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Case Study: Target Acquisition Analysis

Written by Zinal Shah February 5, 2012 —

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In 2009, the subsidiary of a diversified, multi-billion dollar company approached Schweiger & Associates to help develop and execute their future growth strategy. This case study presents the challenges our client faced and the approach we employed.

Challenge

Over the past few years our client had undergone numerous organizational changes that influenced the strategic decisions it made. Its acquisition by a much larger company created overlapping lines of business and a hierarchal organizational structure. At the same time, the majority of our client’s business came from a single office in the Department of Energy (DOE), where they had created a dominant position and won much respect from their peers. As a valuable asset, corporate was satisfied with our client’s position in that office and was hesitant to approve ventures that deviate from it. However, corporate wanted to double the size of the business in 3-5 years. To add to it, the DOE office our client served, faced reduced funding and discouraged dominance by a single company, thereby limiting long-term growth opportunities. As such, our client was faced with the dilemma of searching for new growth opportunities while being mindful of its new parent company’s growth strategies and those of its other divisions, all of which restrained the services that could be offered and the markets served. Critical to our client’s success in implementing any growth initiatives was the buy-in of its own internal leadership team, as well as those of others in the corporate hierarchy.

Scope

Our client was convinced that in order to meet the aggressive growth goals, an acquisition would have to be made. To that end, Schweiger & Associates was trusted with:

Identifying and validating attractive adjacent markets which our client could successfully serve but had little or no presence.
Identifying and assessing viable acquisition candidates that would enable our client to successfully enter and compete within validated markets.

Approach

To complete the scope of work outlined, we employed our Strategy Development and Execution Process (illustrated below) in 3 stages:

(S&A uses this process as a guide and adjusts the order in which steps are performed or conducted depending on the needs of and challenges facing our clients. As with all our processes, executives and managers participate regularly providing critical input and feedback, creating a partnership that fosters long-term commitment to strategic decisions.)

Stage # 1: Identify Adjacent Markets

Prior to identifying adjacent markets, it was critical for the S&A team to have an understanding of our client’s goals and competitive advantage, and to reach consensus on the capabilities and services that could be extended to new markets. This preliminary internal capability analysis allowed us to short-list nine local and international adjacent markets. To help prioritize the nine prospective markets, the S&A team analyzed:

Overall trends shaping the energy landscape by reviewing several market reports, news reports, and expert opinions.
The level of presence that our client had in these markets by analyzing past projects and by connecting with key individuals within the company.
Overall market potential and growth rates.

Our research and findings were presented to internal decision makers during an S&A facilitated brain-storming session. S&A believes that involving key individuals at the onset of the project is an essential first-step to securing the buy-in for any growth initiatives. This session resulted in:

A final short-list of the five most attractive markets which needed deeper analysis. These included other offices within the DOE where some work was won but significant penetration had not occurred and an international market that was recently entered but organic growth was ineffective.
A preliminary list of acquisition criteria such as capabilities/ services offered, customers served, size of the organization, revenues, market position, brand reputation, ownership of proprietary products / processes, and company culture, among others.
Identifying internal sponsors for each market, who provided critical feedback at regular intervals and who also had joint ownership in the validation process.

During this session, the S&A team also observed and assessed our client’s organizational culture which guided our research of companies.

Stage # 2: Conduct Market Attractiveness Analysis and Competitor Analysis

As the next stage in our solution offering, we worked in partnership with the internal sponsors to validate the short-listed markets by understanding:

Public office mandate, structure, operating model and geographical scope.
Near-term and long-term strategic plans.
Major sources of constant funding for the next 5/10/15 years including any exceptions such as funds appropriated through the American Recovery and Reinvestment Act.
Market drivers, growth trends and key success factors.
Future opportunities and planned projects that could be of interest for the next 5 to 10 years.
Supply chain and contracting process.

S&A employed a holistic approach to thoroughly understand each element listed above by conducting secondary research and when necessary connecting with subject matter experts. For example:

We interviewed subject matter experts in a number of new technologies that were likely to shape the future of some prospective markets, and we also drew from the knowledge that our client’s corporate members had gathered by visiting industry conferences.
We interviewed officers from various international public offices to understand the fundamental differences in the shortlisted international market.
Also, we created an extensive database of projects awarded since 1995 and planned projects till 2015 to get an accurate understanding of the overall opportunity and growth trends in the specific international market.

