How to Transform an Underperforming Business: 7 Tips from CEO Jozef Opdeweegh

All kinds of companies—both publicly and privately listed—fail to reach their full potential for a myriad of reasons. Perhaps the business is family owned, but the ownership group is content with generating an adequate level of recurring cash flow, despite underperforming against peer groups. Or, perhaps the business is publicly owned, but the management and the board are not incentivized to explore new avenues of growth and diversification. Rather, they are compensated to remain risk averse.

 

In both cases, there is the potential to unlock incremental shareholder value. And in the case of public companies, the board and the leadership team may even have a fiduciary obligation to do just that.

 

It can be empirically argued that for most businesses, there is a direct correlation between the size and level of diversification on one hand and the enterprise value of that organization on the other hand. Additionally, key drivers of shareholders’ wealth creation are cash-flow resilience and the comparative performance in terms of growth and profit margin versus direct competitors.

Common Business Issues & How to Successfully Address Them

No Well-Defined Strategic Plan

If a company does not have a clearly articulated strategic plan and a shared end goal, it is rudderless and its employees are unable to cooperatively work towards a future state.

An effective strategic plan describes what the company should ideally look like in a defined period (typically 5 years), and it sets key milestones.

 

The strategic plan needs to be simple, focused on no more than 5 key criteria, and it should be universally understood throughout the organization. It is imperative for the leadership to actively go out to its workforce to explain the strategic plan, its merits for all involved, and the importance of the contribution of each employee to the achievement of the end goal.

Lack of Organic Growth

Companies that fail to grow organically will risk a weakening of their position in the marketplace. For many organizations, mediocre performance essentially becomes institutionalized. The sales force lacks the right sales playbook, because these companies fail to sufficiently invest in the training and assessment of their sales force, and they have incentive schemes that do not incent the right behaviors.

Key to turning around the revenue trend of an organization is the continuous comparative assessment of sales people based on objective criteria, combined with (1) tailored sales force training, (2) a redesigned and simple incentive opportunity, and (3) a clear program of relevant KPIs to assess performance quality. In a situation where the sales force as a whole is underperforming and requires upgrading, forced ranking of talent with predetermined levels of attrition and inflow of new talent may offer an effective tool to enhance the overall quality of the sales effort.

 

Outgrowing the Leadership Talent

As a company grows and becomes more diversified in terms of its product/service offerings and geography, it is certainly not unusual to have to upgrade the leadership team in tandem. The demands on the executive team of a small and geographically concentrated business are vastly different from those imposed on the leadership of a rapidly growing and geographically expanding organization. It is important to ensure the quality of the leadership team is in sync with the ambitions of the company. The recruiting policy must be such that the talent attracted is scalable to lead the company through the 5-year horizon of its strategic plan.

Lack of Aligned Culture and Core Values

Once a company has clearly defined its mission, its vision, and the supporting behaviors through a process of consultation, it is imperative that the leaders of the organization demonstrate those behaviors in their professional and personal lives. Any form of lack of adherence or dissenting behavior should be addressed in a direct conversation. If the individual continues to openly or otherwise fight the agreed-upon core behaviors, the individual should be let go (in a fair and respectful manner). The biggest threat to the strategic plan is to allow festering passive-aggressive behavior— especially at the leadership level. While cultural alignment is extremely important between the associates, it is equally important that this alignment extends to the board and, in the case of a privately owned corporation, the shareholders of the company. Too often a cultural divide, and not the performance of the team and the company, inspires ownership groups or their representatives to make impulsive management changes.

Inconsistent Quality in Operations

The long-term future of a business is negatively impacted if it does not provide world-class levels of quality in its products and services. The company should develop a detailed operating system that is prescriptive in nature and that defines how its facilities and back-office functions should operate across each geography or location. Such a system will guarantee a predictable and excellent customer experience. The operating system should focus heavily on concepts of lean manufacturing, six sigma, continuous flow and first-time-through quality.

