Current State Analysis Case Study

 

The Need

• A newly appointed Senior Executive felt the need for an independent view of the current state and capabilities of the client Company He recognised that, although he was dealing both formally and informally with the Board, the CEO and the senior Executive team within the Company, there were things they might be more prepared to say to an outsider with no preconceptions, authority, or axe to grind.
   
• The Company had a number of challenges:
   
  • It had recovered over a number of years from a perilous trading position;
  • The Board felt that the Company was not making the most of the emerging market opportunities;
  • During this time it had had the same CEO who operated in a ‘command and control’ style;
  • Stunning recent growth had been on the back of a ‘golden bullet’ product which had absorbed the majority of the available funds for investment.
  • The Company claimed to be ‘innovative’ but was probably two years behind where it needed to be in terms of a sustained flow of market leading initiatives.
     
• The Chairman had a number of questions amongst which were:
   
  • What was the current ‘bench strength’ of the Company A A A?
  • Was the CEO adding value or constraining what needed to be done for the future?
  • Was the Senior Executive Team first class in terms of functional skills?
  • Could they step up to the next level of performance?
  • How able was the Company to respond to changes in structure and focus driven by regulatory requirements?
  • Were claims about a distinctive market positioning and innovation credible and sustainable?
  • Were resources being allocated appropriately as they moved to the next phase of growth?
  • What constraint on growth would a shortage of key skills be?

The Approach

• Research methodologies broadly fall into two camps, those where you:
   
  • Talk to people (qualitative);
  • Analyse data (quantitative).   

• This approach is essentially about talking to people (qualitative) because we believe essentially that is people who make a difference. In our experience, people performance is usually based on attitudes not skills - on the basis that skills can be trained in.
• There is, of course, some examination of key documents to establish the current and projected trading position. 

 

The Framework

• There is no shortage of models and methodologies for assessing business capability and performance. These are helpful tools for sorting data and categorising performance. As a general but not exclusive model, we favour the following approach: 

 

Executive Summary

• The key points of this Report are:

 

Purpose of Report	This report was commissioned by the Chairman of the Company to give an independent assessment of the current state.
Background	The Company has had outstanding success not just in its recovery programme but also in capitalising so substantially on the ABC product opportunity.
Board Relationships	The Board and the Company through the office of the CEO need to be more closely aligned in determining and agreeing the way forward for the Company. The Company has chosen a distinctive path – it should not simply be compared with others in the same marketplace. The new Chairman will have an important bridgehead role to play in balancing the needs of the Board with the needs of the Company.
The Senior Team	The Senior Team needs to transition with the business, recognising the need for a growing focus on leadership as opposed to management skills.
	Recommendations  As part of a broader People & Skills Audit, a review should be undertaken of the nature and level of organisational competencies required at a senior level for the evolving Company. An assessment of these competencies and any necessary development programmes should be put in place.
1. The External Environment	The combination of market conditions and reputation are currently very favourable for the Company although competition is likely to become tougher. The Company outperforms its competitors in the marketplace as a result of the investments it has made in its technology, marketing and people.
2. InternalActivities	2.1 Strategy & Differentiation The focus on the High Net Value Segment and innovation has served the Company well. Because of its size, the Company has the opportunity to be flexible, agile and quick to market. These are strengths to be cherished and protected. Innovation is a hard task master: the challenge is to continue to do this in a way which meets the needs of the target market and at a pace which meets the business needs of the Company.
	Recommendations A Strategic Review should be carried out to validate the declared strategy of the Company looking at the target market, the market opportunity, competitive pressures and sustainable sources of differentiation. 3M’s‘Lead User’ Team methodology should be considered as a Company wide approach to the management of Innovation.
	2.2 Structure The Organisational Structure of the Company will change from its historic model to something akin to that of a Holding Company. As a consequence, internal relationships will change and the skills and competencies to manage more complexity will be required. Delivery channels should continually be reviewed to respond to how customers want to buy and to find the most cost effective delivery mix. Greater alignment will be required of the various business development activities of the Company.
	Recommendation These issues should be considered as part of the Strategic Positioning Review. A new position of Chief Operating Officer should be created reporting to the CEO.
	2.3 Products & Services The company needs to expand their portfolio of specialist products. There is no shortage of opportunity. This is probably best done by seeking strategic alliances and partnerships with high quality and experienced third party suppliers. The presence could be broadened using a Brand B approach.
	Recommendations An independent review should be undertaken to identify a preferred portfolio of products consistent with the Company’s desired positioning and a short list of possible partners. In addition the scope for building a direct operation using a Brand B approach should be evaluated.
	2.4 People The Company has a warm people focused culture and has clearly defined Mission, Vision and Value Statements. There is justifiable pride in the Company’s achievements. Some managers could have a more positive influence on the work ethic of Head Office.
	Recommendations An Employee Survey should be carried out to understand more fully current staff attitudes. As part of a broader People & Skills Audit, a detailed capacity review of the key support functions should be carried out.
	2.5 Operations As the Company grows and the volume and range of activities increase, its bureaucratic approach to approval levels will increasingly constrain timely decision making. It will also have an adverse impact on staff who may increasingly resent this ‘parental’ control.
	Recommendation The issues of delegation and authority and approval levels should form part of a broader review of Infrastructure, Operations and Processes.
3. Financial Targets	Recommendation Budgeted expenditure, headcount expansion and marketing expenditure for 2007 should be reviewed to ensure that it is aligned to the Business Development imperatives.
Route Map	Recommendation Suitable resources should be allocated to the programmes of work shown below.