Next, by working in partnership with our sponsors and studying previous contracts we developed a comprehensive list of key players within each market that provided services in line with our client’s goals. These companies were classified as competitors or targets based on their fit with preliminary acquisition criteria. To get a further understanding of the Key Success Factors and competitive intensity within each market, the S&A team conducted an in-depth competitor analysis by drawing on annual reports, news reports, and in some cases connecting with individuals knowledgeable about the companies.

We presented our findings to the leadership team, and through a facilitated debate and discussion, the team shortlisted two markets to pursue.

Stage 3: Choose Viable Acquisition Candidates

In this stage, S&A conducted a comprehensive study of potential targets in the short-listed markets. Acquisition criteria that were preliminarily agreed upon at the onset of the project were revisited and more specific attributes for strategic, financial and organizational criteria were discussed, finalized and weighted. Some criteria were go/ no-go while others were assigned specific metrics as cut-off points and weighted composite scores were calculated.

Other than performing detailed company analysis, we also did the below:

Performed financial analysis to ensure the companies were not in distress.
Reviewed contracts to see if the companies had existing contracts in short-listed markets.
Assessed the caliber of personnel within the organization and the overall reputation of the company.

Finally, through a facilitated session, the leadership team assigned subjective values for each acquisition criterion for the potential targets. The leadership team along with S&A reached consensus on 2-3 companies per market that was presented to the division CEO with whom one market and acquisition target was finalized.

Results

At the end of the project, our client was several steps closer to achieving its growth goals. S&A had equipped them with detailed, fact-based and thorough research and analysis to make informed decisions. More importantly S&A played a vital role in securing the buy-in of the entire leadership team, which significantly improved our client’s chances of success at division and corporate levels. Even after project deliverables were met, while our client performed initial negotiations with the chosen target, S&A continued to assist by developing preliminary integration plans that reinforced our client’s commitment to the acquisition at the corporate level.

Case Study: Company Turnaround

Written by Vishal Khushalani February 1, 2012 —

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The Client’s Challenge

A $100+ million division of a large multi-billion dollar industrial company lost 25% of its revenue between 2005 and 2010 while their EBIT declined by 91% during the same period dropping to 0.9% of their 2010 sales revenue. In 2011, Schweiger & Associates (S&A) was hired by the company to help restore its revenues and achieve at least 10% EBIT by the end of 2012.

Customer’s Business Status by the End of 2011

With support from S&A, our client’s 2011 revenue increased by 20.20% over that in 2010 and its 2011 EBIT was 5.5% of their 2011 revenue, an increase of 470% over that of 2010. S&A continues to work closely with the client to increase their EBIT to 10% of their sales revenues by end of 2012.

How Schweiger & Associates Helped

We will present some of the key issues that were identified throughout the company during the course of the turnaround and the solutions we provided that yielded a sizeable increase in revenues and EBIT in less than one year.

Strategic Alignment

S&A provided market insights, growth rates and trends to help our client focus on customers that were in high growth markets and regions in the US. Additionally, the S&A team conducted a detailed analysis of four years of historical data (2007-2010) to understand the following aspects of the business.

Top customers – revenue, contribution margin, product portfolio, purchasing by manufacturing location.
Top products – revenue, contribution margin, key customers, shipment by manufacturing location.
Manufacturing locations – revenue, cost components, contribution margin, top customers and products.

Key issues that surfaced from the analysis were brainstormed with our client’s management team to develop an executable action plan. All of the key improvement areas mentioned below were executed simultaneously as they were highly inter-related.

Sales & Marketing Execution Support

Product Pricing

This was one major issue our client faced that needed immediate correction. Through several years of matching competitive bids, their current product pricing varied significantly for the same product across customers and regional markets. To add to the problem, it was difficult to get the true market price since our client owned 70% of the market share.

S&A reviewed the pricing for each of the 1400+ products and helped our client:

Create product groups that had similar cost structure based on their technical specifications
Establish min, max, average, and median sales prices for each product group
Highlight products that were currently sold at below average product group prices
Highlight strategic and non-strategic customers that were draining the bottom line

The following action plan was implemented to improve the contribution margin.

Pricing for non-strategic customers was immediately increased. This resulted in a loss of a few profit-draining customers which was the first step to improving our client’s bottom line.
Several meetings were held with strategic customers explaining the rationale for fair price increases that helped our client to at least cover their costs.
Mutually agreeable future price increases were discussed and planned with several strategic customers.

Product Costing

A second major issue for our client was their product costing mechanism. The costing tool they employed was designed 25 years ago based on time studies that were conducted in 1980s. Another issue highlighted was that costs such as warehouse costs, freight costs, and assembly costs, among others were based on variable percentages that were not in line with current real costs.

