Contains research on the battle between economies of scale and spiraling growth in complexity costs, as well as an overview of Wilson Perumal & Co. and its proprietary approach to complexity management.

1. Strategy • Execution • Performance
Creating Value in a Complex World
Wilson Perumal & Company
Firm Introduction
March 2016

2. Wilson Perumal & Company, Inc. 2
Overview
Wilson Perumal & Company
1. Simplifying your Customer Offer (Markets, products, and pricing)
2. Optimizing your Operating Model (Assets, governance, partners, organization)
3. Strengthening your company’s Management Processes (Management System)
4. Realizing a Culture of Operational Discipline
5. Understanding and Managing Complexity (across all areas)
Key areas of
focus
Publications • Waging War on Complexity Costs, McGraw-Hill 2009
• Growth in the Age of Complexity, McGraw-Hill 2016
Offices • Headquartered in Dallas, TX
• UK subsidiary based in London
Clients
• Typically mid-large companies (>$500M in revenues), private equity firms and
select areas of the US government
• Across industry with significant experience in industrial sector manufacturing
(i.e., pumps, HVAC, packaging equipment, coatings, wire & cable, tools, etc.)
Point of View
Recognition • Best Small Strategy Firm to Work for, 2014, Consulting Magazine
• One of 12 to Watch (Seven Jewels edition), 2012, Consulting Magazine
Complexity is destroying many organization’s ability to create value. Lacking
organizational and operational capabilities to deliver on market value-add variety,
and weighed down by the cost of internal complexity, companies need different
tools, approaches, and strategies.
A strategy consulting firm helping clients create value in a complex world

3. Wilson Perumal & Company, Inc.
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Complexity is exceeding the capabilities of many
organizations…
Complexity is the number
of “things” you have to
manage
The impact of complexity is higher cost and risk and a
reduced ability to grow. Complexity is the opposite of scale!

4. Wilson Perumal & Company, Inc.Source: Company Financial Statements; WP&C analysis 4
…and likely why a surprising number of S&P 500
companies are failing to achieve economies of scale
Economies of
scale
DIS-economies
of scale
S&P 500 companies with economies (or dis-economies) of scale
9 years financial data as of January 2015
n = 423
Almost half of S&P 500
companies are actually
becoming less efficient as
they grow

5. Wilson Perumal & Company, Inc. 5
But not surprising is that economies of scale leads to
significantly higher stock price appreciation
0.00%
50.00%
100.00%
150.00%
200.00%
250.00%
300.00%
350.00%
400.00%
450.00%
Companies with greatest
economies of scale
Companies with least economies
of scale (dis-economies)
The top 20% of companies
have 9X higher stock price
appreciation
Top 20% Bottom 20%
Stock price appreciation of S&P 500 companies (sorted by most to least economies of scale)
9 years financial data as of January 2015
n = 423
Source: Company Financial Statements; Google Finance; WP&C analysis

6. Wilson Perumal & Company, Inc. 6
Failing to achieve economies of scale appears to be
due to an inability to control costs (not lack of growth)
• The bottom 20% of companies (those with the greatest DIS-economies of scale)
actually have the highest revenue growth
– And companies in the remaining tiers have fairly consistent revenue growth
7.4%
6.8%
6.1%
6.8%
9.2%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
Top 20% Bottom 20%
Companies with greatest
economies of scale
Companies with least economies
of scale (dis-economies)
Revenue growth of S&P 500 companies (sorted by most to least economies of scale)
9 years financial data as of January 2015
n = 423
Source: Company Financial Statements; WP&C analysis

7. Wilson Perumal & Company, Inc.Source: Company Financial Statements; WP&C analysis 7
This lack of cost control manifests itself in one of three
ways—failing to control COGS, R&D, or SG&A
• COGS is almost always the single largest cost driver in
a business and failing to control COGS while revenue
is growing leads to dis-economies of scale 55% of the
time
SG&A 20.0%
R&D 25.0%
55.0%COGS
• Companies over-investing in R&D without seeing an
associated uplift in revenue or profits is the second
leading reason why companies fail to achieve
economies of scale
• 20% of the time, the issue lies with SG&A
– Seeking growth, companies invest in sales and
marketing but fail to see the uplift in revenue (or they
add too many brands, products, or geographies which
significantly hampers productivity)
– Or, companies add overhead, management, or
administrative costs without considering the cost impact

