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Scaling up your business to next level

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Scaling up a business is not easy. Many start-ups, family business or professional run firms fail to scale to next level of operations. In this white paper, Browne & Mohan consultants share a framework that is successfully employed by companies to guide their scaling up process.

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Scaling up your business to next level

  1. 1. Browne & Mohan Board & CEO Advisors, Management Consultants Scaling up business to next level……. Dr TR Madan Mohan
  2. 2. Browne & Mohan Board & CEO Advisors, Management Consultants Introduction Business like all living organisms scale and grow up or die premature death. Some may scale up too fast, if on steroid funds and then contract when they find going tough. Companies in post start-up phase require new layers of management to drive operations and growth. For externally funded startups scaling up is a business requirement driven by valuation concerns. Despite loaded with easy cash and high employee count many fail at this step. Scaling up in a family business can have different hues. It could be generational transition, or induction of professionals or business expansion. Scaling up is not just about increasing the scale of production or entering more markets, it is about continuing to move ahead (Sutton & Rao, 2014). Scaling up like any change initiative is risky and brings its own complexity. I had the good fortune to work with companies that ae scaling up and grow their capabilities and capacities to meet new demands. My engagements have centred about designing and implementing right strategy, structure and investments to serve the mission. I have learnt what it takes to successfully plan and pursue a scaling up strategy, just enough stay ahead in the race and yet de-risk from overcapacity and technology obsoleteness. Figure 1 presents the broad process of scaling up in business organization. Figure 1: Scaling up a business 1. Evaluate your current business operations Scaling up starts with evaluation of the basic purpose, why the company must exist and how it can exploit the “friction” in the market efficiently. Evaluate current revenue streams, how many of them are one time or multi-period. Analyse the limitations of your current business, how it is run, how it is managed and monitored. Identify gaps that exist within the firm in the form of individual talent, a second level of leadership, functional expertise etc that need to be fortified. Gaps could also be in the form of missing performance management systems to professionally manage the company, a weak sales and marketing organization that is reactive in nature, an unsuitable organization structure that hinders the firm from responding effectively to the market, or systems that are not facilitating share of information for effectiveness. Benchmarking with competition or a company at desired scale is useful to identify these gaps and bridge them. What is unique about the product and services, how relevant are they for innovation (incremental or radical), aggregation, fulfilment aspects of the industry. How sustainable and de-risked is the current position on the value chain, and what dis- intermediation can occur. How would technology disrupt the players?. How Identify evolution of minimum efficient scale (MES) and what capacities does your company command, and how large players are exploiting outsourcing and vendor management. Is your company accumulating all the relevant subjective knowledge in the system to benefit from knowledge management?. Evaluate your complete organization to the scale you want. Is your sales organization efficiently managing acquisition of new accounts and harvesting existing accounts to reach your goals?. How effective is the marketing function in building brand and loyalist for the scale of operations? How cost effective and purposeful are the campaigns in reaching the customer numbers required for the envisaged scale? If your current scale of operations is around hundred evaluate whether the functions can stretch and deliver for say thousand. The company must run efficiently and effectively for 100 from 1000. Identify the
  3. 3. Browne & Mohan Board & CEO Advisors, Management Consultants squeaky wheels and leak points with functions and across functions. 2. New position: how do you want to scale up? Scaling up can be in terms of products or services or new geographies. Scaling up requires careful assessment of options and plan for manageable risks. Have a clear business plan and strategy for at least 2 to 3 years on what the business has to achieve. This is to show the road map, the growth plan, investments required and vision for the company. It helps clarify purpose. Clarity on the type of capabilities that need to be built to reach a certain goal is important. Detailed plans in other functional areas will also help to show that much of what is being done has been thought through carefully. Plan for a short-term and long-term goals to reach scale, define specific outputs at each stage and what would be the outcome from a scale perspective. Visualize how the outcome would impact you reaching the scale and detail broad tactical actions. Scaling up must not only assess the scale of operations, but also the non-linear inhibitors in systems, process and skills that may hold back outcome. For the desired scale of operations, function-wise do a stretch map indicting how flexible are the department’s resources (people, infrastructure and process). Identify what activities can be automated, what may be bundled and or outsourced. If Knowing customer intimately, understanding their latent needs and serving them with delectable offerings is the strength, scaling up by building on the customer experience management is a sure way to prosperity even in service business. Productize the services and standardization of process would yield scalable and sustainable platforms to grow. This could be a scaling up option for service oriented companies with somewhat common process across customers. Some time to scale up, companies may need to scale down. Scaling requires companies to consciously contain low EBIT offerings and if required cut the arm completely. Scaling up requires concentration of efforts and energies and they can be disbursed across several options. Large family groups have to rationalize the products across various plants and locations, may have to let go some of the products and concentrate on investing in few high opportunity products to scale up. Closure or downscaling can be painful and bring lots of emotional baggage. Revisit requirements and outcomes, align them better for improved productivity and cost advantage. Scaling up requires quality and delivery are competitive and company must find ways to address these. Addressing production- sales integration issues through lean manufacturing and supply chain improvements is an integral part of scaling up. 3. Scale up capacities, competencies and capabilities Key to scaling up is working on the business. Scaling up a business is all about increasing the current capacities, offerings and capabilities. To scale up, keep sales as the priority. Rather than trying to acquire