S&A conducted several time studies across different manufacturing locations for various product lines. The time studies helped revise labor costs for each product. Knowing the current material usage for each SKU and by calculating all related costs (freight, assembly, storage), the true costs were determined for each product. Our client’s costing system was thus updated with the latest time studies and with all related current costs for each of their products. Using the current sales price and costs, the current contribution margin was calculated for each product.

To assist our client further, the S&A team created a P&L simulation sheet based on revised product costs and pricing. This simulation sheet proved to be critical in customer negotiations since it helped our client simulate the contribution margin based on varying degrees of price increases.

Product Standardization

Over a 25-year period, customization requests by customers resulted in 1400+ SKUs within seven product groups. When the economy was booming and pricing was not under pressure, product customization was considered to be a competitive advantage for our client and hence they absorbed all costs to keep their customers happy. When margin pressure increased, this competitive advantage drained our client’s profitability as they failed to charge their customers for customized products and services.

By conducting a week-by-week ordering analysis, the S&A team highlighted about 400 SKUs that met the minimum order quantity (MOQ) set by the operations team. Over 70% of the products ordered by customers did not meet the MOQs resulting in higher setup costs and frequent changeovers reducing the overall efficiency of the plant.

The following action plan was implemented to standardize products across product groups.

Through a series of discussions with our client team, about 200 products were identified as standardized offerings across the company’s various product categories.
All other 1200+ products were considered to be non-standard, for which the customers had to pay a reasonable premium and also pay a “Setup Fee” if the order was less than MOQ.

Although several strategic and high-volume customers did not welcome product rationalization initially, they eventually appreciated the standardization effort since it helped them streamline their supply chain across the product lines.

Operations Improvement Insights & Implementation

Process Improvements

S&A Operations Experts visited each of the client’s manufacturing facilities and provided several process improvement insights. The following are some of the key action areas that resulted in significant plant-level productivity improvements.

The process flow, batch times, and throughputs of each manufacturing line were analyzed and a detail plan was presented to eliminate the bottlenecks and improve the productivity of the lines.
Policy changes were implemented to freeze the master production schedule at least one week in advance, to avoid any disruptions in the production schedule. Also, strict adherence to established MOQs was implemented by charging setup fees to customers for orders less than MOQ.
Setup staff (a critical resource) was optimized effectively by staggering breaks and by cross-training existing personnel.
Preventive maintenance programs were implemented to avoid future production downtimes.
Paperwork analysis resulted in reduction of 50% of paperwork.
Scrap analysis reduced scrap by 60% resulting in reduced material loss and increased productivity.

Most of the “low hanging fruits” were fixed in 2011 that resulted in higher contribution margin at the plant level. In 2012, as we complete the network constraint analysis, eliminate more bottlenecks, implement a superior production scheduling system, and realize the true benefit of standardization, our client’s profitability is bound to increase significantly.

Conclusions

In addition to the technical aspects presented above, it was the organizational execution that made this turnaround successful.

Working as one single team with one single goal – to increase profitability.
Clearly communicating the strategic direction across the company.
Involving all inter-related parties/functions before making any major decisions.
Taking prompt decisions and moving quickly on action plans.
Consistently focusing on the overall strategy and the vision, throughout the turnaround.

With that we’ll conclude this case study with the famous lines of Robert Frost (1923), “The woods are lovely, dark and deep. But I have promises to keep, And miles to go before I sleep, And miles to go before I sleep.”

Case Study: Driving Profitable Growth

Written by Dr. David Schweiger December 22, 2010 —

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Case Study – Driving Profitable Growth

The Client’s Challenge

In early 2004, the CEO of a Fortune 1000 industrial and consumer manufacturing company approached us with an interesting challenge. While he continued to meet analysts’ earnings per share (EPS) estimates, his share price was languishing – even as the overall stock market was somewhat bullish. While the company had done a great job at increasing earnings through productivity improvements and cost cutting, the message from the analysts was quite clear, “more top line growth. “ To that end, the CEO committed to the analysts that he would profitably grow revenue by one third over the next 5 years.

The CEO approached us shortly thereafter and asked if we would work with him, his division presidents, and numerous business unit managers within each division to achieve the promised growth. This would require the company to both look at adjacent growth markets and to explore markets that were potentially outside their traditional sweet spots. In both cases it would require breaking some paradigms and traditions. It would also require taking a hard look at the company’s internal capabilities. Growth would not come easily or quickly. It would require focus, commitment, and persistence, tempered with patience. After discussion with the CEO, it was apparent that there were three important deliverables that needed to be realized if the company were to actually achieve the promised growth.

