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Operations Improvement
for Exit Planning
This was originally presented to the Exit Planning Exchange of Connecticut in January, 2017. It was based on their 2016-2017
case study series which can be found here:
To learn more about XPX, visit https://exitplanningexchange.com
Agenda
The approach
The roadmap
Our case study
Table stakes
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3
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About our case study company, HiTech• Middle-market IT services and equipment company• Wants to exit within 10 years, sooner if possible• Previous round of PE and strategic buyer discussions did not expose
adequate value in the business• No interest from 30+ strategic buyers• Limited interest from 120+ PE firms and value wasn’t as high as expected• Small but successful product portfolio• Run out of one location, some limited global reach
What are “operations”?Operations are the processes and resources that
are used to produce the goods or services a business offers
• Meta-process• Business processes• Outsourced processes
Business Processes
• Platforms• Foundational systems• Value-added systems
Systems
• Organization structure• Talent development• Governance and controls
Structure / Talent
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Reduce RiskAdd Value
Reduce costs
Enable top-line growth / improve margin
Enable and drive innovation
Predictable revenue cycle
Reduce key-man risk
Compliance and security
What is our goal?Add value to over a specified period of time
and reduce risk for investors
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First, let’s talk approach
Our process
• Define org and management capabilities
• Process and system mapping
• Document conceptual architecture
• Plan projects
• Onboard project owners
• Choose vendors
• Perform detailed designs
• Build solutions
• Train staff
• Deploy solutions
• Monitor and stabilize
• Plan and roll-out improvements
• Document current-state
• Document goals
• Understand growth expectations
• Identify target metrics
• Define high-level operating structure
• Document current ecosystem
• Solicit employee feedback
• Gather improvement opportunities
• Document risks and challenges
• List and prioritize benefits of each opportunity
Define/ Understand
StrategyAssess Develop
Roadmap Implement
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Talent: Org Chart / Operating ModelOrganizational Chart• Shows all roles, reporting lines• See number of direct reports, overlapping
responsibilities• Visual of where personnel cost and complexity
sit, where complexity can be taken out
Operating Model• Documents the mission and responsibilities
of every role in the organization• Maps responsibilities and capabilities to a
role, not an individual9
Processes and Systems: Driven by ProcessProcess Framework• Gets everyone talking the same language• Think about business process, not “tasks”• Clearly divides processes used to deliver a product
or service and those that support that delivery
Process Assessment• Level of maturity, # of people collaborating
on a single process• The systems involved with each process• Top 5 improvements for each process
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Why do you need defined processes?
ScalingPredictable operations, data, and behaviors across locations. Make it easy to add people and locations and to integrate acquisitions
EfficiencyPerform operations at lowest cost, pursue automation, increase margin
EffectivenessEnsure business activities achieve reliable outcomes, meaningful data, and can be easily adopted and understood by users
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What do you need to be careful about?• Cannot be all about control will make company slow-responding,
minimally reduce risk• The tools drive the process. Do not skimp on system selection• Once you implement a system, the process becomes more difficult to
change (by design). Stabilize processes before building too much infrastructure around them• Adoption is paramount. Moving too fast endangers adoption, carries
cost, and makes future improvements even more difficult
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Setting the stage for value, the role of “digital”
Digital is the most modern, efficient way to unlock enterprise value and is key to leanly creating massive growth
• Union of process, tech, people• Focused on execution• Constantly iterating, evolving
• Customer is at the center of most
decisions. How does this investment benefit our customers and how well we know them?
Mobile Big Data
AnalyticscX Tools Process Automation13
Pre-Roadmap: Operations investments compound
ValueCompounds over time
RiskControlled at strategic points
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
EBIT
DARi
sk P
rofil
e
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Building foundations for value
Some investments have little short term benefit, but are required for significant downstream value drivers
Master Data Modeling
Data Maintenance
Processes
CRM + Sales Operations
Example: Sales and Marketing
Marketing Automation
Fragmented, outdated customer data
Keep customer data current, SST
User customer data for targeting; sales operations
Automate and micro-target potential customers
$ | | $ | / | $$ | / | $$-$$$ | |
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Cost | Difficulty | Value
Build the roadmapFY2017 FY2018 FY2019
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Software
Organization
Infrastructure
Sales & Marketing
ERP Selection
CRM UpgradeERP Re-implementation
ERP Infrastructure
Marketing Analytics
Payroll and Benefits Mobile project management
Org design
Management training
Sales org and new hiresPricing tools and approvals
Security ProjectNew Wireless
Supply Chain Analytics Sourcing & Purchasing
Performance management rollout
Full companycommunication
Tech-stack upgrade
Holding Pen (projects yet to be scheduled): • Custom promotions upgrade• Warehouse management• Move Field Service to the cloud• IT risk assessment• Recruiting platform replacement
• Financial reconciliation tool implementation
Sample
New hiring process
Global rollout 1
Global rollout 2
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That all sounds nice, but what about HiTech?