 

 

 

Purpose of Report

• This report was commissioned by the incoming Chairman following his appointment to the Board of Directors. Its purpose is to provide an overview of the Company’s current capabilities as it determines the business direction over the next three to five years.
• This commentary is derived from interviews with a number of key people and examination of the documents as listed in Appendix.

Note: Not all Appendices are shown in this version to protect client confidentiality.

 

Summary This report was commissioned by the Chairman of the Company to give an independent assessment of the current state.

 

Background

• Since 1994, with significant restructuring, the Company has staged an impressive and rapid recovery. It is now perceived as an innovative and leading player in its niche upscale marketplace. It has done this by providing customers with high quality Sharia products.
• The Company’s performance (Appendix II) has been driven particularly by its ABC product which has resulted in stellar performance as the chart below shows.

 

Summary The Company has had outstanding success not just in its recovery programme but also in capitalising so substantially on the ABC product opportunity.

 

Board Relationships

• With the appointment of the new Chairman and Board members, there is now a timely opportunity to develop harmonious relationships in which the experience and professionalism of the Directors contributes to a shared understanding and agreement with the Company Executive on the best way forward.
• The CEO is an extremely professional executive with an outstanding record of success that is clearly evidenced in the performance of the Company to date. He sees himself as particularly responsible in his dealings with the Board for the proper running of the Company.
• There do not appear to be any mechanisms for solving issues where there are differences of opinion. In some cases, such as the re- location of the Head Office, these issues may continue unresolved for some time with an adverse impact across the whole organisation.
• Normally there is a better balance between the senior officers of the Company and the external Directors although clearly this is dependent on the local customs. In the UK for example, board members do not tend to be major shareholders in large public companies which contrasts strongly with the Company where a minority of shareholders own a majority of the shares. Their role, therefore, is that of a high level custodian rather than being much closer to the business.
• The Company has chosen a distinctive path in its development and in that respect comparisons with other established players are not appropriate. This may be an area where better communication with the Board would reduce some of the expectations they have and the tensions created when they are not met.
• The new Chairman will therefore have an important bridgehead role to play in resolving theses issues particularly given his Companying credentials.

 

Summary The Board and the Company through the office of the CEO need to be more closely aligned in determining and agreeing the way forward for the Company. The Company has chosen a distinctive path – it should not simply be compared with others in the same marketplace. The new Chairman will have an important bridgehead role to play in balancing the needs of the Board with the needs of the Company.

 

The Senior Team

• Since 1994, the CEO has carefully recruited and developed a strong senior management with the necessary technical capabilities. Although a number have joined more recently, many have travelled a long and hard journey and achieved much in the reconstruction and re-positioning of the Company.
• As the Company now enters another major transformation phase it would be appropriate to understand how strong the appetite is for this next phase which will be equally demanding.
• The experience gained during the reconstruction does represent a distinctive competence and might be further utilised if, for example, the Company were to move to acquire other small companies.
• The probability is that for internal reasons, a holding company structure with a number of different business units will emerge. This will have a number of implications which are revisited below but, essentially, it will require a change of style in management and place increasing importance on leadership skills – and if it forms strategic alliances - third party management.
• The need for leadership skills was identified at a recent Workshop and a further event on this subject is planned. There are various tools which can be used to assess leadership capabilities as well as competency development programmes that can be brought in to play if some or all of the present team continue in their roles. They can also help with succession planning and talent management.

