June 28, 2017
In my line of work, I often encounter manufacturing companies that have been incredibly successful in growing respectable brands in their respective end markets. I am always impressed by the grit and knowledge the business leaders of these firms have shown to build something out of nothing.
However, it’s also the case that the very same attributes that made these companies successful in their younger years are what hold the organization back as it attempts to sustain growth. In each case, it’s often the company’s internal processes that get in the way, more so than external market pressures. I’m referring to:
- A sales force with great leeway in negotiating pricing and terms with customers.
- A blurred view of product management and engineering—great resources for meeting the specs of the next job.
- A CSR team that quietly manages to handle order entry for every complex commercial scenario, often with just an email or two to go by.
All of these systems and processes bring incredible flexibility to the organization. For the first several hundred million in revenue, an organization is hungry and focused on growth. These approaches are great at capturing every possible source of cash through the early years.
But as competition grows and sales plateau, these assets become a liability. Firstly, they are inherently ad hoc and lack a mechanism for improvement. Secondly, they overtly rely on “heroes” to function. Jason in sales, or Susan at the call center, or Alex in engineering…. The organization likely knows who these people are that can get the job done, but you can’t train up or hire in heroes.
The managers for these companies, who often come up through manufacturing or sales, often misidentify this problem. While they may have exceptional customer relationships or an innate ability to squeeze cost out of a process, they often lack the skills to recognize the organizational changes needed to propel themselves to the billion-dollar mark.
The risk that must be taken requires undoing what has made these companies successful up to this point in their growth cycle. To continue growing, an overhaul of the systems and processes that connect a customer to the collection of cash is needed.
IT investments are needed to automate and manage the commercial complexities currently stitched together by hand, often to your customer’s great dissatisfaction.
Personnel investments are needed to provide oversight and establish the right configuration, pricing, and quoting processes.
Product management needs to move away from its engineering roots towards marketing and value proposition acumen.
And perhaps the most important change of all, senior leadership needs to recognize that performance of pricing and quoting processes is critical enough to merit KPI metrics and focus at the highest levels of the organization.
All organizations price and all organizations quote, but for those mired in stagnant growth it is often with a manual opaqueness that undermines corporate aspirations in insidious ways: failed price realization, dissatisfied customers, and distracting non value-add activities. Regardless of whether the business focuses on organic opportunities or M&A, failure to enact needed changes will severely limit realized shareholder value.
Fortunately, there are many ways to begin this journey, and it starts with your pricing strategy. A cross functional internal team can often identify pain points, but an external consultant may be able to further identify and refine a vision for a future operating state that emphasizes profitability while the rest of the organization continues moving forward.