Lagging IT Infrastructure and Business Analytics

Any business benefits greatly from a thorough and modern ERP solution that covers the entire spectrum of financial accounting, distribution or supply chain management, manufacturing, human resources and CRM. Businesses also benefit from access to relevant business analytics in each of these areas. While boards are often reluctant to implement a new ERP solution (it can be costly and can cause distracting business interruption), the ERP solution is truly the engine of the business. Not only should a business invest in modern ERP solutions, it should also expect to constantly reinvest in modernization and to upgrade every 10 to 15 years.

SG&A Overhang

A company needs to identify how much it is willing to spend on the sum of support functions, based on a comparison to its peer group and its strategic ambitions. It also needs to institutionalize the notion that SG&A is scalable, up and down, and to think of it as a semi-variable expense. When a company hits a rough patch, the impact on its cash flow – and even its survival – is often defined by its ability to scale down SG&A. Conversely, when a company grows, it should take advantage of the scalability of support function. SG&A-costs, expressed as a percentage of sales, should decrease as the company grows.

jozef-opdeweegh-ceo-miami

About Jozef:

Jozef Opdeweegh, also known as Jos, has served as CEO for over 17 years of global technology, distribution, and supply chain optimization companies with 5,000 to 20,000 employees, public or privately held. Opdeweegh has extensive board membership experience on 4 continents with related and unrelated companies.

Website- http://jozef-j-opdeweegh.com/

LinkedIn- https://www.linkedin.com/in/jos-jozef-j-opdeweegh-13986b70/

Related Articles: Jozef Opdeweegh- 6 Core Organizational Values and the Importance of Corporate Culture

Jozef Opdeweegh – 9 Key Characteristics of a Successful Distribution Business

 

 

 

 

 

Jozef Opdeweegh – 9 Key Characteristics of a Successful Distribution Business

At its core, a successful distribution business functions to add value to the customer, by flawlessly delivering the desired product or set of products at the right point in time, without quality defects and in the most cost-effective fashion. It is imperative that a successful distribution business operates with the costumers top-of-mind.

According to Jozef Opdeweegh, a Miami businessman with over 17 years of experience as CEO, Chairman and Board Member of private and public companies, there are 9 key tenets that make up an ideal distribution business model, that will not only emanate in the highest level of customer satisfaction but will also reward associates for their contribution to the success of the company and shareholders for their confidence in the company’s strategic plan.

  1. Quality of operations 

The breadth of the product range, fill rate, on-time delivery, competitive pricing, a multi-channel approach, along with extensive and up-to-date product information, are vital in creating an excellent customer experience. In order to satisfy these demands, the logistics operations behind the distribution business need to be of exceptional quality: qualified and well-trained personnel, real-time inventory visibility throughout the cycle, continual optimization of the process flow inside the distribution centers, a relentless focus on continuous improvement/six sigma/lean manufacturing and the automation of put away and pick processes are key focal points to differentiate the business from its competitors. Furthermore, the choice of like-minded transportation and last-mile delivery partners who equally view customer service as their core mission is key to the overall customer experience.

  1. Organic Growth

The key differentiating factor as well as the proof of concept, and one of the main drivers of shareholder wealth creation, is the achievement of organic growth exceeding that of the relevant competition. Customer empathy, SKU (Stock Keeping Units) proliferation, relevant information and excellent knowledge about the product range, as well as the overall quality each aspect of the supply chain are indispensable characteristics that define a better distribution business. This type of distribution business will garner outsized customer loyalty and recurring sales.

  1. Gross Margin Management

One of the most relevant success factors for a distribution business is the laser-focused management of gross margin, both in percent of sales and in terms of currency. In some instances, the sales force has not be provided with the analytical tools to allow them for the promotion of those products that generate the highest margin potential. This is of particular importance in a landscape with certain SKUs (Stock Keeping Units) that have identical characteristics and can serve the customer requirements with the same effectiveness, which is often the case. Additionally, in their quest for revenue, the sales force may be inclined to engage in price discounting, which harms the margin potential of the sale. Finally, a number of distribution organizations lack the sophistication to keep track of ancillary services that may have been offered to the customers or are reluctant to charge for those services, which further erodes the margin.

