CHAPTER 26  Bim Consultants Inc. JOHN R.S. FRASER Senior Vice President, Internal Audit, and former Chief Risk Officer, Hydro One Networks Inc. Bim Consultants Inc. is a medium-sized consulting firm. It is a corporation with 30 partners who own most of the shares. It has 10 offices across Canada with 3,000 staff, and has been in business for 30 years. Senior staff also own shares and participate in an annual bonus scheme. Salaries are generally on the low side, but bonuses in good years can be quite high. The balance sheet is sound (see  Exhibit 26.1 ). Bim Consultants Inc. Summary Balance Sheet As of December 31, 2014 2014 2013 Year ended December 31 (Canadian dollars in millions) $ $ Current Assets Cash and Short-Term Investments 12 7 Accounts Receivable 175 168 187 175 Current Liabilities Accounts Payable 34 27 Short-Term Loans 100 110 134 137 Working Capital 53 38 Fixed Assets Leasehold Improvements 196 178 Furniture and Equipment 100 94 Less Accumulated Depreciation & Amortization (153) (128) 143 144 Net Assets 196 181 Share Capital Common Shares 100 100 Retained Earnings 96 81 196 181 Exhibit 26.1  Bim Consultants Balance Sheet The company has always prided itself on its customer focus. “Customers are number one” has been the mantra from the chairman, Mr. Smooth, for many years. Recently, however, revenue has been stagnant, and the younger partners are getting restless, wondering if the older partners have lost their edge and whether changes are needed to return to the glory days of large bonuses. At a recent strategic planning meeting of the major partners, the decision was made to continue focusing on customers as number one, but also to explore how to increase revenue from within the existing clientele and to explore what additional services could be provided to enrich the client experience (and revenues). It was agreed that the strength of the firm was in its blue-chip client base and that this high-quality reputation was worth preserving. Some discussions were also held around the idea of selling a minority share of the company at a large multiple, if such a deal was identified. Bim Consultants' profit and loss and retained earnings are provided in  Exhibit 26.2 . Bim Consultants Inc. Summary Profit and Loss and Retained Earnings For the Year Ended December 31, 2014 2014 2013 Year ended December 31 (Canadian dollars in millions) $ $ Revenue 300 290 Expenses Salaries 220 207 Other 20 18 Net Profit before Income Tax 60 65 Income Tax Provision 27 29 Net Income after Tax 33 36 Retained Earnings—Beginning of Year 81 65 114 101 Dividends 18 20 Retained Earnings—End of Year 96 81 Exhibit 26.2  Bim Consultants Profit and Loss and Retained Earnings Earlier this week, the chairman received a call from the president of the Canadian subsidiary of a U.S.–owned competitor, Bravado International, saying that Bravado was pulling out of Canada and w.

1. CHAPTER 26 Bim Consultants Inc.
JOHN R.S. FRASER
Senior Vice President, Internal Audit, and former Chief Risk
Officer, Hydro One Networks Inc.
Bim Consultants Inc. is a medium-sized consulting firm. It is a
corporation with 30 partners who own most of the shares. It has
10 offices across Canada with 3,000 staff, and has been in
business for 30 years. Senior staff also own shares and
participate in an annual bonus scheme. Salaries are generally on
the low side, but bonuses in good years can be quite high. The
balance sheet is sound (see
Exhibit 26.1
).
Bim Consultants Inc.
Summary Balance Sheet
As of December 31, 2014
2014
2013
Year ended December 31 (Canadian dollars in millions)
$
$
Current Assets

2. Cash and Short-Term Investments
12
7
Accounts Receivable
175
168
187
175
Current Liabilities
Accounts Payable
34
27
Short-Term Loans
100
110
134
137
Working Capital

3. 53
38
Fixed Assets
Leasehold Improvements
196
178
Furniture and Equipment
100
94
Less Accumulated Depreciation & Amortization
(153)
(128)
143
144
Net Assets
196
181
Share Capital

4. Common Shares
100
100
Retained Earnings
96
81
196
181
Exhibit 26.1
Bim Consultants Balance Sheet
The company has always prided itself on its customer focus.
“Customers are number one” has been the mantra from the
chairman, Mr. Smooth, for many years. Recently, however,
revenue has been stagnant, and the younger partners are getting
restless, wondering if the older partners have lost their edge and
whether changes are needed to return to the glory days of large
bonuses.
At a recent strategic planning meeting of the major partners, the
decision was made to continue focusing on customers as number
one, but also to explore how to increase revenue from within the
existing clientele and to explore what additional services could
be provided to enrich the client experience (and revenues). It
was agreed that the strength of the firm was in its blue-chip
client base and that this high-quality reputation was worth
preserving. Some discussions were also held around the idea of