 

Summary The Senior Team needs to transition with the business, recognising the need for a growing focus on leadership as opposed to management skills.

Recommendations  As part of a broader People & Skills Audit, a review should be undertaken of the nature and level of organisational competencies required at a senior level for the evolving Company. An assessment of these competencies and any necessary development programmes should be put in place.

• A Company’s Business model is the outcome of the understanding and constant monitoring of the External Environment, the Internal Activities and the Financial Targets as the diagram below shows. The key elements of these components should be regularly reviewed and discussed and a shared view formed amongst the Board and the Senior Team.

• In response to lower cost overseas competitors, the domestic industry has had to focus on high value add products targeted at status conscious customers. Traditional players have found it more difficult to re-align given their investment in infrastructure.
• Whilst positioned in the luxury goods market, sales have remained particularly resilient.
• Continuing regulation in the form of Employment laws and Health & Safety continue to add to the level of non-productive costs putting more pressure on operating efficiencies.
• The company compares well with its competitors in terms of the published Key Performance Indicators (see Appendix). A more detailed analysis at a market segment and/or individual product level is required but this is beyond the scope of this report.
• It is appropriate to recognise, however, that the company certainly ‘punches above its weight’. As well as the record of product innovation, various marketing activities such as sponsorship, and the Philanthropic Programme all contribute to the perception of a very high standing in the marketplace.
• Company SWOT Analysis
  

STRENGTHS	WEAKNESSES
1.   Specialized business 2.   Quality (income generated) solid customer base 3.   Strong, positive brand image 4.   Focused Strategy 5.   Improved Ratings 6.   Market leadership in Product ABC 7.   Strong top management team willing to change 8.   Corporate culture 9.   Innovation 10.Technology / Processing 11.Small flexible team 12.Loyal stable customer base 13.   Team Spirit	1. Late in diversifying profit streams & business portfolio for sustained growth 2. Poor communication between business units & internal communication 3. Lack of depth of knowledge 4. Lack of empowerment 5. Not risk takers 6. MIS / FTP 7. Succession Planning 8. Weak middle management 9. Lack of some specialized skills 10.   Growing pain 11.   Absence of cross selling 12.   Increasing costs 13.   Focusing on few businesses 14.   Lack of the concept of one Company 15.   Research
THREATS	OPPORTUNITIES
1.   Entrance of major foreign competitors 2.   Increasing staff turnover	1.     Joint ventures + partnerships 2.     Overseas expansion 3.     Cross selling 4.     Skills Development 5.     Broader income streams

Summary The combination of market conditions and reputation are currently very favourable for the Company although competition is likely to become tougher. The Company outperforms in the marketplace as a result of the investments it has made in its technology, marketing and people.

• The Company has defined a clear positioning for itself as a niche Company targeting the High Value segment with a combination of exemplary service and innovative products. It has been so successful that it is reportedly referred as ‘The Millionaires Company’.
• Its vision is to be:

‘the preferred supplier of innovative products to the chosen target markets’

• The vision argues against a copycat and conventional approach simply replicating many of the competitors products unless the opportunities are proven to be particularly compelling because, say, of significantly higher margins. There are concerns that chasing growth will dilute earnings.
• With its focus on the High Net Worth and present configuration, in reality the Company is a ‘boutique’ player rather than a full service company with its cutting edge ostensibly delivered by innovation.  It therefore requires a laser focus to ensure that any products and services developed in any area of the Company add value to this strategic focus or are, in the event of diversification, suitably distanced (from the core brand so as not to damage it.
• The Company’s positioning is built on:
   
  • Customer Knowledge  An intimate understanding through in-depth research of the needs of the target market;
  • Innovation: The Company was initially able to innovate almost intuitively with the development of Product ABC and ABC.com. The challenge is to continue the rate and pace of innovation. Some companies like Sony and 3M are consistently innovative. To be successful, innovation must be capable of being consistently replicated. This requires creativity, energy and good timing but also strong process management so that ideas are captured, filtered, prioritised by the Executive and then executed well. (See Appendix for 3M’s Lead User Team approach to managing Innovation). A parallel strategy, of course, would be to introduce products new to the market through well chosen strategic alliances.

