Turning Strong Words into Roads and Bridges

President Donald Trump recently announced his long-awaited infrastructure plan, which calls for $200 billion in federal funds to kick start $1.5 trillion in trickle-down infrastructure spending from state, local and private partners. What hasn’t been announced yet it is how exactly the $200 billion converts to $1.5 trillion.

Might this be another initiative that is bound to go nowhere?

The myth of infinite resources and the assumption of execution is painfully evidenced at many conglomerate producers by the proliferation of big initiatives and special projects. Symptoms of this modus operandi include failed initiatives, missed opportunities, and leaders who don’t have time to engage the people whose cooperation and commitment they need. Ultimately, the organization reaches a ceiling on what they can achieve and sport malaise for even the most basic initiatives.

As we may see with the infrastructure plan, wanting results usually isn’t enough- management needs to allow for it. This is usually accomplished by providing the a) mindset, b) methodology and c) setting the standard. In other words, results come by providing the organizational know-how in getting things done, through the willingness of managers to question their own processes (and those of their peers) and the organizational ability to “lock-in” results through performance monitoring and metric establishment.

Diagnose and Design

Rather than reflexively leaping into cost cutting or sales stimulus measures, it is essential that a core team of senior managers (and carefully selected functional leaders) first engage in a diagnostic process to examine the key leverage points in the business for opportunities. The value of these opportunities should not be more exact than +/- 20% at this point and should be prioritized by quantitative factors, such as annual year-on- year potential. Additionally, this is the time to set scope (which divisions or departments are off limits), base period data, capital allowances and payback rules. Coming out of the diagnostic phase, the team will have a clear idea on who should be involved to further clarify the potential opportunities and who should comprise the steering committee.

Data and Decision Making

At this point teams should be devised to work out the exact values of the high-level opportunities from the diagnostic. The leader of each team should be one who has the authority to implement the approved ideas. In supporting roles, the other team members would perform the analysis, test the ideas with other stakeholders and obtain these stakeholder comments with approve/disapprove recommendations. Ultimately, the chairman of the steering committee (usually divisional president or CEO) has the last say in whether the proposed idea lives or dies.

Deliver

This is arguably the hardest part of any great idea, and especially so for a step change process that may boast upwards of 300 money making/saving ideas. The successful formula proves that 2 weeks of dedicated project planning along with full-time Implementation Managers for 12 to 24 months are key ingredients to seeing the impact in the profit and loss statement. Additionally, the functional heads who are charged with implementation must have these responsibilities added to their upcoming performance appraisals.

Reaping Rewards

There is no argument that higher infrastructure investment in the U.S. is a dire need. Similarly, business performance improvement programs are vital to an organization’s ability to stay competitive on a day-to-day basis. But they are often limited in their effectiveness when launched without specifically answering the questions of: who will we be writing less checks to and how, or conversely, who will be writing us more and why? In these situations, a more effective response is an influx of effort on high value business areas with developed ideas that are embraced by the business community as a whole.

It’s time to turn words into actions and Make America Great Again.

Tackling the Culture Conundrum

Synergy syn·er·gy, noun: putting people, companies and ideas together to make an even bigger mess.

Can we start using the word “synergy” again with a straight face?

Nearly all mergers and acquisitions look great on paper. But according to recent Harvard Business Review report from 2017, the failure rate for mergers and acquisitions (M&A) sits between 70 percent and 90 percent.  It’s the stuff that doesn’t show up on a spreadsheet that can derail an integration.

North American aggregate producers wrapped up a year of moderate growth in 2017 (despite extreme weather conditions) and began to see a much-improved business and regulatory climate. Last year alone brought historical deals for top aggregate producers: Vulcan Materials (Aggregates USA), Martin Marietta (Bluegrass Materials) and CRH (Ash Grove Cement). The industry, on the heels of the third longest recovery since the Great Depression, is flush with significant available liquidity in which to fund more acquisition-related growth. If these deals follow historical patterns, however, there will be some shortfalls in meeting expectations.

Executives know instinctively that corporate culture matters in capturing value from M&A.  In a 2013 survey by Mercer M&A Consulting Services, 50 percent said that “cultural fit” lies at the heart of a value enhancing merger, and 85 percent called its absence the key reason a merger had failed. But 80 percent also admitted that culture is hard to define.

Hardly surprising then, that most executives feel more comfortable dealing with costs and synergies than culture, despite the potential of culture to enhance or destroy merger value.

“The way we do things around here”

The essence of culture is reflected in a company’s leadership style, its approach to innovation, how decisions are made, and its internal vs. external focus.  Merging companies that have conflicting working norms risk frustration among employees, hampering the success of the integration. But if something can’t be seen, can it be managed?

Not unlike a personality assessment, the matrix in Exhibit 1 arranges common profiles of business culture into quadrants that highlight how organizations tend to go about their business. High culture clash can be expected between the diametrically opposed cultures, such as the “Collaborate” and “Compete” organizations. Common ground can be found in adjacent quadrants.

Exhibit 1: The Organizational Culture Assessment Instrument (OCAI) based on research by Robert E. Quinn and Kim S. Cameron (University of Michigan)

Culture 1

To see how this analysis works in practical terms, consider the recent merger of construction materials companies.

