All posts by ProAction

The Dance of Organizational Development: Leading with Purpose and Precision

Audie Penn, Vice President, Business Development and Service Delivery

What exactly is development?  The root of the word develop, to unwrap, converges on a specific point.  For example, when I unwrap something, a gift for example, I find something specific.  A gift, if it is thoughtful, has meaning and importance.  The added benefit of unwrapping a gift is the association of the gift to the sender.  Now I have a permanent association of the gift and the giver, but the value of the item, if it is a good gift, still has significance to me.  I needed and wanted it.

The idea of general development gives me pause.  General development is like an unwanted gift that has no value to the recipient.  Why do I need this?  Do you notice something that I don’t?  Is this something you think I need in my work?  Are you disappointed in my performance?  What is it that I am missing? 

To avoid creating this spiral of negative thinking and worry, we must be precise in our development work. Development has a purpose, but we must be cautious with the idea of purpose.  A shared purpose is best; one that you and I both agree is necessary and desired (need and want from above).  If one suggests it is needed, but the other does not want it, the spiral is downward and lands in coercion.  However, if there is agreement and desire, the upward spiral has unending value.  What we learn in development creates its own forward momentum, and a continuous surfacing of opportunities and one learning leads to another and another and another.  This really is the fundamental power of continuous improvement or operational excellence. 

The dance between function and relation can be beautiful if the lead knows the dance.  Like the elegance of a dance partnership, the lead guides the partner to opportunity and watching the partner drift into intuitive interpretation of movement and purpose can be mesmerizing to those observing and can immerse the dancers into flow. Mihaly Csikszentmihalyi explores the 8 ideas of flow:

  1. Complete concentration on the task
  2. Clarity of goals and reward in mind and immediate feedback
  3. Transformation of time (speeding up/slowing down)
  4. The experience is intrinsically rewarding
  5. Effortlessness and ease
  6. There is a balance between challenge and skills
  7. Actions and awareness are merged, losing self-conscious rumination
  8. There is a feeling of control over the task

There is also a relationship between flow and innovation.  When we slip into a flow state, we can easily see relationships within our work that were impossible to notice when not in that state.  When the development process is working, and what we are learning we are also loving, the dance begins, the state of flow has opportunity to exist, and the innovations come more naturally.  As a leader, it is my responsibility to create these environments to release the potential of my team members and create a community in which everyone can flourish more fully.  When communities flourish together, immeasurable value is created.

Are we Deal Killers or Deal Enablers? Our Role as Consultants for Operational Efficiency in Buy-Side Deals

In private equity, successful acquisitions are not just about the numbers; they hinge on a thorough understanding of the inner workings of a target company. Operational consultants play a crucial role on the buy-side, providing operational diligence to private equity firms seeking to make informed investment decisions. At a recent networking event, a question arose: Are operational consultants like The ProAction Group deal killers or deal enablers? Let’s explore the impact of operational diligence on the delicate relationship between the seller and the buyer.

Understanding the Dual Role:

We are neither deal killers nor deal enablers in a simplistic sense. Instead, our consulting role is to uncover the intricacies of a company’s operations, highlighting both its strengths and challenges. This dual approach ensures a comprehensive evaluation, allowing private equity firms to make well-informed decisions that go beyond the surface-level due diligence.

Building Relationships:

One key aspect of our consulting role is to establish a strong rapport with the seller. By acknowledging the complexities and obstacles in the operational landscape, we connect with the seller by understanding the value they provide in meeting customer demand. We strive to demonstrate empathy and understanding. This builds a foundation of trust and openness, fostering a positive relationship between the seller and the buyer.

Recognizing Strengths and Challenges:

As operational consultants we don’t just focus on problems; we also celebrate the strengths of the seller and their management team. By acknowledging areas of strong commitment, effective processes, and impressive results, we seek to create a balanced perspective. Moreover, calling out the unique challenges the company faces demonstrates a deep understanding of the seller’s world.