Value judgementsCost reduction cases can be challenging for reasonably well-run middle-
market companies. Focus on growth benefits + low-hanging fruit.
Days Sales OutstandingOften lacks scale
Total Sales Reduction Total Savings
$34,795,000 2 days $17,349.84
$34,795,000 3 days $26,024.75
$34,795,000 5 days $43,374.59
FTE SavingsCan’t cut partial FTE
B/O Cost Automation Total Savings
$275,000 1.5% $4,125.00
$275,000 3.5% $9,625.00
$275,000 7.5% $20,625.00
Value primarily comes from growth + improved margin
Sales Transformation Sales and Marketing Automation Operational Scalability Structure and Talent Pricing
Cost of QualityWorth the effort, can be met through other
meansCOGS Reduction Total Savings
$25.23M 5% $1.26M
$25.23M 10% $2.52M
$25.23M 20% $5.05M
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Why was there little interest from strategic buyers?
My hypothesis: risk
• Few international resources
• Limited ability to support across time zones
• Need to be closer to growing markets
Geographic risk
• How will business run without partners?
• Are all sales relationship based?
• How will they price, buy, sell, collect without owners?
Key-man risk
• Concentration in a single vendor
• Means expertise in sales, purchasing, consulting limited
• 1 tech stack = little complexity. Can they handle more?
Vendor risk
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Use operational improvement to decrease risk
Vendor risk
Management structure
Cloud- based infrastructure
Sourcing processes, approvals
Geographic riskKey-man risk Vendor risk
Metrics and goals Operational
systems (ERP, CRM,
Knowledge Management)
Tracking tools / BI
Approval workflows and
thresholds
Management frameworks
and tools
SLAs, SOPs, FAQs, KX,
centralized support
Demand management
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What we heard that we can act on now…
“Streamline our management
structure to be a bit more
professional”
Yes! But also need to consider management disciplines and tools• What metrics will they be responsible for? How will
they be generated?• Where will process handoffs occur?• What staff will be they responsible for and do they
have the right skills?
“Improve our…operations to be more scalable”
Scalability will come from:• Defined roles• Defined processes (balance discipline and flexibility)• Systems – well selected, designed for the business,
owned by someone in the business. CapEx required
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What we heard that we need to set the stage for…
“Need more people… particularly skilled
technicians”
Maybe, but be careful:• Many smaller companies overspecialize specialties and
industry experience. Be strategic• You definitely need good managers and great
salespeople – often the best are generalists• Add strong managers before adding great technicians
Prepare for M&A
First time buyers need to minimize risk, maximize potential for value creation in the acquisition process:• Platform for integration – create scale you can use to become more
efficient, don’t just add revenue• Established, empowered executive team• Systems, data structures, metrics that existing managers know how to
understand and use
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What else it sounds like…
New Product Introductions
• Create a structured NPI process for folding new products and vendors into the portfolio.
• Assign a manager responsibility for each step of the process• Meet monthly to actively manage the process
• More new products• Fewer issues at launch• Better prepared for support
Vendor Rationalization
• Evaluate current vendors, especially on outsourced services and IT
• Contract re-negotiation and consolidation• Market survey and re-bidding for major services
• Easy cost reduction• Re-cast vendors as strategic
partners• Tighter selection process
Pricing and Approval Tools
• Develop process on paper including approval thresholds (distributed authority), digital workflow tools
• Make pricing more consistent, eliminate unneeded discounts, collect for all service delivered
• Easy cost reduction• Re-cast vendors as strategic
partners• Tighter selection process
HR Processes• Hiring process: job descriptions, recruitment strategy,
interview strategy, compensation, and benefits evaluation• Retention and staff development – manager training,
mobility, soft benefit policies, and performance management
• Attract better candidates• Vet candidates consistently• People as core competency
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Some other important projects for exiting companies
ERP
Customer Service Customer
SatisfactionSub-ledger Automation
SOXBusiness Intelligence
Cybersecurity
Knowledge Management
Backoffice outsourcing
eCommerceFulfillment Automation
Procurement Tools
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Our CredentialsLed process transformation, software selection, and implementation projects at every level of business – Fortune 500s, mid-sized, and small businesses
Advised Fortune 500 executives, family-run business owners, and founders on growth plans, operational improvement projects, and technology strategy & implementation
Delivered millions of dollars in operating savings and technology savings, with over $100M of projects delivered on-time and within budget
Construction Life Sciences Broadcast Manufacturing Franchising HospitalityReal Estate Publishing
Clie
nts
Indu
strie
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High-tech
