EBITDA and SG&A Improvement… the cash flow story (Part 2)

Every penny of revenue leakage fixed and an invalid cost eliminated has a direct impact on EBITDA… after my early journey working on projects which were of the very nature of Quick fix and implementation of best practices and the organization tasted the success to quite a good extent savings few million dollars the next big project I picked up and built a focused team was to Identify every opportunity of Revenue Leakage and fix it.

We identified all areas both in delivery and support functions the potential candidates of revenue leakage and start collecting data around it. It took more than a couple of months to streamline the operational definition for revenue leakage and a series of meetings with various stakeholders and the user community we finally agreed on the common operational definition  and what finance team will sign off (this was very important step) as savings generated by fixing the revenue leakage.

We defined Revenue Leakage as “Money not recovered on time either from the customer or the vendor or employee. Any outward cash flow as a deviation or exception to the set policy or process in place will be considered as Leakage”

Clear instruction on this project was no notional savings will be considered unlike other projects where cycle time savings were multiplied with a volume number and quoted as notional savings.

We picked up the following three areas to fix in this fiscal where an opportunity for leakage occurs…

1.       Days Out Standing / Accounts receivables

2.       Recovering Advance Payments from employees (ForEx and Travel related)

3.       Leave management in T & M assignments 

As a next step we started measuring to baseline where we stand internally and in comparison with industry benchmark. A dedicated team of data analysts were hooked up with the finance team to conduct a data collection exercise and we engaged with a third party consulting firm to benchmark our company with the competition to understand the variation.

While this exercise consumed time there was a definitive number that popped out, of course it was not easy to gather consensus from all and again a series of brainstorming sessions following with what is in scope and out of scope, what should and should not be a part of the data and the further debates took about a few fortnights to finalize. In this entire endeavour while the support from the senior management continued to exist it was a herculean task to gather the support and time from middle management and build the momentum. Mobilizing commitment looked very bleak at the very beginning of the exercise and we had to struggle to get the information from all sources and plug into an excel tracker before coming up with a baseline number … The irony is that the very people you need on the ground hands on are already overburdened with so many activities and tasks that often makes it very challenging to accomplish some simple tasks…. Nonetheless we did it…

The next step that we took based on the inputs from the subject matter experts and the inputs provided by the third party consulting firm who did come up with initial recommendations after the bench marking exercise was to look at the entire set of events and classify them into three broad categories and established role / process clarity to address the situation…

1.      Risk Management : The role of this group was to look at every opportunity and map it with the existing processes and identify possible risks and then address them appropriately as per the risk matrix

2.      Leakage Management: The very role of this team was to constantly look at all opportunities in the existing mechanism the possible leakages and overcome them. Under the umbrella of leakage management we had a couple more sub teams formed to strengthen governance and compliance especially around the SLA Clarity and automation. A separate operations team looked at contracts, warranties, and entitlements. We strengthened our internal interdependencies and raised the need to connect them together… data always exists but is difficult to access… by connecting and overcoming the dependencies and the strengthening the online repository which connects the business operations, sales, compliance, finance, and the delivery with PMO and Governance team working hand in glove was quite a challenging tasks that took sometime to shape up quite well and now we have a strong recommendation in place to have a team of dedicated and focused group of experts who look at wing-to-wing service life cycle

3.      Leakage Prevention: The very challenge we faced in this situation is educating the folks on the difference between customer satisfaction and billable assignments… while it’s important to address the needs of the customer, it’s important to educate the customer the services offered will come at a certain cost especially in a T&M mode where every minute is billed. When brainstormed further we discovered the root cause is the contract document availability and access to the engineers on the field onsite with the customer who are unable to understand if the piece of work they are doing is covered under the terms and conditions or the post maintenance activities or not… there was a huge cry on confidentiality and other such stuff during the arguments which many initially made a noise and finally agreed on the sharing the contract knowledge to ensure things fall in place…. What the very human nature filled with unknown insecurities stops the CRM software’s help the folks onsite with the customer and a very learning we discovered is having access to critical customer data helped cross-selling and upselling thus helps the revenue stream...