8. Wilson Perumal & Company, Inc. 8
In many cases, product proliferation drives such
complexity and is a good place to start simplifying
• Often the most profitable 20% to 30% of products generate more than
300% of the profits in a company, meaning…
• …the remaining 70% to 80% lose 200% of the profits
• Islands of profitability in a sea of costs!
Products that
create profit
Products that
“lose” profit
0% 25% 50% 75% 100%
100%
300%
% TotalProducts
0%
% Total
Profits
The “Whale Curve”
Source: Sievanen, Suomala, and Paranko, Activity-Based Costing and Product Profitability (Tampere, Finland:
Institute for Industrial Management, Tampere University of Technology)

9. Wilson Perumal & Company, Inc. 9
Our complexity-adjusted profitability approach allows
you to quickly see product performance differently…
Square Root Costing is a faster, more dynamic way to
understand and see the impact of complexity on cost
• Helps determine where the business has truly achieved
scalability and where complexity costs are eroding profits
• It answers the question: at what volume would Product A
achieve profitability, if at all?
While standard methodologies spread costs
evenly making all products look profitable…
…Square Root Costing reveals which products
are truly profitable and which are not
Square Root Costing in
Action
At MillerCoors we recently
determined the cost and
profitability of their 1,700
products, across all nine
breweries, and down to the
operating profit level
“This was a quick and painless
way to understand our true
product profitability, and it
challenges how we think
about our business. I am
extremely pleased with the
results.”
—Fernando Palacios
EVP, Chief Integrated Supply Chain Officer
MillerCoors LLC
Square Root Costing in
Action

10. Wilson Perumal & Company, Inc.
…and helps companies make the right decisions in
their portfolios to reduce cost AND enable growth
1. Understand how complexity impacts
your profitability
• Use complexity costing to determine where the
business has scalability and where complexity
costs are eroding profits
2. Balance incremental revenue vs.
incremental cost
10
• Incremental
revenue: revenue
that would be lost
if SKU was
removed
• Incremental cost:
cost that would be
released if SKU
was removed
3. Substitutability: the unsung hero of a
successful portfolio optimization
• Leverage in-depth customer research and internal
analysis to ID substitutes for high-volume products
(to unlock more cost w/o sacrificing revenue)
4. Don’t just “cut the tail”
• Don’t just “cut the tail”
• Consider incremental
revenue & cost, and
substitutability to
uncover real
opportunities to
optimize your portfolio

11. Wilson Perumal & Company, Inc. 11
McGraw-Hill, 2009 McGraw-Hill, 2016
• Complexity Costs
• Product, process &
organizational complexity
• Systemic issue: holistic
approach
• Reshaping cost structures
through concurrent actions
• Scale vs. Complexity
• The Sirens of Growth
• New mindsets, capabilities
• Achieving profitable growth by
understanding scale, and
keeping complexity at bay
“WP&C’s approach to complexity is the most
direct route to an efficient, profitable
enterprise.”
—Ed Lonergran, CEO, Diversey Inc.
We are the experts in understanding and tackling the
challenges associated with complexity
"At Samsung Electronics, a simple and
speedy decision-making procedure has
contributed to our success. Complexity is
one of the biggest impediments to
operational speed. The authors present a
practical approach for tackling it. This book
is inspiring.“
—Oh-Hyun Kwon, Vice-Chairman and CEO,
Samsung Electronics
“Regulators and government officials
should read this book and take notice.
Complexity dramatically increases costs and
risk of failure.”
--Andy Beal, Chairman and CEO, Beal Bank
“Separating good from bad complexity
costs is a critical task facing companies
today, and the authors provide a compelling
roadmap for solving the problem.”
—Mike McCallister, President and CEO,
Humana, Inc.