 

Summary The focus on the High Net Value Segment and innovation has served the Company well. Because of its size, the Company has the opportunity to be flexible, agile and quick to market. These are strengths to be cherished and protected. Innovation is a hard task master: the challenge is to continue to do this in a way which meets the needs of the target market and at a pace which meets the business needs of the Company.

Recommendations A Strategic Review should be carried out to validate the declared strategy of the Company looking at the target market, the market opportunity, competitive pressures and sustainable sources of differentiation. 3M’s‘Lead User’ Team methodology should be considered as a Company wide approach to the management of Innovation.

• The structure of the company at the moment reflects its history. The span of control of the CEO is very wide with a significant number of direct reports (11) - see Appendix.  This, of course, stems from the way in which the Company understandably needed to be run during the period of reconstruction.

• This would be an opportune time, for example, to separate out the roles of the CEO from those of a Chief Operating Officer so that the CEO can give more time to the Company’s strategic development.
• The Customer facing Business Units seem to be the ‘meat in the sandwich’ between the service departments and the central control functions. In a customer focused organisation it is not unusual to invert this pyramid so that the primacy of customers is recognised.

• The move to a ‘Holding Company’ structure has a number of implications:
   
  • The performance and planning MIS currently in place which reflects an overall company view will need to be disaggregated to give a Business Unit level view. This exercise is currently being undertaken by Finance and a ‘first cut’ due early in March.
  • Business Units will ’compete’ for resource allocation based on the relative merits of their business cases and the strategic direction and priorities of the Company. This will require different skills and competencies amongst the business heads and the reviewing team.
  • Cost and income allocation rules will be required – formulating these can create tensions. 

• It is appropriate to consider here delivery channels also. The key determinant is matching how customers want to buy from you with the most cost effective routes to market.

 

Summary The Organisational Structure of the Company will change from its historic model to something akin to that of a Holding Company. As a consequence, internal relationships will change and the skills and competencies to manage more complexity will be required. Delivery channels should continually be reviewed to respond to how customers want to buy and to find the most cost effective delivery mix. Greater alignment will be required of the various business development activities of the Company.

Recommendation These issues should be considered as part of the Strategic Positioning Review. A new position of Chief Operating Officer should be created reporting to the CEO.

• The Company is working hard as a matter of priority to expand its product range in as it tries to offset the drop in earning from the ABC Product.
• Currently it does not offer the broader range of a full service Company. It has a number of products in the course of development and due for rollout during the year. There have been a number of constraints.
• Given its size and resources, it makes sense for the Company to invest only in those products which clearly support its High Value market positioning. Me-too products in themselves have little attraction.
• If the company wishes to develop a broader footprint in the mass market because of the potential revenue and growth opportunities, then it is recognised that this would probably need to be done using a Brand B approach. This would need a fuller investigation
• The Company recognises that it may have to form strategic alliances with high calibre providers to underpin their own credibility from a customer perspective and import the necessary expertise. These negotiations can take time.
• As the recent Strategy Workshop identified, there is no shortage of product development ideas:-

• The challenge is to identify those that will have most appeal to the Company’s target markets and differentiate the Company from the competitors. This requires a stringent analysis of the opportunities.

Summary The company needs to expand their portfolio of specialist products. There is no shortage of opportunity. This is probably best done by seeking strategic alliances and partnerships with high quality and experienced third party suppliers. The presence could be broadened using a Brand B approach.

Recommendations An independent review should be undertaken to identify a preferred portfolio of t products consistent with the Company’s desired positioning and a short list of possible partners. In addition the scope for building a direct operation using a Brand B approach should be evaluated.