Very strong and stringent monitoring of advance payment collections and associated tools which connect the pay-outs and collections were put in place and the IT Team started working on the tool enhancements

Inputs were shared with the HR team on the leave management policies to be revisited which can help the revenue leakage, a set of senior department heads with the HR team coupled together to come up with a policy around the same, addressing employee related sensitive areas need extra time and caution on the roll out of the policy and so measures and steps were put in place to ensure the communication is seamless…

Analytics with dashboards showing Red , Amber, Green (RAG) status are in place, the team will continue to monitor the progress periodically and few months down the line I will again engage with the team to see if the controls put in place are adequate enough or additional things are required to be done…

In a nutshell my learning out of this episode can be summarized as below…

1.       Human nature is the most important one to focus up on; we already know all the solutions but lack action to accomplish it… processes have to flex with the business when ever business and the people running the business demand it

2.       My facilitations skills matured further working with folks from various teams and getting them all together in sync and signing off an agreement on the new process

3.       Digitizing the solutions and cementing the structure using an IT Tool is the only way to strengthen the control… nonetheless we live in an excel based world and exceptions are a part of it, no matter what controls one puts in, someday the exceptions and ad-hoc processes will overcome the discipline and one needs to revisit for continuous improvement that is incremental in nature…

A potential cash flow greater than USD 5 Million year on year is the initial estimate with the recommendations and process changes put in place…

EBITDA and SG&A Improvement… the cash flow story (Part 1)

26^th June 2013, the day two giant IT Companies merged officially and the market stopped tracking Mahindra Satyam and the only entity continued to exist is TechMahindra.

This was the day I took over a role as a Sr. Consultant in the business and process space to contribute towards driving continuous improvement projects to enable free cash flow thus improve the EBITDA (earnings before interest, taxes, depreciation, and amortization) … one of the most critical measure of the company's valuation tracked in the capital markets by the financial experts.

As a first step we spent time with the business leaders who looked to maximize the return on investments evaluate impact of operating the business on free cash flow. In an environment of maximizing value, it was important to review all business expenses and conduct a profitability analysis across all the projects. In so doing we discovered at the project level the contributors who impact EBITDA, which increases the value of your business and the ones who are pulling it down. As a next step I and my team lead by the best of the leadership worked hard to help understand sales, general, and administrative (SG&A) and look to maximize those costs as a percentage of revenue.

 It’s a known fact that High operating costs lower your EBITDA… one of the things that I have done in the past is to quickly identify all value enabling activities and digitize them those that will need people involvement outsource them to low cost channels. I carry a very strong philosophy from my past experience that my people will work only on the value added tasks and process rest all value enabling tasks be outsourced and kill the non-value add. The first few suggestion made people hesitant to entertain the idea of lowering operating costs because they immediately equate it with lying off employees. It took quite some time to educate the crowd that there are a lot of other ways to lower your operating costs without reducing staff. Could be as simple as turning off your machines and lights to save energy, wastage of food and the network usage to start with the journey of Lean following the principles of HoShin KanRi and go with the policy implementation.

Ideas and best practices picked up from the experience of the past helped spin a quick fix just do it kind of projects around Cycle time improvement that directly impacts billability. Two teams were given tasks to build the six sigma culture as a DNA in the organization.  8 – 10 leaders in a consulting role attached themselves with each business group.

I owned the entire set of support functions and kicked off the improvement path by checking for areas of inefficiency that can be corrected with new policies and procedures … focus was to be lean and quick on the solution front without spending a lot of time on data collection and data analysis, because it’s a known issues to all just an as is process / value stream map is good enough to identify waste and eliminate it strengthening policies and procedures.

Wing to Wing financial analysis of each support function opened a wide set of opportunities to focus up on… Cab usage, arrival pattern and employee commutation costs were identified to fix asap and then engaged a team from facilities to pull down the power tariff and work towards improving efficiency on energy usage. Companies like GE and Philips were consulted and engaged in the solutioning and implementation of ideas.

Visa Cycle time and Air Travel was another big ticket item that was looked at. No doubt that a growing company will have a growing spend on the travel and the ticket prices are equally volaitile, but there were a lot of opportunities like blocking the ticket 6 hours in advance, reducing approval cycle time w.r.t. travel request, choice of travel class (Economy / Business), Travel mode like Air, Road or Train, effective use of technology like telepresence and video conferencing, strengthened planning to reduce the last minute cancellations, overcome date changes in travel. Policies governing around international travel and the per diems associated etc… accounted a good round of savings.

Infrastructure spend was another big-ticket item on the list which owned a lion’s share of the budget, with growth comes the overheads related to network and datacentres, storage and spend on TSP. Reducing the call volume and number of service requests was another area that improved productivity, reducing the approval cycle time and simplifying the approval matrix made the operations lean.

Projects were spinned around DSO… days out standing … the accounts payable and receivable cycle time, employee reimbursements, finance ERPs, invoicing defects and delays and wing to wing cycle time at the collections front added more savings and directly impacted the bottom-line which was an icing on the cake resolving quite a good amount of issues related to the cash flow.

