• Changing Culture: Part II
• Culture Can Change
• Building Global Bridges
• Annual Discipline
• Stock Exchange Adds Polish to Listed Companies
• Good to Great
• Benchmarking for Cross-Learning
• Business Challenges at a Non-Profit
• Bringing Business Skills to the Public Sector
• Making the Deal
• 360º Review of HQ
• Public Company Pressure for Results
• Growth and Improvement at a Service Company
• Turnaround at PE Portfolio Company
• Fixing Post-Merger Integration Issues

Changing Culture: Part II

In last month’s New Case on IC Management, we talked about an organization that had made huge strides after performing its first IC Rating™. Most of the gains were internal, leading to better communication, increased alignment and improved results. But a second rating showed much less progress in the management of its external network.

The organization depends on distributors to reach its ultimate clients. But the rating found that communication with this critical network was poor, and there was a general feeling that the organization did not care about these important partners. In response, the organization inaugurated a regular meeting with partners from specific market segments. The agenda includes value-added content for the distributors but also leaves plenty of time for conversations to build relationships and share knowledge. The organization feels that its understanding of both its distributors and its ultimate customers has grown significantly.

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Culture Can Change

Two years ago, an internet unit of a large entertainment group was facing problems. They were losing members of their management team and finding it hard to attract new people at all levels. The challenges were showing up in lackluster results. Something needed to change.

Other units in this group had used IC Rating™ so it was a natural to do one here. The Rating made it clear that the culture of the organization was very hierarchical and closed. This meant that employees were not involved in important decisions and lacked an understanding of the group’s strategy. It was also clear that the group did not have a clear understanding of the skills that were required to keep up with the ever-changing world of the internet.

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Building Global Bridges

This consulting division of a multinational technology company had always been seen as an adjunct to its parent’s core business. Today, as has occurred in so many technology companies, the consulting group is now seen as a core offering that will drive branding and sales for the entire organization. With this mandate and opportunity, corporate and divisional management wanted to jumpstart significant global growth of this consulting business.

The management team needed to make sure that the organization had the capabilities to deliver on this new vision.What better time to take stock of your intellectual capital? The team contracted an IC Rating™ that surveyed internal and external stakeholders of the division around the world. The findings were supportive of the overall strategy but found that the message had not been fully embraced in the many, but very significant, regional offices across the globe. There were also challenges related to competence development, marketing and sales.

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Annual Discipline

Four years ago, a global technology company was undergoing a corporate restructuring. They were looking to establish a baseline for their Balanced Scorecard (BSC) effort and decided to perform an IC Rating™. As time went on, a number of units moved to annual rating cycles. One of the key benefits that they saw in the Rating is the candid comments from external stakeholders about their own business as well as those of competitors. This feedback has helped to keep them grounded as they have moved from year to year.

In the most recent cycle, the Rating compared the company’s brand with those of several competitors. They also used the Rating as a way to understand what customers and partners expect from them in the face of changing market conditions. The findings helped clarify the mindset of the market and the company’s strengths and weaknesses. Using workshops, the findings were discussed broadly throughout the organization to lay the groundwork for change.

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Stock Exchange Adds Polish to Listed Companies

A mid-sized national stock exchange realized that the small and mid-cap companies that list with them are generally undervalued. They felt that a key limitation on valuations is the lack of information communicated to investors and the market about intellectual capital. Today, it is difficult for investors to understand the relationship between intellectual capital—human, structural knowledge and networks—and the earnings performance of the companies.

The first stage of their project involved a self-assessment tool to measure intangibles based on IC Rating™. This stage gave the participating companies a clearer language and a consistent way to describe critical intellectual capital value drivers. The next stages will involve multi-respondent assessments and IC Reporting for investors.

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Good to Great

A global IT services firm had grown quickly. With 3,000 employees and locations in several countries, it was developing nicely. But its management team was not content to maintain the status quo. They wanted to continue to grow and improve. They also had their sights on an IPO and wanted to develop a vocabulary and set of data that would help them tell their story.

The stakeholders of the company were energized by the IC Rating™ interview process. The feedback had much good news for the company—management received a very high rating. But risk was identified in its business recipe—up to that point, the team had not done a good job of differentiating the company in a busy marketplace. Specific opportunities for process improvements and middle management empowerment were also identified.