too many new things direct attention to the core customers that you serve. Evaluate the appropriateness of referral or loyalty program, to encourage repeat business. Scaling up may require more aggressive sales and marketing, or more thorough follow through with deliveries. Scaling up may require more investments in resources and working more harder and smarter with the available resources. Scaling up may require incumbent CEO stepping aside to bring new talent. CEO’s considering scaling up must seek out external talent that would complement their skills. Companies can also pursue subsidiary strategy to scale up capacities and as a new entity to bring in new CEO without displacing the existing management. Scaling up may require automation of repetitive tasks within a function and outsourcing of low value added activities within a function. Scaling up may also mean a complete refurbishment of competencies in a team. For example, for an R&D team that is largely focusing on application support with drafting skills may have to be completely retooled with engineering skillset to undertake application engineering and solution design. Scaling required hiring new resources to complement gaps in capabilities and building an effective
  4. 4. Browne & Mohan Board & CEO Advisors, Management Consultants knowledge transfer mechanism so that skills set remain even in times of attrition. Scaling up may require hiring of expertise from market and cultivate internal talent in parallel. Incumbents may be pursued to own newer platforms to extend and stretch their capabilities. 4. Power of integration: structure, process, ownership Scaling up can be achieved only when all functions work in a tandem. Create newer organizations structure to bring more focus and market alignment, create space for newer leadership to emerge to own and direct growth and importantly, de-risk the company from vagaries of markets and offerings. Create sub-divisions for increased focus and align shared services to contain cost. Key tenet of scaling up is not just bringing new talent at key roles, but the incumbent leadership progressively stepping back so that the new leaders own and manage their areas of operations. Build systems and process that promote data driven decision making, ownership of tasks and outcomes. Choose process and procedures must be chosen for their effectiveness and ease of working. Integration in terms of common parts, processes, and people offers great economies of scope advantages. Pursue integration of production or delivery process, conversion of “implicit knowledge to explicit knowledge”, common parts and competencies approach to gain from alignment and improved valuation. Look for Processes or activities which can be automated. This reduces the time taken to perform, manpower cost and manual errors leading to re-work. Consolidation is an integral part of the strategy as it reduces duplication of work and aggregates activities/resources with similar tasks thus reducing the cost and time. Try and eliminate all the activities that prove to be adding least or no value to the company. Modifying the structure, process and incentives of an organisation to support the objectives and revive the existing function yields better results. Scaling up is a significant and organizational wide transformation process. This requires involvement of all stakeholders (both internal and external) and attention to details. Resources and adoption require continuous steering, not just following up a plan that been written long back and endorsed. Scaling up required a collaborative leadership team that has committed staff who can work together and can handle issues that pop up at various stages. 5. Measures: outcome and impact Many reports assert that scaling up efforts fail. The reasons for failure could be many. Many senior managers acknowledge that inappropriate balancing of expected results with resources at hand or inappropriate alignment of resources and the activities are most common reasons for failure. Aligning the individual’s role and responsibilities, ownership and accountability with the intended change or outcomes is a tough task. Measurement that improves managerial effectiveness, ownership and accountability in achieving results is needed to drive a scaling up program. Largely used in Not-for-profit sector, RBM adopts a life-cycle approach to integrating strategy, resources, process, people and results. RBM focus is on integrating measurements that can improve decision making, transparency of the case and effect, and accountability at various levels. RBM uses a logical relationship between inputs, activities, outputs, outcomes and impact. Inputs could be financial, manpower, plant, partnerships, etc. that are required to conduct various business activities. The activities would be promotional programs, creation of new sales teams, partner program structures or marketing events which are expected to deliver certain short-term results. These short term results in RBM parlance are termed outputs. Outcomes are mid-term results that indicate the direction and scale of achievement. Impact is what the company wants to achieve by undertaking the change. The outcome measure reflects the causal effect between resources marshalled and activities pursued to reach certain objectives. The output indicates the results in short-term. Mid-period review using output and outcome measures are useful indicators of what is working and what is not working. The company can quickly calibrate
  5. 5. Browne & Mohan Board & CEO Advisors, Management Consultants alignment between activities, resources and outputs to see the returns are on expected line. Bibliography Chesbrough, H. "Why companies should have open business models." MIT Sloan management review 48.2 (2012). Lyon, Fergus, and Heather Fernandez. "Strategies for scaling up social enterprise: lessons from early years providers." Social Enterprise Journal 8.1 (2012): 63-77. Menasce, D. (2000). Scaling for e-business. In Modeling, Analysis and Simulation of Computer and Telecommunication Systems, 2000. Proceedings. 8th International Symposium on (pp. 511-513). IEEE. Mezias, S.J. and Glynn, M.A. (1993). The three faces of corporate renewal: institution, revolution, and evolution, Strategic Management Journal, Vol.14, pp. 77-101. Robert I Sutton and Huggy Rao, 2014, Scaling Up Excellence, Crown Business. Sosna, Marc, Rosa Nelly Trevinyo-Rodríguez, and S. Ramakrishna Velamuri. "Business model innovation through trial-and-error learning: The Naturhouse case." Long range planning 43.2 (2010): 383-407 Spulber DF. (1998) The Market Makers, How Leading Companies Create and Win Markets, McGraw-Hill: New York. Verne, Harnish, 2014, Scaling up: why some companies make it…why the rest do no, Gazelles. Ward, John L. "Growing the family business: Special challenges and best practices." Family Business Review 10.4 (1997): 323-337. Browne & Mohan white papers are for information and knowledge update purpose only. Neither Browne & Mohan nor its affiliates, officers, directors, employees, owners, representatives nor any of its data or content providers shall be liable for any errors or for any actions taken in reliance thereon. . © Browne & Mohan, 2016. All rights reserved Printed in India

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