• People say that the Company is warm, humane and adept at consensus building. The CEO, who is widely respected, is credited as having had a major influence in creating this culture. If there a bias, it would be towards the people rather than the task.
• Vision, Mission and Values have been clearly defined and communicated (see Appendix).
• People are attracted to the Company because of its image, improved business performance and market standing.
• There is a justifiable pride in the fact that many of the ground breaking products have been developed from within the Company. The Company prides itself on being a careful buyer. For example, external vendors were unable to meet the aspirations of the Product Development Team and the capability was built in house,
• Many report that they and their staff are prepared to work at short notice should the need arise and indeed have demonstrated this. There are numerous stories which demonstrate that staff are prepared to go the extra mile.
• Some concern has been expressed that should there be a rapid influx of new people then this humanistic culture and commitment would be adversely affected. The challenge for the company is to keep a balance between what needs to be preserved and what is needed to change to meet the developing challenges.
• Whilst it may be a manifestation of the culture, there is no particular buzz in the Head Office Building. Senior management would send a clear message to their staff, for example, if they walked through their departments at 8.30 am in the morning.
• Many senior people talk about the difficulty and timescales associated with recruiting new staff. Many, too, feel that they are operating at capacity and that should the Business Plan projections materialise then the levels of pressure will only increase.
• The Company has pursued a strategy of quality in its recruitment activities.
• There has been no Employee Survey although one is planned for later in the year. This would help form a more rigorous view of prevailing views amongst staff in general.
• At the recent Strategy workshop it was reported that there were a number of different views on the current situation of the Company. In my discussions, some believe that the Company is at a cross roads, an inflexion point, or as one put it, ‘staring into an abyss’. They view colleagues as either basking in the Company’s historic successes or nervous about the nature and rate of change that the future might hold.
• The pattern that emerges as the Company seeks to solve problems is one of carefully developing understanding often by way of small scale experiments and piloting before expansion. There is a pride in the ability to develop solutions very cost effectively in-house. People may, how ever be more comfortable pursuing a narrower focus rather than the big picture. The recent Strategy Workshop may well help to address this.

 

Summary The Company has a warm people focused culture and has clearly defined Mission, Vision and Value Statements. There is justifiable pride in the Company’s achievements. Some managers could have a more positive influence on the work ethic of Head Office.

Recommendations An Employee Survey should be carried out to understand more fully current staff attitudes. As part of a broader People & Skills Audit, a detailed capacity review of the key support functions should be carried out.

• As organisations grow, they need to put in put in place authorities and processes to ensure that decisions are taken at the appropriate level subject to consistent and compliant performance. This allows the General Management to concentrate on direction setting, dealing with the things that really matter and leadership.
• Minor items of expenditure have to go to the CEO for approval. The release of information to support this report needed to be sanctioned on a case by case base with the CEO as people were unsure of their authority.

 

Summary As the Company grows and the volume and range of activities increase, its bureaucratic approach to approval levels will increasingly constrain timely decision making. It will also have an adverse impact on staff who may increasingly resent this ‘parental’ control.

Recommendation The issues of delegation and authority and approval levels should form part of a broader review of Infrastructure, Operations and Processes.

• Data here has been omitted for reasons of Client Confidentiality.
• Within the Budget, headcount and marketing spend are forecast to increase. These increases should be reviewed to see if they are still aligned to the Business Development imperatives for 2007, for example, the forecast spend on an Image Campaign.

 

Summary Budgeted expenditure for 2007 should be reviewed to ensure that it is aligned to the Business Development imperatives of 2007.

• A number of recommendations for studies have been identified in this Report. For the purposes of illustration the following route map has been developed:

Recommendation Suitable resources should be allocated to these programmes of work.

• Made up of four to six individuals with a diverse set of skills. Teams with members from both technical and marketing functions are necessary.
• Told to welcome ambiguity and uncertainty.
• Successful because they approach innovation in a disciplined way.
• Diligent in obtaining and synthesizing information through reading, questioning, watching, and listening and through shadowing a Lead User as they do their work and use their prototype solution.
• Instrumental in developing customer support services, product/service toolkits, product families and novel approaches to channel partnerships.
• Productive and cost-efficient. The system accomplishes in months with four to six people what otherwise has sometimes taken far longer to obtain: profitable.

 

The Lead User Teams have been successfully run in a number of companies outside 3M. To benefit from this method, an organization must embrace the following criteria:

 

• Teams are small, cross functional and allowed to report to management on their own terms. Continuous management awareness is essential in order to prepare executives for the ultimate recommendations made by the team. Teams must be able to operate at the right location on management’s radar. This objective requires trust all the way around.
• The Lead User System provides a tested framework for the team members as they pursue the unknown. The teams and their managers have to be committed to "staying the course."
• Teams are always simultaneously scoping customer needs; no single technical effort is permitted to go too far down an unwarranted path.
• The Lead User System offers an examination of future customer interests in light of a company’s existing assets and proprietary technologies.
• The Lead User system will change your people and your innovation culture. To be a good candidate for a Lead User Team, your organization has to be open to change.