1. A feasible set of new market opportunities with clear analyses of the nature and magnitude of the opportunities, strategies for capitalizing on them and the resources needed to take advantage of them (i.e., sound business cases) needed to be identified.

2. Executives and managers would have to understand and buy into the need to enter these markets, commit to implementing the changes needed to do so, and subsequently execute them.

3. Executives and managers would need to develop the individual and organizational capabilities to continue this process well into the future after we departed.

How We Approached the Challenge

Based on the three deliverables, it was clear that we would have to co-design with our client both the “technical” approach for evaluating and deciding upon opportunities and a “social” process for properly engaging key executives and managers in getting and implementing the “right” answers. Without the latter, the results would likely be a series of thoughtful presentations that would wind up on a shelf.

Over the period of several years we worked with both the consumer and industrial divisions and numerous business units within them to identify and assess growth opportunities. In every case, core teams were created with key company managers and with Schweiger & Associates (S&A) staff. The former brought with them knowledge of their businesses and markets, whereas the latter brought a systematic process, frameworks and tools for analyzing opportunities; team facilitation and coaching; independent research capabilities; experience with numerous other companies and markets; expertise in developing and presenting work products; and a dispassionate objective eye. Since this effort was a knowledge-driven activity, additional people from within the company and outside industry/market experts were brought into the teams on an ad hoc basis as needed.

At the outset of the project several key issues were addressed to ensure that each team’s efforts were focused and productive. Specifically:

1. What was the scope of the project? What was within scope? What was outside scope?

2. What were the deliverables from the projects? Challenge session meetings (critical reviews at various stages); Presentations; Reports

3. What were the completion timeframes and milestones that needed to be achieved?

4. Who at the highest executive level would champion the project?

5. What key executives and managers needed to be part of the team; Those with key knowledge; Opinion/change leaders who would help drive the execution of the project results; Those who were action oriented and would help drive the project

6. What roles would each member of the team play?

7. How would we ensure that the CEO and other key executives and stakeholders were committed to the outcomes?

Once the teams were established we worked through a three-stage process as illustrated and described below. It is important to note that in some cases the divisions and businesses were very clear on which market(s) they wanted to investigate, whereas in others needed were more open to exploration. In the former case we focused on stages 2 and 3, whereas in the latter, we included stage 1.

In Stage 1 we focused on the ideation or idea generation process to generate a sufficiently broad list of potential markets to explore. This was done through a brainstorming process that leveraged executive and manager’s experience, knowledge and insights with our research capabilities, tools, and facilitation. During this stage executives and managers were first encouraged to articulate those markets that they believed were worth looking into. To ensure that we had a sufficiently broad pool of potential markets, we explored:

1. Market value chains to determine whether there are growth opportunities for either forward or backward integration.

2. New business models that may supplant the existing model and lead to significant market share gains.

3. Opportunities for horizontal integration.

4. How the company might leverage its customer base and offer new products and/or services.

5. How the company might leverage its capabilities/products/services into new customer markets

6. New markets that were beyond both the company’s existing customers and capabilities/products/services.

We encouraged open mindedness and creativity. While we knew that some ideas might seem off-based at first, we believed that it was important to initially break some strongly held paradigms before arriving at a final set of markets. In a number of cases, the S&A research staff did some preliminary research to better understand markets that were unfamiliar, poorly understood, or not considered by client members of the team.

Once the initial list of markets were identified, a first cut analysis of each market was conducted. We developed preliminary standardized (e.g., market size, growth and profitability, ease and cost of entry and barriers to entry, commoditized or differentiated products/services) and customized (i.e., tailored to the company’s strategic and financial orientation) “go no-go and weighted criteria to develop a rank-ordered set of markets that warranted a “deeper dive” and further validation. It is important to note, that constructive debate among team members was encouraged and was critical in deciding which markets to further investigate. This was especially important, as the research needed for a deeper dive would require significant time and resources.

In Stage 2 we focused on the validation of those markets that survived stage 1. The objective here was to rigorously analyze each market to determine:

1. Whether the market was worth entering.

2. What it would take to effectively compete.

3. What were the most effective strategies for entry (e.g., organic, merger or acquisition, joint venture).

4. What types of profits and return on investment could be expected.

Using a fact-driven protocol developed by S&A we systematically examined an array of elements including:

1. Market structures, value chains (supply through distribution) and business models

2. Drivers of growth and profitability

3. Drivers of industry changes and disruptive transformations (e.g., technology, demographics, social, legislative and regulatory)

4. Customer key success factors, competitors, winning value propositions, and bases of competitive advantage

5. Market entry strategies and investments

6. Financial impact analysis

To analyze all of these elements for each market, both primary and secondary research needed to be conducted. (Please see an overview of S&A’s market research capabilities). Before we began, we examined all research that had been previously purchased or conducted by our client. There was no need to reinvent the wheel! We found, as is the case with many of our clients, that there were many studies floating around. Once that step was completed, we defined what new research needed to be completed and worked with our client to determine what they were capable of doing and what the S&A staff needed to do. Essentially, we worked as a tight-knit team to do whatever it took to get the job done.