Maintaining Discretion:

A crucial aspect of operational diligence is discretion. We refrain from discussing improvement opportunities with the seller, leaving the decision to share such insights to the buyer, typically post-closure. This approach ensures that the buyer retains control over when, how, and if they choose to communicate potential enhancements to the seller.

When we fulfill our role effectively, the buyer gains several advantages:

  • Meaningful Connection with Leadership: A thorough operational understanding provides the buyer with a significant advantage in connecting with the leadership team on a deeper, more meaningful level.
  • Clarity on Risks and Capex: We offer clarity on stability, potential risks, and the capital expenditures required to mitigate them. Armed with this information, the buyer can make informed decisions, potentially seeking relief from the seller during final negotiations.
  • Uncovering Hidden Value: We document opportunities for unlocking hidden value. This clarity aids the buyer during final negotiations, and managing concessions requested by the seller, fostering a mutually beneficial deal.

As consultants for operational efficiency we are integral to the success of private equity buy-side deals. Our nuanced approach, balancing recognition of strengths and challenges, builds trust and facilitates open communication between the buyer and the seller. We rely on our experience to provide a broader understanding of a company’s operations, empowering private equity firms to make strategic decisions that go beyond mere financial considerations, ultimately contributing to successful and mutually beneficial transactions.

Gary Spoerre Promoted to Director – Sales Enablement!

We are thrilled to announce the promotion of Gary Spoerre to the role of Director, Sales Enablement. Gary brings 29 years of invaluable experience in process engineering and management across diverse sectors such as manufacturing, electronics, software, education, and aerospace.

In his previous roles, Gary has demonstrated an impressive ability to lead teams, establish standards, and train personnel, resulting in enhanced production, reduced defects, and improved safety. Notably, during his tenure at General Dynamics, he successfully managed their learning management systems and the ongoing training of 400+ site personnel. His dedication to creating comprehensive documentation and providing effective training contributed significantly to a safer work environment and improved product quality. At Whirlpool/Maytag, he trained and counseled employees on product quality improvement, workstation safety, and continuous process improvement. Gary’s role in redesigning the production training program resulted in a significant reduction in rework, lowered injury risks, and increased employee cross-training.

Gary’s multifaceted expertise extends into the aerospace and software fields, where he coordinated complex electronics assembly projects, managed software installation and customer service teams, and developed procedures to ensure consistent customer satisfaction.

Gary holds a Master’s in Education from Southern Illinois University and a BS in Industrial Engineering. His military service as Petty Officer, 2nd Class (E-5) for the U.S. Navy and Sergeant (E-5) for the USARNG showcases his commitment to excellence and discipline.

Additionally, Gary is a Lean Six Sigma Green Belt and holds certifications in the Society for HR Management, Foundations of Project Management and Lean Systems Design.

Please join me in congratulating Gary Spoerre on his well-earned promotion! His wealth of experience and dedication will undoubtedly continue to drive success in his new role as Director, Sales Enablement. 

Audie Penn now Vice President, Business Development and Service Delivery

Congratulations to Audie Penn on his promotion to Vice President, Business Development and Service Delivery at The ProAction Group! With 38 years of extensive experience in various manufacturing environments, Audie brings a wealth of knowledge to his new role.

In his capacity as Vice President, Audie will play a crucial role in collaborating with clients to identify risk and implement value creation initiatives, ensuring that companies reach their strategic, organizational, and financial goals.

Audie’s diverse background, encompassing both consulting and industry roles, spans across industries such as furniture, food, heavy equipment, municipal functions, energy, and building materials. His previous role as managing partner for a consulting firm focusing on operational excellence showcases his ability to drive significant improvements, exemplified by the impressive EBITDA growth achieved for his clients.

Notably, Audie’s contributions as Group Manager for a global heavy equipment manufacturer led to surpassing performance expectations and a substantial reduction in variable costs within the first five months of his tenure. His expertise extends to supply chain management and global production system deployment, particularly in implementing Lean methodologies for performance enhancement globally.

