistics base I have seen…I for one have been waiting for this for years.”

—Installation CommanderCrane Army Ammunition Activity (CAAA)

“I have been more than pleased with what you have been able to accomplish in this time. Beyond my expectations…Spectacular!”

– Peter Benton, COO, Worldwide Clinical Trials, Inc.

Over the last few years we have used many consulting firms, including McKinsey and Bain, but we feel we got the most value in this area from WP&C."

—Bert Davis, SVP Transformation, Stanley Black & Decker, Inc.

“Fantastic piece of work! You’ve really shed a lot of light on our business.”

—Rupert Pearce, CEO, Inmarsat plc

“The best work I have seen in Operations Development. A case study for us as a business.”

–John Browett, CEO Dixons Retail

“You have got more done in the first 2 weeks than 90% of project teams I have seen”

– Bruce Roberson, Advisor to the board, Contech Engineered Solutions (& former Senior Director, McKinsey)

“We have never been able to achieve these kinds of results before with consultants.”

—Private Equity Executive, The Jordan Company

Wilson Perumal & Company, Inc.14

Customer Offer

• Market and customer expansion proliferate the portfolio confusing Sales and Customers alike

• Products and pricing practices drive cannibalization and discounting

• Customer service and experience degrade as the business becomes harder to manage

We have built expertise around 4 key areas: where value creation breaks down in the face of complexity

OperatingModel

• End-to-end value delivery becomes ineffective (order to cash, concept-to-launch, etc.)

• Misaligned cost-to-serve and value offering result in missed revenue and/or margin

• Processes, technology, and organization no longer fit or support the needs of the business

Management Systems

Culture for Execution

Strategy Execution

How Value Creation breaks down:

Recapturing Value:

Right Offering Optimized Structure Effective Management Operational Discipline

X X X

• Portfolio Optimization

• Pricing Strategy

• Complexity Costing

• Multiple management systems resulting in duplicated and overlapping processes

• Lack of clarity of ownership for management processes resulting in organizational complexity and politics

• Unclear expectations resulting in a lack of accountability

• Command and control culture that is unable to anticipate risk and learn from mistakes

• Lack of Operational Discipline resulting in inconsistent performance and variation

• High variation in norms and behaviors resulting in silos and making it difficult to work across business units

• Rapid Assessment

• 7 Element Operational Excellence Management System

• Culture Assessment and Alignment Process (CAAP

• 5 Pillars of Operational Discipline

• Op Model Diagnostic

• Value Stream Optimization

• Operating Model Design


Case: F500 manufacturer in low-growth, low-margin market uses portfolio optimization to drive savings

Results: $8M in EBITDA improvement across eight manufacturing plans

Complexity adjusted costing showed 33% of products were unprofitable

Client was shocked to learn that distribution was larger driver of cost than manufacturing

Focusing on reducing excess movements between plants…

…helped drive more local plant production and drive significant savings


Case: a successful construction materials company knew it needed to simplify to maintain growth

Results: Expected $20M in net annual EBITDA benefit in year three

We evaluated customer value proposition & selling effectiveness…

…to discover that with product growth, responsibilities & accountability had become blurred

We evaluated product and channel performance and came up with practical alternatives…

…to ultimately redefine channel strategy and optimize the sales team structure

North America EuropeOne Galleria Tower

13355 Noel Road, Suite 1100Dallas, TX 75240

972-716-3930

Longcroft House2/8 Victoria AvenueLondon, EC2M 4NS

+44 (0)203 206 1496

[email protected]

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Wilson Perumal & Company - firm overview