12. Wilson Perumal & Company, Inc. 12
When it comes understanding complexity and costing,
our unique approach is gaining a following
“This was a quick and painless way to understand our true profitability, and it challenges how we think
about our business. I am extremely pleased with the results.”—Fernando Palacios, COO, MillerCoors LLC

13. Wilson Perumal & Company, Inc. 13
Testimonials
“WP&C combines the level of talent and capability of
the name-brand strategy firms with the great working
relationship, partner engagement, and level of personal
commitment you can only get with a smaller firm.
WP&C is the best of both worlds.”
—Dave Hoogmoed, President, Land O’Lakes Purina Feed “This was a quick and painless way to understand our
true product profitability, and it challenges how we
think about our business. I am extremely pleased with
the results.”—Fernando Palacios, COO, MillerCoors LLC
“If you take all six times where we looked at this, over the
past ten years, and rolled them all up together, and
multiplied by ten, it would still not be as good as this
work.” —Bill McNabb, CEO, Vanguard Group, Inc.
“You are analytical and smart, but you also get
things done!”
—Chris Harwood, Portfolio Executive, Doughty Hanson &
Co.
“This work represents the best understanding of
the ammunitions logistics base I have seen…I for
one have been waiting for this for years.”
—Installation Commander
Crane Army Ammunition Activity (CAAA)
“I have been more than pleased with what you
have been able to accomplish in this time. Beyond
my expectations…Spectacular!”
– Peter Benton, COO, Worldwide Clinical Trials, Inc.
Over the last few years we have used many consulting
firms, including McKinsey and Bain, but we feel we
got the most value in this area from WP&C."
—Bert Davis, SVP Transformation,
Stanley Black & Decker, Inc.
“Fantastic piece of work! You’ve really shed a
lot of light on our business.”
—Rupert Pearce, CEO, Inmarsat plc
“The best work I have seen in Operations
Development. A case study for us as a business.”
–John Browett, CEO Dixons Retail
“You have got more done in the first 2 weeks than
90% of project teams I have seen”
– Bruce Roberson, Advisor to the board, Contech Engineered
Solutions (& former Senior Director, McKinsey)
“We have never been able to achieve these kinds
of results before with consultants.”
—Private Equity Executive, The Jordan Company

14. Wilson Perumal & Company, Inc.
14
Customer
Offer
• Market and customer
expansion proliferate the
portfolio confusing Sales and
Customers alike
• Products and pricing
practices drive
cannibalization and
discounting
• Customer service and
experience degrade as the
business becomes harder to
manage
We have built expertise around 4 key areas: where
value creation breaks down in the face of complexity
Operating
Model
• End-to-end value delivery
becomes ineffective (order
to cash, concept-to-launch,
etc.)
• Misaligned cost-to-serve
and value offering result in
missed revenue and/or
margin
• Processes, technology, and
organization no longer fit
or support the needs of the
business
Management
Systems
Culture for
Execution
Strategy Execution
How Value Creation breaks down:
Recapturing Value:
Right Offering Optimized Structure Effective Management Operational Discipline
X X X
• Portfolio Optimization
• Pricing Strategy
• Complexity Costing
• Multiple management
systems resulting in
duplicated and overlapping
processes
• Lack of clarity of ownership
for management processes
resulting in organizational
complexity and politics
• Unclear expectations
resulting in a lack of
accountability
• Command and control
culture that is unable to
anticipate risk and learn from
mistakes
• Lack of Operational Discipline
resulting in inconsistent
performance and variation
• High variation in norms and
behaviors resulting in silos
and making it difficult to
work across business units
• Rapid Assessment
• 7 Element Operational
Excellence Management
System
• Culture Assessment and
Alignment Process (CAAP
• 5 Pillars of Operational
Discipline
• Op Model Diagnostic
• Value Stream Optimization
• Operating Model Design

15. Wilson Perumal & Company, Inc. 15
Case: F500 manufacturer in low-growth, low-margin
market uses portfolio optimization to drive savings
Results: $8M in EBITDA improvement across eight manufacturing plans
Complexity adjusted costing showed 33% of
products were unprofitable
Client was shocked to learn that distribution was
larger driver of cost than manufacturing
Focusing on reducing excess movements
between plants…
…helped drive more local plant production and
drive significant savings

16. Wilson Perumal & Company, Inc. 16
Case: a successful construction materials company
knew it needed to simplify to maintain growth
Results: Expected $20M in net annual EBITDA benefit in year three
We evaluated customer value proposition &
selling effectiveness…
…to discover that with product growth, responsibilities
& accountability had become blurred
We evaluated product and channel performance
and came up with practical alternatives…
…to ultimately redefine channel strategy and
optimize the sales team structure

17. North America Europe
One Galleria Tower
13355 Noel Road, Suite 1100
Dallas, TX 75240
972-716-3930
Longcroft House
2/8 Victoria Avenue
London, EC2M 4NS
+44 (0)203 206 1496
www.wilsonperumal.com
dtoth@wilsonperumal.com
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