Audie holds degrees in accounting and business management, along with an MBA from St. Ambrose University. He is also Master Black Belt Certified and holds certifications at the Gold, Silver, and Bronze levels through the Lean Certification Alliance. Currently serving as the chair of the SME Certification Oversight and Appeals Committee within the alliance, Audie continues to contribute significantly to the field.

The ProAction Group is fortunate to have Audie Penn in this leadership role, and his extensive experience and expertise will undoubtedly contribute to continued success and growth for our clients.

MAXIMIZING RETURNS: OUR TOP 5 TIPS TO PREPARING PORTFOLIO COMPANIES FOR SCALABILITY

Private Equity (PE) firms are no strangers to the fast-paced world of business, where every decision can have a profound impact on the bottom line. When it comes to investing in and growing portfolio companies, the adage “measure twice, cut once” holds particularly true.

In addition to the financial verification provided by a QofE, an operational diligence provides full visibility of any potential risk factors before the deal closes. We’d like to make a compelling case for why preparation before deal closure is critical for confident operational planning and scalability.  Our 5 best tips:

1. Do the Operational Diligence

Operational diligence is the compass that helps PE firms navigate the uncertain waters of acquisitions. It’s the comprehensive assessment of a target company’s operations, financials, and risk factors. But this diligence isn’t just about ticking boxes; it’s about unearthing hidden value and uncovering potential pitfalls. Understanding all the variables is immensely helpful when balancing all the factors versus the investment decisions.  When you know what you’re getting into, you can plan for success more effectively.

2. Identify the full risk profile

Imagine investing in a company only to discover post-acquisition that there are significant undisclosed risks. This scenario can be costly and damage both the PE firm’s reputation and the portfolio company’s stability. Full visibility into risk factors during operations diligence mitigates such surprises and enables PE firms to negotiate terms and allocate resources more intelligently.  The risk profile is a full array of categories, including the safety and physical security of a business, business interruption, unbudgeted CAPEX requirements, misdirected corrective actions and so much more.  Identifying and assessing these risks is crucial for making informed decisions and planning to confidently scale for growth.

3. Build a strong foundation

Preparation before closing the deal sets the stage for everything that follows. It’s akin to building a house on a solid foundation. PE firms that take the time to thoroughly understand the risks and hidden value in a target acquisition can develop robust plans that add real value and eliminates obstacles. The diligence also helps you create relationships with the management team and employees, and chemistry that will help immensely during the post-close activities of stabilizing, adding value, and scaling the business.

4. Make a confident capacity change

Confidence is a game-changer. When you have full visibility into potential risks, you make decisions based on data, not guesswork. This confidence permeates every aspect of post-acquisition operations, from strategic pivots and resource allocation to open and transparent communication with the employees of the acquisition. Scaling the operation is no longer a distant goal, it’s the next goal. You built a solid foundation, removed the obstacles, and designed the process to perform. Now it’s time to scale the company, increase the velocity, and expand to your new capacity for the remainder of the investment cycle.  Invest in the right areas, optimize operations, and scale the business with precision.

5. Learn from others who have done it successfully

Some of the most successful PE firms are relentless in their pursuit of operational diligence. They understand that preparation is the key to prosperity. By studying their practices, one can see how thorough risk assessment transforms their portfolio companies into industry leaders.  As operational efficiency consultants we have worked with hundreds of companies and enjoy sharing benchmark data that is specific to an industry, industry adjacent or where there are similar operational challenges.  Outside-in expertise is invaluable to charting successful scalability.

The ProAction Group, and its Operational Diligence, provides a proven process for achieving exponential value for companies in a wide range of industries and sectors, including manufacturing, distribution, and business services.

We invite you to reach out to our team anytime to start a conversation about the benefits an Operational Diligence can bring to your company, as well as any related services we may provide, to help buyers buy and sellers sell.