The key is to develop the business analytics and IT infrastructure that will allow for the identification and sale of the highest margin product in order to serve customer’s needs at the right price. This also allows for the appropriate charge to the customer for the ancillary services and the delivery method he or she enjoys.

  1. Back Office Efficiency

Many distribution businesses maintain a back office that is inert, too large and costly. By virtue of their business model, large distribution businesses operate via geographically dispersed distribution centers. Lack of an integrated ERP (Enterprise Resource Planning) solution and the absence of a standardized operating platform often create a detrimentally decentralized management structure. This leads to a large discrepancy in customer experience, in product and service offerings, and in the quality of operations across geographies. Furthermore, it may lead to an erosion of the leverage the distributor otherwise would be able to exercise on its suppliers. Lastly, it creates duplication in management and support structures – efforts and costs that can easily be avoided. In a successful distribution business, the operating system and the SKU management should be centrally managed, with the execution residing in the different regions, but based on a provided prescriptive playbook.

  1. Network Optimization

A large number of distribution businesses operate from a suboptimal set of distribution centers. Often their network consists of a combination of too many facilities and less than optimally located distribution centers from a geographic perspective. This leads to duplicative inventory and inflated working capital requirements. A distribution business needs to constantly assess the size and location of its distribution facilities, so it can live up to its (next day) customer delivery promises from the fewest number of distribution centers. Case studies show huge savings can be generated in the area of network optimization, with a payback that often is less than 12 months, while at the same point in time enhancing the overall customer experience.

  1. E-commerce

Since an online sales model does not require brick and mortar, and it does not require a direct sales force and the related costs, the bottom-line profitability of e-commerce sales vastly exceeds the profitability of the same SKU through another sales channel. A successful e-commerce sales effort requires a user-friendly web experience, impactful SEO efforts, detailed product information, breadth and availability of inventory, and on-time delivery of the entire order. It is also essential to have a simple return policy and a great back office to deal with product information, defects, and returns. Online sales may be boosted through the creation of an online user community consisting of customers who have purchased the product and can provide others with first-hand product information and applicability. Most often than not, e-commerce is one of the channels through which sales can be generated, in a multi-channel strategy that also includes direct sales and catalog sales. It is most certainly the most cost-effective and agile sales channel.

  1. ERP-Solutions (Enterprise Resource Planning)

A distribution business may handle as many as 1 million distinct SKUs. In order to effectively run the distribution organization, it is imperative the company has real-time global inventory visibility to know exactly where different SKUs are stocked. This level of visibility allows for the avoidance of duplicative inventory, the calculation of appropriate inventory levels in the network through demand forecasting, and the minimization of risk of obsolescence. In many regards, the ERP solution is the engine of the distribution organization and is an invaluable part of network optimization. While implementation of a state-of-the-art ERP solution may be costly and time-consuming, with the cost amounting to as much as the equivalent of one year EBITDA (Earnings Before Interest, Taxes, Appreciation & Amortization), it is hard to imagine a world-class distributor that does not possess such a tool. 

  1. Customer and Supplier Segmentation

In any distribution business, there are a number of items that are high volume. Conversely, there typically are a number of products that are only sold very occasionally and may have a negative impact on the profitability of the organization. In a similar vein, the average distribution business will spend time, effort and money maintaining relations with suppliers who provide low-demand products. It is important to continually reassess the contribution margin of low-selling items and to cut certain parts of the long tail, both in product and in supplier range.