After pouring over the analyses, conducting many facilitated debates and discussions within the team and with senior executives, decisions were made as to which markets to go after. Often, the research yielded one or two markets worth pursuing. Once those decisions were made, we developed an execution strategy.

In Stage 3 we focused on developing an execution plan to translate the opportunity into a reality. This included a plan on how we would enter the market with detailed initiatives for getting the job done. For example, in the case of an acquisition strategy, we identified specific acquisition targets, many of whom were identified as potential competitors in stage 2. We thoroughly analyzed each target, identified whom to contact at the target, conducted a preliminary valuation of the target and even set up meetings between the target and our client’s senior management. Throughout the acquisition process, we worked with our client as needed to complete the acquisition, right through to developing and executing an integration strategy. In the case of an organic entry strategy, we developed complete plans for securing and deploying the necessary resources (e.g., people, assets, systems, processes, organization structure) to successfully enter and compete. All execution plans included key initiatives and activities, due dates, milestones and reviews, responsibilities, contingencies, stakeholder analyses, and financial and people resources needed to complete the plan.

Although many of the entry strategies have been implemented and the teams disbanded, S&A continues to assist our client as needed in helping ensure that the execution continues to go well and new opportunities are considered. However, our client is successfully performing many of these activities on its own.

The Results

Overall, the process we employed achieved what it set out to do. Within less than 5 years, the company had achieved its revenue and earnings per share growth goals. More importantly, it achieved more than 50% growth in its stock price within 3 years and 40% growth within 5 years (taking into account the great recession). Further, the company is well positioned within growth markets.

There are a number of managers who participated on the teams that have been promoted to key positions within the company. The company readily acknowledges that the process not only helped develop these individuals’ capabilities, but it gave them exposure with the senior executive team that enabled them to demonstrate these capabilities. Moreover, the company is better able today to drive growth alone than before it began working with us. However, S&A remains a trusted partner with the company and continues to provide support when needed in identifying, validating and supporting the execution of the company’s growth strategies.

Case Study – Making an Investor Business Plan

Written by Vishal Khushalani December 21, 2010 —

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Case Study – Making an Investor Business Plan

Challenges facing the client

Our client, an entrepreneur and venture capitalist, was passionate about a new business concept, had done some secondary research and had prepared a draft business plan. He envisioned that China and US could largely benefit from his business service and hence several investors will back it up once they are presented with a solid business plan. He believed that his research was thorough and that he needed a professional company to translate his thoughts, ideas, and research into an executable business plan that could be presented to investors for funding. Thus, he was referred to the Schweiger & Associates (S&A) team to help him overcome his challenge.

Our Initial Assessment

In a situation like this where entrepreneurs are involved, it is important for the Schweiger & Associates (S&A) team to understand the vision and passion of the entrepreneur on venturing into this business. Other than having a good business idea, it is important that the entrepreneur believes in his own idea and is committed to it. Also, it was important for the S&A team to be convinced about the concept to write a convincing plan for investors.

We brainstormed with the entrepreneur and his team to answer some basic business related questions. Some of them are mentioned below.

What is the most compelling value proposition of this business concept?
What value (tangible and intangible) will this service bring to customers and promoters alike?
What are the sources of his research and how current is the information?
Why target China first? Why not any other country?
Have they discussed with any prospective customer if they would be interested in this service and how much will they be willing to pay for it?
What are some of the personal and professional reasons that the entrepreneur is passionate about the business?
What in his opinion should be the market entry strategy and why?
Are there any investors that he has in mind that he wants to approach first and why?

After spending several hours together over two sessions, the client and the S&A team concluded that:

The business concept was innovative enough that it’s worth everybody’s time to pursue this further. It was important for the S&A team to believe in the business concept to deliver a good quality product. Our intent was not to just make a business plan; we wanted to make this business happen!
The existing research material was dated. We needed to get current information. Hence, it was important to conduct secondary and primary research and get direct customer feedback. There is nothing more convincing than the customer saying that they would like to have this service and that they will pay for it.
It was required to research on investment firms that will be interested in supporting a business venture like this one and get their relevant contacts.