The Value Of Pre-Close Operational Diligence In Mitigating Risks and Uncovering Hidden Value

Just like a quality of earnings (QofE), the use of operational diligence is growing in relevance and utilization. Identifying undisclosed risks pre-close is not about avoiding deals, rather it allows better clarity for the prospective private equity sponsor to negotiate well pre-close, and approach the deal with a more complete plan to address those issues post close. Identifying risks early in the diligence process is central to addressing those same issues before they achieve critical mass two or three years after closing.

Playing Blind:  The Impact of Uncertainty on the Field and in Business

Close your eyes.  Imagine you are a football player, stepping onto the field during a crucial game. The stakes are high, and the pressure is immense. Your heart races with adrenaline as you take your position.  You hear the thunderous cheers of the crowd. The energy is electrifying, and you are determined to give it your all.

But then, something strange happens. As the referee blows the whistle to start the play, you realize that you have no idea what the score is or how long you have been playing. The scoreboard is blank where the scores should be, and there’s no clock in sight to show how much time is left. You try to shake off the confusion and focus on the play ahead, but that nagging uncertainty lingers in the back of your mind.

Without knowing the score, you can’t gauge whether your team is winning or losing. You don’t know if you need to push harder and take risks to catch up, or if you should play it safe to maintain a lead. Every move becomes a gamble, and anxiety creeps in, making it difficult to think clearly and execute your plays effectively.

As the game progresses, you notice that your teammates are also affected by the lack of information. Some seem to be playing with a newfound sense of urgency, assuming that they must be behind. They take bold, reckless actions, hoping for a miracle comeback. Other players seem overly cautious, unwilling to take any chances, fearing they might jeopardize a potential lead.

The uncertainty takes a toll on team coordination too. Communication becomes fragmented, as each player tries to interpret the game’s situation based on their own observations. Without a common understanding of the score and remaining time, it’s challenging to work together seamlessly as a unit.  The absence of critical information begins to impact your individual performance as well. You find it hard to focus on the task at hand, and doubt clouds your judgment. Your confidence wavers, and you become hesitant in your decision-making on the field. Your plays lack the usual precision and timing, and frustration mounts as mistakes start to pile up. 

OK…you can open your eyes. Not fun, right?   Yet, this is the situation so many business leaders put their workers in… no posted metrics, no start-up meetings, no daily review.

The story of the football game without a known score or remaining time serves as a powerful analogy for business owners. It underscores the importance of having access to real-time data, analytics, and insights to make well-informed decisions.

At The ProAction Group, we understand that success in business hinges on making informed decisions backed by data-driven insights. Our mission is to help organizations thrive by identifying operational improvements, mitigating risks, optimizing procurement, and maximizing revenue and profits. In a rapidly evolving market, the ability to adapt and stay ahead is paramount, and that requires having a finger on the pulse of your company’s performance.

Much like the football player needed to know the score and time remaining to devise an effective game plan, businesses must rely on key performance metrics to make strategic decisions, and managers use key performance indicators to set appropriate expectations on the floor.  Our expertise lies in shedding light on the vital aspects of your business that might otherwise remain obscured. We provide the tools and insights needed to navigate confidently through the challenges, helping you stay agile and responsive.  

Furthermore, we work with your team to establish clear benchmarks of success, guiding you on what to measure and how to interpret those metrics effectively.

Education is also an essential part of our approach. We believe that arming your team with the knowledge of these key metrics empowers them to act decisively and collaboratively towards shared goals. By keeping everyone on the same page and speaking the same language of success, we help nurture a culture of achievement and continuous improvement.

The analogy of playing blind on a football field underscores the importance of having the right information to succeed. With our assistance, you can navigate the complexities of your business’s operational challenges with a clear understanding of your performance metrics, enabling you to seize opportunities, mitigate risks, and propel your organization towards lasting success. Together, let’s bring clarity to your path, so you can achieve remarkable results and secure a winning position in the market.  How can we help?

The Illusion of a Seemingly Stable Business

Gauging the stability of a business can be tricky.  Strong financial performance, high profit margins, and healthy balance sheets can create the illusion of stability, but these indicators alone may be masking underlying risks and vulnerabilities.  Believing your business is stable based only on these indicators can provide a false sense of security among business leadership and can lead to complacency on the shop floor.  Success can hide risk.