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Benchmarking for Cross-Learning

A large entertainment company had an imbalance between costs and results among several business units. But their dilemma was a common one—how to rebalance costs without jeopardizing their underlying businesses.

Performing an IC Rating™ on each unit enabled the company to compare and contrast their current status as well as their future outlook. It became clear that there were, indeed, significant differences between the units. There were five major areas that were identified as candidates for cross-learning and opportunities for improvement. The best practices of individual units were then leveraged across the other units.

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Business Challenges at a Non-Profit

A highly successful non-profit had become the leader in its field. Its brand appeared unassailable and its future was bright. But its visionary leader was worried. He saw participation in their programs leveling off. He also saw new players taking different approaches to the market. He worried that his organization would lose its leadership position.

The findings from the IC Rating™ confirmed some of his suspicions. The brand was strong, but there were threats on the horizon. In light of this, two other major findings were especially worrisome. The first was that the company was not preparing its employees for the expected market changes (the highest overall score was for employee current skills, and the lowest score was for training efforts for future skills). The second major finding was that the Founder was still at the center of too much of the organization’s brand, relationships and operations. The organization was at a risky point.

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Bringing Business Skills to the Public Sector

A public entity has a monopoly in its market. But its existence is still dependent on the revenue that it produces—revenue that funds a number of important services provided by the government. So when its revenue began declining, it was an important problem.

The entity did its first IC Rating™ in the middle of the downturn. The key takeaway was that the entity’s brand was very weak. Brand is actually a very important barometer for any entity, public or private—it reflects the total of everything you are doing in the market. It was also clear that the staff needed to improve its “business skills.” Management got to work and with training and new branding efforts, engineered a turnaround that got the entity back on track. They also launched new technology with the potential to radically improve their business model.

Two years later, the entity repeated the rating process. The new rating confirmed that the brand and the underlying business recipe had strengthened. Although the benefit of initial training in business skills was evident, it was equally clear that there was a need for additional training in order to fully exploit the potential of their new technology. The new rating also highlighted the need for a next step in the development of staff business skills—to build stronger relationships with the private sector business partners that help the entity deliver their services.

Branding, staff development, technology and business recipe—these factors are as important to public entities as they are in the private sector. But, like their private sector counterparts, leaders of public entities struggle with the fact that these factors are intangible, difficult to measure, and hard to manage. So getting concrete information and feedback from stakeholders can be a critical catalyst in “seeing” what must happen to get an organization to the next level.

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Making the Deal

A large communication company wanted to divest five business units. None of the units had any significant hard assets—rather, their future depended on intellectual capital, including human, structural and relationship capital. They went to market and didn’t get a single bid. The buyers couldn’t “see” the value and were afraid of the unknown.

The company withdrew the companies from the market and performed an IC Rating™ on each of them. The findings were generally good, helping to demonstrate their value. The findings also highlighted weaknesses in the units. But that didn’t hurt. All five were sold at a 20% premium to the earnings multiples of comparable sales.

The buyers attributed the premium to the information contained in the ratings. Transparency is very important in M&A. Realistic business people know that there are both strengths and weaknesses in every company. But there is value in knowing what they are. In this case, being able to provide concrete information about intangibles saved the deal and made the company a lot of money.

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360º Review of HQ

A regional headquarters office had been through a difficult period of turnaround. They had often used intangibles assessment to get a better handle on some of the several dozen country operations that the HQ oversaw for a large multinational manufacturer. As performance improved, the HQ felt that it was timely and appropriate to turn the focus toward their own efforts and commissioned an IC Rating™ of their operation.

The rating took the perspective that the country divisions were the primary “customers” of the HQ staff. The findings indicated, as would be expected following a period of “survival mode” operations, that their organization had become somewhat introverted and overly focused on the short-term. While the HQ had begun to think longer term, it was clear that there was a need for a much more disciplined approach to longer-term thinking. Also, the understanding of existing strategies was found to be very inconsistent in different countries and operational groups. Organizational weaknesses included human capital management as well as a failure to build and leverage external alliances.

The findings made it clear that even if the HQ engaged in more strategic planning activities, the effect probably would be negative because they weren’t tapping into the wisdom of their organizations, nor were they communicating effectively to gain buy-in. This revelation was a great wake-up call and became an impetus for a new chapter in the life of this large, geographically dispersed organization. The CEO of this regional organization is now seeking to benchmark his organization against other regions within this multinational organization. This type of benchmarking has been very helpful at the country division level, and they are excited to move it to the regional level.