Optimizing the wing to wing resource supply chain and hiring cycle time, enabling ease w.r.t. joining formalities made life more comfortable adding at least 35 days of additional billability and improving the revenue stream added a new flavour all together to the program.

While you have read the positives and the things done we encountered a situation where like any other company the execution looked bleak, as long as there was focus things were moving and as the focus shifted there variation crept in. IT Systems and structures did not help much. Performance targets were poorly defined we lacked insights into the long term levers, while the near term picture looked great there were concerns around the sustainability and long term results were questionable.

This is a time when we looked like being exhausted with the ideas and best practice picked up from the market and most of the things already implemented, there was nothing new to identify from a cost optimization whereas there were a lot of opportunities around cycle time improvement that will lead only to notional cost compared to hard savings that could impact the bottom line.

It was a time to rethink on what I was actually doing, initial enthusiasm and quick fix projects from the past experience will not help in the long term and I need to now strike the right balance between targeted reductions, re-allocation and re-investment in areas that can driver higher overall expense productivity over time. It was very important to establish benchmarks that are truly “apples-to-apples” and start looking at highly-granular spending breakdowns; more importantly clear understanding of the strategic, tactical and organizational “drivers” of world-class cost structure performance is something I started to focus up on.

Days passed by and a series of brainstorming session threw light on prioritizing the strategic goals, relooking at the degree of centralization and empowerment to local teams, funding mechanisms, vendor rationalization, realigning roles and responsibilities, hierarchy … head to tail ratios, opportunities of outsourcing as a new set of projects to focus up on in the coming year….

While the first year was a cake walk with quite a good amount of savings making the bottom-line healthier and reaching the set goal, it’s in this coming fiscal that a lot of people in raising eyebrows to ideas being brainstormed and extending surface level … people involved at middle and lower management feeling insecure as soon as talks w.r.t. outsourcing and role rationalization were being discussed … nonetheless a lot of support from the Sr. Management is adding a lot of confidence to the program and the determined will and focus is helping me overcome all hurdles and moving forward to accomplish the goal…  truely a great expriance and awesome company to work with :-)

Beyond the bottom line …

I am hired as an expert in a consulting assignment to work with the business manager and help him improve his EBITDA and impact the bottom line.

While I start my data analysis and quickly identify key improvement themes that will help improve the operational efficiency, build strategies where the value enabling tasks can be digitized and move some of the processes  to low cost channels and effectively use the power of outsourcing and impact the margins there is much more one should do.

My conversation with a Sr. Vice President brought in a 360 degree transformation to the whole art and science of operational excellence. No doubt that the cost optimization drives, business efficiency projects and process excellence are the keys which all business houses have successfully deployed and tasted the results there are a hand full of organization which go beyond these initiatives and move towards employee ENGAGEMENT…. EMPOWERMENT … and EXECTUION …

During my HP days I had a chance to work with the best of the CXO’s and Directors, each one is a gem in the crown of the Sr. Management who was on a path less travelled to meet the goals set and demonstrated unclenching behavioural anchors and maintained composure during the most stressful days and the only and only point each one of them articulated clearly and echoed in every talk is a threefold model of Engagement… Empowerment… and Execution.

One of the directors of HP who did play a role of my mentor and coach for my tenure in HP made a point very clear… Execution is not a leadership trait, it’s a basic essential that is required in each and every employee hired in the organization, every employee should exactly know what the output he/she generates is. … WOW… a good learning… all the books I had read on execution talked more from a leadership end … here is something new I discovered … He went on adding and giving example on how execution can be seen in every walk of our life and every member of the society, the world is a well-oiled engine and everyone is able to deliver … your spouse prepares a bed tea and wakes you up is only because the milkman delivers the milk on time… that’s execution… she prepares the kids to school and drops them to the school bus… that’s execution… the school van picks up kids on time and drops them to school and brings them back home on time… that’s execution… open your eyes and see … you will see execution in every walk of life … this is a basic essential …

Why do we fail to execute if this is so basic trait…?