Stability is the foundation of practically every production metric… cycle time, lead-time, OEE, fulfillment rate – all depend upon stability.  A lack of basic stability prevents improvements from either taking place or being sustained – continuous improvement is impossible without a stable process.  Add to that, the fact that we tend to tolerate poor performance in the absence of a squeaky wheel, and you find that no squeaky wheel is a signal worth investigating.

How should a business gauge stability?  Many people (and lots of engineers) tend to mistakenly connect stability with a high quality rating or fulfillment rate, but stability is so much more than that.  You first need to recognize that stability has three separate components – predictability, sustainable outcomes, and consistent processes, and you need to realize that stability requires all three.

Predictability: Let’s say a manufacturer can’t or doesn’t measure OEE for their processes – without it, no prediction can be made for the output and the process is unstable.  Here’s another example – you talk with the CFO on the 25th of the month and they share that the company is on course to hit their plan for the month, but five days later you find they have missed the plan by 20%.  Not predictable, not stable.

Sustainable Outcomes: A sustainable outcome is one that continues to meet customer demands – quality is high enough, fulfillment rates meet demand, and cost is low enough.  If lead times for a company are growing, they may eventually start losing orders because of it, at which point it becomes an unsustainable outcome.  Sustainable outcomes are the result of robust systems that can respond to ever-changing market, supply chain, and employment needs, to name a few.

Consistent Processes: Consider this – at the end of an operation, employees conduct a final visual inspection and box up the items.  Each employee chooses the process they wish to use, and no employee has the same output as the others.  But there’s one employee who was clearly inspecting and packaging twice as much product as anyone else, but because everyone could choose to do it their own way, the impact of any good work was negligible.  If everyone were to follow the process used by the best operator, productivity would increase and production costs would be reduced.

If we’re all in agreement that predictability, sustainability, and consistency are the core requirements for stability, how does instability manifest itself in operations?  Here are a few indicators of instability:

Efficiency and Productivity: An operation isn’t stable if the output changes each time there’s a change in employees, shift, production line, supervisor, or facility.

Quality Control: An operation isn’t stable if you have to sort the outcome, inspect quality into the product, or if you’re not tracking rework and scrap. 

Cost Control: An operation isn’t stable if lead times are growing, parts are unavailable, or if absenteeism continues to be a problem.

Compliance and Regulation: An operation isn’t stable if a product (like a safety harness) fails to perform to specification, or if employees are at risk of injury. 

Risk management: An operation isn’t stable if any of the following risk conditions go unaddressed –

  • If your company is growing but your margins start to decrease when new products are added, or if you have anyone in management who doesn’t take off more than a day at a time, your operation is not stable (tribal knowledge risk)
  • If you don’t have a thoughtful hedging strategy or a history of passing on pricing increases to customers, your operation is not stable (margin compression risk)
  • If you don’t have alternate sources for your materials, or a secondary port of entry negotiated in your supply chain, or a disaster recovery plan, your operation is not stable (business interruption risk)
  • If your Emod rate (or EMR) is above 1.00 or if you don’t know what your Emod rate is, your operation is not stable (safety risk)
  • If your maintenance department spends more than 15% of their time on reactive maintenance, your operation is not stable (CAPEX risk)
  • If you don’t know your churn/loss rate, or which of your customers are vulnerable, your operation is not stable (customer loyalty risk)

Perhaps the greatest benefit of stability (predictable processes) is the ability to scale and grow your business.  When businesses have established and repeatable processes, they can more easily replicate and scale their operations.  This is particularly important when expanding into new markets, introducing new products or services, or onboarding new employees.

At The ProAction Group, we help businesses create reliable processes.  We work with leadership, management, and the employees on the floor to raise awareness for business stability and its connection to predictability, sustainable outcomes, and consistent processes.  Verifying the presence of these components in your processes is the key to true business stability.