The analysis showed that:

  • Company A had a patriarchal leadership style, driven by the owners and managers of this old, family-run business. Employees looked to the owners for vision and leadership and felt an emotional stake in the company. Success was defined as addressing the needs of the clients and fostering employee loyalty.
  • Company B, the acquirer, had a more market focused (compete) leadership style mixed in with a desire for process. They were a results-based organization that emphasized getting things done along the guidelines of tight quality processes. Reputation and profitability were valued above teamwork, participation and consensus.

This scenario could have been a recipe for synergy disaster for three reasons.  First, expectations for getting results were drastically different (accountability) with the acquired company believing the new owners were just “numbers guys.” Pressure from analysts and shareholders for quarterly returns on synergy promises was a new experience for the acquirees.   Secondly, the parent company believed in process control not only in manufacturing but also in managing change. This felt like a lot of red tape to the entrepreneurial style of the acquired group. Lastly, the purchasers were committed to upholding a very strict safety culture in all its facilities.  This would require a significant mindset change within a very short time amongst members of the acquired management.

However, the companies found some common ground. Both had bottom line management views with emphasis on keeping tabs on the competition and a keen sense of customer service.  As they worked through synergy projects, managers of both companies were jointly involved and successfully identified sources of value.  Within 6 months of working together on projects to report to the board, both organizations began to understand the other’s rationale for operating the way they do. Management still has lot to do to integrate the two organizations, but there have been no unexpected high-level departures.  Managing the culture clash has been a big key to this early success.

 Exhibit 2: Analysis of cultural alignment

Culture 2

Thinking about conflicts and opportunities in terms of management practices makes culture easier to define, identify, and tackle. High-performing acquirers understand the complexity and importance of addressing these culture differences during an integration. Companies that apply diagnostics to highlight key areas of alignment and critical disconnects have the best chance of delivering on the full potential of the deal.

And that I can say with a straight face.

 

 

 

Is Your Decision Making in a Slump?

As more producers enhance their strategic and operational decision making, ask: Is your company poised for survival?

A slant on a business fable finds a sales manager, an operations leader, and their boss walking to lunch when they find an antique oil lamp. They rub it, a Genie comes out, and it says, “I will give each of you just one wish.”

“Me first!” says the sales manager. “I want to be in the Caribbean, on a sailboat without this blasted phone that goes off every 30 seconds.”

Poof! He’s gone.

“I want to be on the beach in Hawaii with my favorite Lean book,” says the operations guy.

Poof! He’s gone, too.

“OK, you are up,” the Genie says to the boss. The boss thinks for an instant and says, “I want those two back in the office after lunch.”

Moral of the story: it’s never too early to reverse a bad decision.

The recent exiting of brick and rooftile operations at Oldcastle is just another example of the trend of divestiture within building products. Refined decision-making technologies are driving the reallocation of capital at rates not seen since the early 2000s.

Amazon, iPhones, and Google were not “first movers” in any sense. But they ended up crushing their competition. As more concrete producers enhance their strategic and operational decision making, ask: Is your company poised for survival?

Cases can and should be made for leadership, vision, and core competencies, but one common denominator that doesn’t get enough attention is their ability to make daily complex decisions faster and more accurately than their competitors.

These companies and others rely heavily on data to make systematic decisions that are transparent with high degrees of accountability. Companies with dynamic operations where pennies saved per transaction amount to millions in a year can’t afford to lean on the traditional judgment levers of conventional wisdom, hunches, and reduced headcount to stay competitive.

Would your business see value from a review in supply chain strategy? Take this test (1= does not apply; 5= this is exactly us)

  • Improving operations is a key tenet to your long term strategic plan
  • You have at least one area where it takes an experienced subject matter expert to handle complex decisions on a daily basis. If that person left, there would be trouble.
  • Operating margins are below those of your biggest competitors
  • Your operation’s footprint is geographically spread out with multiple supply points and supply sources
  • Decisions are made on a frequent basis (daily, hourly) on how you should best use these critical assets
  • It’s not always apparent when the wrong decision has been made
  • There exists wide variability in the ways your money-making assets are used/deployed
  • There is high potential value in achieving incremental improvement between actual and theoretical
  • Asset and logistics decisions are highly repetitive and are made in pockets without a view to the bigger network picture
  • The supply chain is under constant duress from customer requirements, suppliers and regulations

A score of 35 or more suggests your decision-making process lends itself to mathematical modeling in order to find optimal avenues for underutilized assets, debottleneck key operational constraints, or improve forecasting. Tools commonly used in these scenarios include linear programs, Monte Carlo simulations, or specialized optimization software. A score of less than 35 suggests there may be more opportunities in channel strategy than in improving your competitive position through modeling.

Whichever it may be, strategic or tactical decisions involving critical assets should never be made in a “black box,” where the thinking that went into choice is unclear. The best decisions are made with the support of a visible, systematic process in which the decision criteria are understood, the range of alternatives to be considered are agreed upon, and the performance of each alternative is systematically assessed against the criteria before a recommendation is proposed. The concrete and cement industries are particularly sensitive to asset utilization and opportunity costs. Having the right operational strategy means speed, reliability, scalability and efficiency.

In this era of optimization, it’s too late to put the genie back in the bottle.