When I popped up this question to him he said… my friend.., you can successfully execute if you are empowered to… what your spouse can do… your maid cannot unless she is empowered… WOW.. now see the connection… execution is linked to empowerment…

Nonetheless, he went on to add… it’s not only empowerment … you may empower your maid to dress up your kids and ensure they reach the school bus at the gate and this may slip … it may not happen daily… or your will face issues here… now this is linked to Engagement…

How are you engaging with your maid and make her feel responsible and take the ownership…

My conversation went on and on with a lot of examples and real life situations that can be easily understood … I am convinced… and I still face a challenge keeping my team motivated enough and engaged …

Now there are a lot of factors that impact this concept in the corporate world… as we grow the leadership sessions, trainings and talks revolve more on understanding the finances and the financial ratios… the additions and subtractions… gains … profits and losses… etc… and in a five day leadership training there will be a couple of workshops for half a day on employee engagement … personal branding etc… I am not complaining … there are trainers who do stress at every point that you should keep people engaged and empowered but I have not seen it really happening at all levels…  

Real, tangible, quantitative data confirms that happy and engaged employees lead to greater profits and higher stock prices, a friend of mine used to work for NETAPP and this company has a very simple practice of engaging employee and empowering them with a reward program called as “CIO FOR A DAY” where the CIO goes to each and every employee after the annual results are posted and thanks them for the good work they have done. He carries real examples and appreciation emails and tells them how much it matters for him and the team.

People quit managers and not companies is a quote everyone is aware about and very less effort is put in to really build the human capital. It’s not only the leadership talks or shows that matter what really matters is have you touched everyone in the organization.  A CEO of a large company makes a very impressive speech … but this does not reach as a benefit the end employee who is just a few years of experience in the company and doing the real execution … may be testing, coding, building, designing etc… as you grow up the management ladder you are but nothing building strategies and seeing the plans come thru.

While you can be successful in engaging the employee… but I have not seen any behaviour demonstrating empowerment. Decision making can happen only if you are empowered, your spouse can take a decision to perform a task later or forgo to cut down the time to prepare the kids to reach the school van is your maid performing the same set of activities empowered to do so…

Empowerment can come only and only if you can willing to take the responsibility and are accountable for the actions, I have seen only in few occasions the Sr. Manager and AVPs although entitled hold back to sign off for various reasons and pass the buck on … is this a trait you have anchored into your behaviour right from your child days… I believe so… fall back on the families of people who you have seen making decisions… forget good or bad … but they make decisions and you can relate them roots into their childhood … culture they are brought up in or education…

Well… there is a long long way for the Indian corporate to go and understand how to really engage and empower which in turn improves execution that leads to customer satisfaction and repeat business or more business.

In principle and theory everyone agrees to but the very human nature that is filled with insecurities and commitments will fancy on titles like VP, AVP, Sr. Manager, GM, MD etc… and lacks the ability to engage and empower fails to execute and one fine day will stand at the bottom … and will continue to see the bottom-line number diminish ….

 

Don't find fault, find a remedy....

I am inspired from the quote “Don’t find a fault, find a remedy…” and past thirteen years working on various short term and long term consulting assignments I have found one thing in common … most of the enterprise solutions and process improvements programs often “fail” because corporate strategic objectives are misconstrued, or because processes and systems are not aligned with your business necessities and the fault finding starts. We need to move away from addressing the need and start understanding the want. The need is met and so is the business running, what is required is meeting the wants of the customer and that can be accomplished by understanding the strategic objective. Unless one sees the big picture all process improvements are penny wise pound foolish…. I have so far engaged with more than 40 – 50 consulting assigments with various customers both internal and external and all are focused on cost reduction, optimization, cycle time, efficiency resulting in operational excellence and EBITDA improvement as a central theme the biggest ever challenge I have successfully conquered is bringing business change at an organizational and individual level and shifting / transitioning individuals, teams and organizations from a current state to a desired future state such that the change made are fully aligned to the corporate strategy and business objectives.

My projects are usually slow compared to others but what I have discovered when I fall back is at least 60% of my changes are cemented so strong and have become the DNA of the organization which gives me immense satisfaction.  Often one will discover a situation where you are slipping on the budgets, on the targets, on the schedule and that’s the reality… may be the estimation has gone wrong or the gathering stakeholder commitment and involvement is delayed nonetheless it’s very very important that the customer alignment and the user community buy in is of at most priority.

Advising and partnering to provide the customer with an integrated end-to-end approach in a consulting mode looks easy the difficult part is the EXECUTION… here is where the metal is tested, often situation arises when you are standing alone and need to figure out a way to gather momentum of the user community to embrace the solution and the stakeholders start owning it.