5. selling a minority share of the company at a large multiple, if
such a deal was identified. Bim Consultants' profit and loss and
retained earnings are provided in
Exhibit 26.2
.
Bim Consultants Inc.
Summary Profit and Loss and Retained Earnings
For the Year Ended December 31, 2014
2014
2013
Year ended December 31 (Canadian dollars in millions)
$
$
Revenue
300
290
Expenses
Salaries
220
207

6. Other
20
18
Net Profit before Income Tax
60
65
Income Tax Provision
27
29
Net Income after Tax
33
36
Retained Earnings—Beginning of Year
81
65
114
101
Dividends

7. 18
20
Retained Earnings—End of Year
96
81
Exhibit 26.2
Bim Consultants Profit and Loss and Retained Earnings
Earlier this week, the chairman received a call from the
president of the Canadian subsidiary of a U.S.–owned
competitor, Bravado International, saying that Bravado was
pulling out of Canada and would consider an offer to sell the
subsidiary to Bim Consultants Inc. The Bravado subsidiary had
12 offices across Canada and just over 3,500 staff, but had often
drawn on its U.S. resources when required for large
engagements.
The chairman called an executive meeting and pointed out that
making such a purchase would double sales, catapult Bim
Consulting into the number one position in major markets in
Canada, and provide a strong marketing thrust into previously
untapped midtier markets. Based primarily on the
persuasiveness of the chairman, the executive committee
approved proceeding with the negotiations.
The president of the Bravado subsidiary cautioned Mr. Smooth
that it was imperative not to have word of the negotiations leak
out, as this could lead to a loss of key staff and possibly clients.
Accordingly, he urged Mr. Smooth not to do the normal due
diligence in the subsidiary's offices but to review the necessary

8. records and meet with select senior executives of Bravado at an
off-site location. This process seemed to work well, and the
Bravado executives were well prepared and very likable. All the
information checked out, and the way seemed clear to do a deal.
QUESTIONS
1. What is your assessment of the situation?
2. What advice would you provide to the board of Bim
Consultants?
3. What pitfalls should they be concerned with?
ABOUT THE CONTRIBUTOR
Chapter 27
CHAPTER 27 Nerds Galore
ROB QUAIL, BASC
Director, Enterprise Risk Management, Hydro One Networks
Inc.
Nerds Galore (NG) is a Canadian service company with 1,000
employees working out of offices in 12 Canadian cities; the
head office is in Edmonton, Alberta. NG provides full-service
information technology (IT) support to small and medium-sized
Canadian businesses, including help desk, on-site
troubleshooting, security, network setup and support, backup
services, wireless networks, hardware and software
procurement, and website design and hosting solutions.

9. Nerds Galore was formed in 2000 in the garage of its founder,
Jeeves Stobes. NG has enjoyed strong growth in its segment and
has an excellent reputation with its customers. In the beginning,
NG focused on a particular customer subsegment, small start-up
businesses, especially on low-tech businesses such as boutique
services. Lately its strategy has shifted more to midsize
customers (which have deeper pockets and less chance of going
broke) with more sophisticated technology needs.
Recently there have been problems for NG.
There has been steady decline in customer satisfaction, as
shown in
Exhibit 27.1
.
Exhibit 27.1
Nerds Galore Customer Satisfaction
Following a thorough investigation and follow-up with many of
NG's key customers, the Executive Team has concluded that the
main cause of this has been high internal staff turnover, leading
to gaps in customer services and service continuity.
Indeed, staff retention has been an issue, as shown in
Exhibit 27.2
.
Exhibit 27.2
Nerds Galore Employee Turnover

10. To continue to provide strong customer service, it is critical
that team members are competent in the latest technology, and
yet turnover has approached 20 percent in three recent years.
This is a particular problem for NG because of its high focus on
customer service; new staff receive extensive and costly
training in NG's customer service and cross-selling approaches.
The company's pay package is competitive but not at the very
top; instead NG uses its reputation for excellent customer
relationship and staff development to attract motivated staff.
Note that it's well known that one of NG's competitors was
recently raided by a large systems integration firm and lost most
of its network management technical staff in a single quarter.
NG has been having a particularly difficult time retaining staff
in the larger urban centers and other technology hubs in Canada
where there are more competitors and the competitors generally
pay more.
Despite the fact that customer satisfaction has been declining,
the Executive Team did note that revenue numbers have not
suffered; in fact, they have continued to climb year over year,
as shown in
Exhibit 27.3
. It was concluded that this lack of a drop in revenues is due to
two factors:
1. Many current customers have multiyear contracts with Nerds
Galore.
2. Very small businesses that have made up the bulk of NG's
customer base are generally tolerant of minor service hitches
and less focused on optimal technology performance.
Exhibit 27.3
Nerds Galore Financial Performance