  1. Private Label

A distributor can significantly enhance its gross margins by focusing on the sale of private-label items, or items that have the desired functionality but that are being sourced through contract manufacturing and branded under a proprietary brand name. Certain competing suppliers may react negatively towards competing private-label products. Nevertheless, in the area of more generic SKUs, a distributor should aim at selling its own branded products and ideally, private labels will constitute 15% or more of overall revenue.

About Jozef:

Jozef Opdeweegh, also known as Jos, has served as CEO for over 17 years of global technology, distribution, and supply chain optimization companies with 5,000 to 20,000 employees, public or privately held. Opdeweegh has extensive board membership experience on 4 continents with related and unrelated companies.

Website- http://jozef-j-opdeweegh.com/

LinkedIn- https://www.linkedin.com/in/jos-jozef-j-opdeweegh-13986b70/

 

Jozef Opdeweegh- 6 Core Organizational Values and the Importance of Corporate Culture

Whether you have taken the bold decision to start your own business or have been tasked with running an existing company, the asset you are managing may well have multiple areas that deserve your special attention. For example, your business may be lacking organic growth, its leadership team may need to be recruited or upgraded, and the organization may require a couple of tangible successes to reinvigorate the team.

Transforming a business from its current state to a desired future state demands not only passion, but also disciplined planning. This requires: (i) a concise, well-articulated strategic plan, (ii) a description of the benefits of the desired future state to the associates, as well as to the long-term future of the company, (iii) the reassurance that the associates, collectively and individually, are mission critical to the success of the company, and (iv) a clear glide path to the end goal, with key milestones and a rigid project management approach.

In addition, any transformational activity is largely facilitated by a shared corporate culture. According to Jozef Opdeweegh, a Miami businessman with over 17 years of experience as CEO, Chairman and Board Member of private and public companies, “Corporate culture plays a critical role in the success of a company. The value and impact of a set of shared beliefs and behaviors can hardly be overstated when convincing a group of people to meticulously undertake a challenging change initiative.”   

Opdeweegh uses a definition of corporate culture based on a commonly shared notion that a company’s culture consists of the sum of beliefs and behaviors that determine how associates and management interact with each other inside and outside the workplace, as well as with other relevant constituencies, such as customers, suppliers, the board of directors, lenders and other outside parties. Notes Opdeweegh, “Corporate culture, however, should ideally also extend to the development of a collective perspective on societal and environmental considerations, for instance, the role of the organization in the broader community, or the efforts to minimize a corporation’s carbon footprint.”

 

Opdeweegh adds that when suggesting a set of core values to the organization, it is important to come forward with values that are highly relevant to the corporation and its success, yet are universal in nature, and impossible to contest. Says Opdeweegh, “Nobody will object to a core value of ‘fairness.’ Nobody will raise their hand to state that they do not believe in ‘creativity’.” He notes that the process of agreeing on the most relevant core values or behaviors for an organization is an iterative and democratic process, with the ultimate end-result coming from many group sessions with a relevant diagonal slice of the company’s associates.

Opdeweegh cites 6 core behaviors that are very powerful in driving the right strategic initiatives of the organization. He encourages using one or more of these for discussion purposes as you go through the collaborative process of defining your corporate culture.

  1. Creativity: “Think outside the box and share your perspective.”
  2. Customer centricity: “The customer is central to everything we do.”
  3. Empowerment and accountability:” Push decision making down in the organization and hold people accountable.”
  4. Fairness: “Be fair and respectful in everything you do.”
  5. Openness: “Be open and open-minded, listen and allow the best idea to win.”
  6. Speed: “Make quick, analytics-based decisions.”

About Jozef:

Jozef Opdeweegh, also known as Jos, has served as CEO for over 17 years of global technology, distribution, and supply chain optimization companies with 5,000 to 20,000 employees, public or privately held. Opdeweegh has extensive board membership experience on 4 continents with related and unrelated companies.

 

Website- http://jozef-j-opdeweegh.com/

LinkedIn- https://www.linkedin.com/in/jos-jozef-j-opdeweegh-13986b70/