Many a business units add new channels in response to customer demand, with inconsistent processes and disconnected views of the customer supported by individual back office systems and the lack of communication to the shared service functions raises the challenge in operating efficiently. Coupled with poor understanding the voice of the customer affects the business and the noise starts this is where most of the times I get involved and start the due diligence activity and backtrack to the origin to find out the root causes to resolve them…

It’s a RAT RACE out there and a rush to win the customer contract we often forget our fundamentals of communication and this is exactly where the chaos starts. Every individual is a leader in himself and the challenge is he/she ends up making decisions without involving the larger community and lands into issues mid-way during the execution, the margins start to look week and the pressure mounts on the EBITDA slipping to amber and then into red start showing signs of distress coupled with few more decision that impact the people involved … low morale … attrition… cost pressure… everything start looking terrible in a few weeks … alas… had you stepped out from the RAT RACE and looked at the big picture…

Well… cutting things short… fall back and check in your respective organizations if you have a strong communication tool which enables and connects the Sales Force with Delivery…  if you don’t have one and are still dependent on outlook start investing in a CRM and ensure this CRM is fully implemented and tracked such that your forecasting and pipeline info is reaching the right audience in the organization … else you will someday be  left alone and will have to stand alone… though you will not give up and ensure the projects are completed… but seamless execution needs strong communication and partnering to run as a well-oiled engine... instead of find faults one should learn lessons from the past and incorporate as a best practice to move on… J

Five Men Army of a Successful Leader

When I fall back and look at my thirteen year old career it’s filled with learning experiences, I have failed more than succeeded, took big risks and made enough blunders and learnt a lot from them. Looking back, I realize that I could have changed my approach and pressed on in my efforts to take one more step forward and made it happen… many instances and assignments it’s the last last last minute that I backed out and there was always someone who picked up this as an opportunity and finished it coming out in bright colours…

I could have done the tasks and projects far better had I got the five men army way early in my career… nonetheless better late than never.  My mentor always insisted on a quote that says “Leadership is not a designation…it’s a position earned” unless you see a rough sea you will not be a good sailor. Success is short lived and forgotten but the failures remain long enough with you and these learning experiences is what the industry is looking to hire you for so that you will not make the same mistake again …

Almost 8 years down the line of my career I had a breakthrough after earning the trust of my five men army and believe everyone plays a very vital role in any assignment I am leading …

My five men army consist of …

a.      Coach…

b.      Mentor…

c.       Black Shadow …

d.      White Angle …

e.      and above all Myself….

Each of them has a designated role to play and they help me as a captain to walk up to my stakeholders and give them the taste of success they have hired me for…

Coach: A coach for me is one who will bring in the discipline in me, will always guide me and bring me back on track. He will make the necessary project plans, track the progress, question me if things are not falling in place, help me see the risks early and also help me come up with a risk mitigation plan. He is the most practical personality who is experienced and knows things inside out

Mentor: While there is a coach doing all things in practice, I have a Mentor who will help me understand the choices to make. She motivates me, inspires me with examples and case studies. She is always there when I need her, she is not a subject matter expert but she is the one who listens to me patiently and helps me discover what I already know. She never suggests me unlike a coach but helps me with all the necessary tools and tips to overcome the hurdles I am facing and prepares me for the success.

Black Shadow: While the coach and mentor play their roles in making things happen and support me physically and emotionally, my best friend is the Black Shadow. I learnt it the Hardaway, not everyone is comfortable listening to a feedback, but she is the one who tell me at every step why I will not succeed, why the things I am putting across will not work, her role is to crib, sulk and give me all the negatives and put across many reasons why things will fail.

White Angel: My most dearest is white angle, he is one who is the exact opposite to the Black shadow, he comes up and tells me every reason why I should try out and experiment with the idea I have. He is the one who looks at the inputs of the Black shadow and works with the coach and strengthens the plans to overcome the risks. A white angle should be innovative, think out of box and be a continuous energy of ideas bubbling to counter the black shadow

Myself: While I have four pillars the army is completed only by me, I am the one who is the final decision maker, I am accountable for my actions, I am responsible for the things I do, I am the cornerstone of success of failure, I may ignore to all the above and follow my gut, I may take suggestion from all and do exactly what is required… I am the master of my destiny. I write the success story or I choose to be in the books of history… and with me come the five men army.

I recently completed a project adding approx. USD 13 million to the bottom line and now switching to pick up a next big task to improve the revenue by at least 15 % for the year FY 14-15. This model has worked for me and now is a part of my team…

The first time I proposed this to my SVP, he laughed at me and told I have hired you and believe all these four should be a part of your quality / personality. Over a period of time after a few sessions he now strongly believes that the very human nature will get into conflict if the expectation is to have a personality dwell all the above four pillars.

I believe it’s worth investing in the above four for a successful business unit looking for a long term sustaining result and grow at the rate of at least 15% – 20% CAGR … thus make an impact … J