Deliverables Finalized

One of our key tasks at Schweiger & Associates is to help businesses understand what they need to make their business grow profitably. What are the kinds of information, tools, and processes that they need to be armed with to succeed? Finalizing the deliverables is the most critical aspect of any project so that the expectations between each team are set appropriately to ensure complete satisfaction of our customer.

Project Scope:

Validate draft business plan through secondary and primary research
Prepare a concise and actionable business plan and 5 year financial plan
Advise on appropriate market entry strategies
Present a financial package proposal for investors
Research and profile key investment firms to target

Market Validation

Since the S&A team believed in the viability of the business concept, we dived into understanding the market further to validate the below information:

Market size, revenue, profitability, key players, growth drivers, key success factors, and more
Market pain areas and challenges that could justify the need for this business service
Estimate the tangible and intangible benefits that the value chain will gain by the business service

Since the initial target market was China, there were several challenges that we had to overcome.

Information about the current dynamics of the Chinese market was not openly written about or readily available. Also, a lot of information was in Chinese which made the task even more difficult.
Being a new concept, there was no market precedent of anybody trying this concept and hence there were “technically” no competitors. We had to think and brainstorm about who could become a potential competitor once the business concept was proven and was viable.
Since the business concept was a more efficient way of achieving the same result, the challenge that we had to answer was will the people in China change their way of working to be more efficient or there were any specific reasons why they would want to stick to their old processes.

With so many issues at hand, the best way to answer the above questions was to conduct primary research into the Chinese market and get the answers ourselves.

We researched on obtaining contact information of prospective interviewees who could possibly answer our questions and help us understand the market better. Interviewees included industry participants, authors of related books and articles, and people at industry forums.
We hired a bi-lingual resource that could translate our questionnaire into Chinese and also conduct interviews in Chinese where people where not comfortable to talk in English.
We tried to connect with relevant people in the US who had connections in China. “Guanxi”, which means “connections” or “relationships”, is very important in China and it helped us open a lot of doors.

Even though the interview process increased our estimated timeline for this project, the client understood the rationale for our actions and realized the efforts that were being made to do a thorough job. It is always better to do the job right first time around instead of doing patch work later!

The primary research helped the business plan drastically since it specifically addressed the areas that were most critical to the success of this business concept:

64% of the respondents confirmed that they face the same issues which we had pre-empted.
56% of the respondents were open to try the new business service.
Respondents further confirmed the existing business model and a few of them even proposed a new business model that could be more efficient for the industry.

With a solid backing of secondary and primary researched information we were able to write a solid business plan for our client. A typical format of our business plan is highlighted in our blog “Writing a Solid Business Plan”.

The Financial Plan

One of the biggest challenges with this business plan was that there was no precedence of a similar business or concept in any industry. Everything had to be estimated and rationalized to make this business successful.

Some of the areas that we worked on extensively included:

Business Model: Given the business concept, we created the business model that would be most efficient for the customer and the business. It is important to understand how and when the cash will flow through the business and who will be the stakeholders at each stage.

Sales Methodology: This is an important piece of any business. Especially in a service-oriented business, the sales price is not so easy to determine as it is for a product-based business. Additionally, if the service is openly priced, it is easy for any customer to understand the cost structure and then bargain on the price paid. Service-oriented businesses need to be compensated based on the value gained by the customer and it should not be based on the traditional model of cost plus profit. Value-based model is also difficult to comprehend and hence it gives businesses a solid competitive advantage. Along with the entrepreneur, the S&A team innovated a pricing mechanism which was simple enough to justify the value to the customer and at the same time it was difficult enough for competition to duplicate our business model anytime soon.

Expenses: This was an interesting piece of the financial plan. We formed a panel of industry experts and brainstormed with them on all possible expenses that one would need to make to run the business cost-effectively. Every expense was estimated that the business would make in the near term and long term and still make a justified profit, if it grew as planned.

The financial plan was completed with short-term and long-term cash flows, P&L statements, Balance sheets, customer ROIs, and Investor ROIs up to the satisfaction of industry experts and the entrepreneur’s team.

Investor Research

Based on the probability of success we focused our research on identifying investors from three groups of firms – private/public companies that could benefit the most from the business service, venture capitalist and banks that fund new businesses in that industry. Other than identifying the right set of investors, we also ensured that our client understood their deal process and history and the key players within each firm. For each prospective investor, our team provided insights on the approach and strategy specific to each investor.