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Public Company Pressure for Results

This numbers-driven public company had had a good ride. Year after year they had beat their budget and delivered growth to their shareholders. But they were seeing more and more competition from Asia. They felt they needed to dig a little deeper to stay on top of their game. And the numbers weren’t telling them the full story about how to sustain and continue to build earnings.

They commissioned an IC Rating™ to get behind the numbers. The overall findings were good. What was striking, however, were the variations in the ratings by different groups. Some top managers had a very clear idea of where they were going, but others in the top team as well as the rank and file didn’t feel that there was a strong vision or mission. Human capital development and management were also seen as very inconsistent. Finally, significant weaknesses were seen in the company’s external networks—they weren’t taking advantage of clear opportunities with potential partners in areas such as innovation, supply and sourcing. These findings showed that there was, indeed, risk that hadn’t yet shown up in the numbers.

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Growth and Improvement at a Service Company

Identifying opportunities for growth in an intangibles-heavy company can be an exercise in abstraction. The key assets of a service company are its people, its knowledge, its processes, its relationships and even its strategy. There are no standardized sources of information on these assets. That’s why this relatively young consulting firm decided to take a baseline assessment of its intellectual capital before embarking on a strategic planning exercise.

This firm had just completed its second year in operation. It had scored some big wins with name clients. But now it needed to scale its revenue base to increase profitability and consolidate its early gains. This firm is actually a member of the IC Rating network so it decided to use the tool on itself and set up rating interviews with staff, clients and industry partners. The principal weakness highlighted by the rating was the immaturity of the firm’s business processes. Not a surprising finding for a young firm. But the results showed that it was time to grow up—it was clear that the lack of a knowledge-sharing mechanism was holding the firm back. So was the lack of a sales process—clients reported that the firm was not taking advantage of incremental sales opportunities with their companies!

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Turnaround at PE Portfolio Company

Financial statements are the ultimate scorecard for all businesses.  You cannot argue with the objective and very tangible dollars and cents that are meticulously counted through financial systems.  Delivering the bottom line, however, can be an exercise that is much more intangible—and one that often is hampered by a lack of good information about the intangible aspects of the business.  That’s what was happening with this firm.

The company, which is owned by a private equity (PE) firm, is in the telecommunications industry.  It was underperforming its original projections for both growth and profitability.  But it was hard to figure out what was going on.  The PE firm commissioned an IC Rating™ to get a better handle on the company’s prospects.  The rating showed that the company had underestimated cultural differences across different groups, had unused potential in its existing customer base, and was not delivering on several business critical processes. 

The bottom line—in order to influence tangible profits, you often have to look at intangible business issues.  Since most companies don’t regularly assess culture, relationships, and processes, these issues don’t get the degree of attention that they should. But this is the kind of issue that has the power to derail success of any plan, how ever well considered.  In this case, IC Rating gave the management and PE firm a clear view of the issues that were holding back performance.  They immediately set up a focused 100-day plan to solve these issues by improving internal communications, cross-selling to existing customers and addressing process weaknesses—and bringing the lagging performer back on track again.

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Fixing Post-Merger Integration Issues

Many mergers fail to deliver the results expected at the outset. In this case, part of the problem was an imbalanced diligence process. All acquirers do extensive due diligence on the target company prior to moving forward with a transaction and this acquirer had accomplished this. But few go so far as to benchmark the acquirer and the target side by side as a starting point for their integration plans. That’s what this acquirer did, with surprising results.

The acquirer, which is owned by a private equity (PE) firm, is a security company with a high reliability wired network. The target has a wireless network. The idea was to move the wireless network under the wired company. But the integration was not going smoothly. Six months into it, the PE firm and the company used IC Rating™ to benchmark the intellectual capital of the two operations. The results showed surprising differences in management, innovative capacity, internal processes and controls at the two companies. The results also showed that the client base of both companies was confused about the merger—doing damage to both brands.

The bottom line—the information gained through this IC Rating led to dramatic shifts in the integration strategy and ultimate results of this merger. There was much greater respect for some of the practices and strengths of the acquired company, which led to knowledge transfer upstream to the acquirer. It also led to more specific plans for brand strategy and cross-selling. It’s a simple lesson but one rarely applied—an acquirer should look at itself as closely as it does its target to develop the most effective integration plan.

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