11. Recently, the company suffered a major shock when one of its
employees was killed in a head-on car crash while rushing to a
customer site during a snowstorm in Rimouski, Quebec. The
employee who was killed was a well-known and much admired
member of the team, and many staff thought at the time that
NG's Executive Team didn't respond properly to this event. In
fact, the
Globe and Mail
ran a story on workplace tragedy and its impact on morale and
used Nerds Galore as a case study on how
not
to manage sudden trauma, and, while the company's customers
didn't seem to notice, NG did experience a sudden jump in staff
departures and some difficulty in recruiting replacements.
Also, there is a sense that staff efficiency is not what it should
be; in particular, scheduling technicians for on-site technical
work has been a problem. Small business customers tend to
have diverse and unique technology needs, and finding
specialists who can work in multiple areas such as network
support and voice over Internet Protocol (VoIP) while working
with a single customer is difficult; most of the propeller-heads
(as NG affectionately terms its technicians) are specialists in a
few areas, and the company has found that its specialists are
spending a lot of time behind the wheel traveling from site to
site dealing with point solutions to individual technical
problems. NG's founder and CEO, Jeeves Stobes, freely admits
that the company's own internal technology has not really kept
pace with the growth of the company. NG lacks a
customer/account management program and relies on
whiteboards and e-mail managed by the company's small core of
four senior work schedulers (long-service employees who work
out of a war room in Edmonton and know the company's
customers and staff well) to schedule employees to customer
sites. In addition, while the company has placed a premium on

12. developing staff, this has been through informal mentoring and
apprenticeships rather than formal development based on
identified customer needs, and this approach has been difficult
to sustain given the scrambles created by sudden staff
departures.
As shown in
Exhibit 27.4
, CEO Stobes has set targets of 15 percent revenue growth year
over year (which is close to recent rates of growth) and a net
income target of 15 percent of annual revenues, which will be a
stretch (recent years have yielded margins of 8 to 10 percent).
Stobes has set a target of 95 percent customer satisfaction going
forward.
Actual
Targets
2013
2014
2015
2016
2017
2018
Revenues ($M) (target is 15% year-over-year growth)
100
115

13. 132
152
175
201
Net Income ($M) (target is 15% of revenues)
10
17
20
23
26
30
Customer Satisfaction (% “very satisfied”) (target is 95%)
83
95
95
95
95
95

14. Staff levels
1,000
1,100
1,200
1,300
1,400
1,500
Exhibit 27.4
Strategic Targets
Gil Bates, NG's vice president of human resources (HR),
recently recruited from the competitor Propell-O-Rama, is
concerned about not only the employee turnover rates but HR
management in general. He has come forward with a five-point
strategy for improved HR management, but has encountered
stiff resistance from the rest of the Executive Team. The
strategy is:
1.
Attract the best talent.
Do this by offering a positive and flexible work environment
with flexible hours and a work-at-home culture.
2.
Retain good people.
Do this by offering employee recognition programs, providing
multiskilling/cross-training (which will have the added benefit

15. of greater customer satisfaction), and ensuring that
compensation stays at or near the 75th percentile of competitors
or comparators.
3.
Manage talent.
Put in place a formal talent management program so that high-
potential employees are identified, developed, and mentored.
4.
Optimize the use of people.
Do this by purchasing and implementing a fully integrated
customer management and workforce management tool, to allow
greater scheduling and tracking of employee effort on customer
accounts.
5.
Rely on outsourcers
to handle overflow of business requests that have highly
volatile work volumes, or in areas where retaining internal
capability and know-how is prohibitively expensive.
At a management discussion, it was agreed that the Executive
Team would meet for a risk workshop to explore the following
HR-related risks and to help the exectives evaluate the situation
and decide on whether to invest in Bates's strategy:
· Inability to recruit people with needed skills
· Loss of staff with key internal knowledge
· Uncompetitive labor productivity
· Increased departures of skilled technical staff
· Loss of key business know-how

16. Questions
1. The case study ends with the Executive Team agreeing to
hold a risk workshop. When evaluating the risks, what risk
sources might emerge repeatedly and how might this help in the
risk assessment?
2. How would risk assessment aid in the decision on whether or
not Nerds Galore should proceed with the new HR strategy?