Final Results

Our client, an entrepreneur and a venture capitalist was happy to receive a comprehensive and professional set of documents that included a thorough and actionable business plan, financial plan, and other relevant presentation materials for prospective investors. We continue to advice and guide our client as they actively seek funding. The aim of the Schweiger and Associates team is to always ensure that our clients succeed in achieving their goals which gives us the most satisfaction than anything else.

Global Economic Indicators 2010-2030 Part II: High Growth Countries

Written by Collin Shaw November 18, 2010 —

In the previous post I discussed how and where GDP growth might occur in the next 20 years. To continue with this theme I will dive a bit deeper and highlight some specific countries which might have high GDP growth between 2010 and 2030.

Whether they are called High Growth Countries, Low Cost Countries, Emerging Markets, etc., much discussion within the business community is devoted to finding the next economic darling to invest money in. I think that many of us know the obvious answers to this question because every time we read the Wall Street Journal there is an article about one of the BRIC countries (For those that don’t know the BRIC acronym is short for Brazil, Russia, India, and China). For good reason the BRIC countries are often discussed in business and economic circles as high growth economies and below is a table that projects how the BRIC countries will grow between now and 2030:

Country	2010 GDP ($billions)	2030 GDP ($billions)	Compound Average Growth Rate
China	3748.64	17604.85	7.64%
India	1127.98	4306.45	6.59%
Brazil	1197.14	2955.42	4.40%
Russia	932.00	1630.26	2.70%
Grand Total	7005.76	26496.98	5.33%

Admittedly Russia’s growth appears to be a bit low, but I think there are risks in Russia due to political insecurity, ease of business, and unstable financial markets. However, that being said the BRIC countries appear to be set for great things in the coming two decades.

Since the BRIC countries are for the most part common knowledge I would like to highlight, according to economic research, what might be some of the best performers in the next two decades. One thing to keep in mind when looking at the list below of top performers is that even though some of these countries show great growth according to percentages the actual value of the gains may represent a different picture. For example Ghana Growing at 7.78% per year may not represent as great of an investment opportunity as Indonesia, which is growing at 5.06% due to a better business climate in Indonesia and more infrastructure. I will leave it up to you, the reader, to decide which countries may be better for doing business.

With the exception of Iraq, Afghanistan, Cuba and the West Bank, all of the 24 countries examined above are in Africa and Southeast Asia. What should be noted is that on average the Southeast Asian countries are larger in size than the African countries with respect to GDP.

To sum everything up, what should be taken away from this post is that most of the high growth regions in the next 20 years are going to be in Southeast Asia, Africa and to a lesser extent the Middle East. This is not to take away importance from the larger more established economies of North American and Europe, but that many of the countries or regions on this list are not given proper attention when the discussion turns to what could provide the best opportunity for investment in the future.

Mergers and Acquisitions Defined: Transactional and Organizational Views

Written by Dr. David Schweiger October 20, 2010 —

The terms mergers and acquisitions (M&As) are often used together or interchangeably by executives, managers, consultants, professors, and the like. However, I have found that they are somewhat different both from a transactional and organizational perspective. In this brief article I would like to bring some clarity to these terms. I will first address them from a transactional perspective.

An acquisition is when one company takes over another (stock or assets) and clearly established itself as the new owner. From a legal point of view, the target company ceases to exist, the buyer “swallows” the business and the buyer’s stock (if public) continues to be traded.

A merger is when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. Both companies’ stock are exchanged for stock in the new entity.

From an organizational perspective, these terms are used more often than not to characterize the relative importance and role of each company in a combination. When executives use the term merger or “merger of equals” they are signaling that both firms are of equal importance and will essentially share influence in defining how the combined organizations will operate in the future. In such cases, there will often be a relatively equal distribution of key positions among the members of the combining companies and an effort not to impose one company’s views over the other. Moreover, there may be an attempt to choose best practices or to innovate new practices for the combined organization; i.e., no bias toward a particular company. When the term acquisition is used, more often than not it implies that one company bought the other and is “running the show.”

In essence, the transactional and organizational language used in M&As may not mean the same thing in practice. Even in the case of a transactional acquisition, an acquiring company’s leadership may run the combined organization as a “merger of equals.” Conversely, in a transactional merger, one company may still retain the power and choose to run the combined organization as an acquisition.

When Schweiger & Associates assists its clients in mergers or acquisitions, we try to clearly understand these transactional and organizational differences. In the latter case, such differences can have a dramatic impact on how the integration process is designed and executed. For further insights on M&A processes, I suggest you refer to my book – M&A Integration: A Framework for Executives and Managers published by McGraw Hill and to my blog series on M&A .

If you have any questions or thoughts about this article, please do not hesitate to contact me at david@scaas.com.

Understanding Risk Management – Part 1

Written by Zinal Shah October 14, 2010 —

As a part of a recent effort, Schweiger & Associates assisted a client in understanding the field of risk management and current trends shaping its practice. Through a series of three inter-related posts, I wish to share our learnings with you.

In this first post I will explain the process and components of risk management. The next post will explore the growing importance of risk management in today’s business environment. Finally, in the last post I will explore a trend in the practice of risk management that is reshaping how businesses are thinking about and managing existing and emerging risks.

Part 1: What is Risk Management?

By marrying definitions of ‘risk’ and ‘management’ from the American Dictionary of the English Language, risk management is defined as “the practice of controlling and mitigating the amount of loss an organization will have to endure because of any adverse action or situation, whether intentionally or unintentionally initiated.” Risk management with varying levels of undertaking is practiced by everyone, ranging from individuals, to businesses both small and large, NGOs, governments, etc.

The following chart will guide in understanding the process and different components of risk management and their interrelationship.

As is shown in the chart, risk management is essentially a process of five different steps that can be grouped into two main activities: Risk analysis and Control Systems

Risk Analysis – Steps 1 and 2

Risks come in all shapes and sizes and the list can be endless, some examples include: enterprise, technology, human capital, business continuity, regulatory/ compliance, financial, environmental, etc. Before risks can be managed, they must be 1) identified and 2) the amount of possible loss measured. A risk, or the possibility of suffering harm or loss, is created when a vulnerability is triggered or exploited by a threat / hazard.

A vulnerability is a flaw or weakness in procedures, design, implementation, or internal controls that could be accidentally or intentionally exploited and result in breach. Vulnerabilities can be grouped into two broad categories: technical and non-technical. Technical vulnerabilities may include holes, flaws or weaknesses in the development of systems while non-technical vulnerabilities may include ineffective or non-existent policies, procedures, standards or guidelines.

When vulnerabilities are exposed by a threat or hazard, risks are realized. Threats, or the potential for a person or thing to accidentally trigger or intentionally exploit a specific vulnerability, can be both internal and external. Examples include: employee misconduct, natural disasters, terrorism, geopolitical/nationalization of assets/repatriation of cash, brand attacks, among others.

Essentially there is little distinction between a threat and a hazard; however, within the field of safety, hazards represent a risk for human health and lives.

Once risks are identified, they must be measured. Risks are measured as a function of 1) the likelihood of a given threat/ hazard triggering or exploiting a particular vulnerability, and 2) the resulting impact on the organization.

Next, once risks are identified and measured and before controlling for them, they must be prioritized. As appealing as a risk-free environment appears, it is impossible to achieve, as there are always limitations on the resources at disposal to risk managers. As such, based on the organization’s risk appetite, the various risks must be prioritized and resources allocated accordingly. Some organizations have large risk appetites and thus more lax risk management practices; others have lower tolerance and more stringent risk management practices.

Control Systems – Steps 3 and 4

Once risks are identified, measured and prioritized, solutions are developed and implemented to effectively manage prioritized risks. These solutions can come in the form of security or safety. The fields of safety and security are related, but the key difference is the field of safety is primarily concerned with controlling unintended accidents, while security efforts aim to control malicious and criminal acts. That said, safety accidents are rarely, if ever, malicious, but they can be criminal as they are often violations against regulations.

Step 5

Finally once the solutions are implemented to be free from- or realistically less exposed to risks, it is essential to monitor the solutions for their effectiveness. If they are ineffective, better controls will need to be developed. If new risks emerge or existing risks morph, new controls need to be developed. All this is indicative of the cyclic nature of risk management.

I hope this provides a sound overview of the building blocks in the field risk management and clarifies how safety and security services operate in the larger context of risk management. In case you have any questions or would like to discuss this post further, please feel free to contact me at zinal@scaas.com

The next two posts in this three-part series will aim to answer the following questions:

Understanding Risk Management – Part 2: What is different about the risks organizations are facing today that is causing the business environment to become increasingly uncertain?
Understanding Risk Management – Part 3: How are organizations altering current risk management programs to deal with an increasingly uncertain business environment?

References: Definitions of various components of risk management are adapted from U.S. Department of Commerce NIST SP 800-30

A Process for Creating Value in Mergers and Acquisitions

Written by Dr. David Schweiger October 14, 2010 —

Although the nature and volume of Merger and Acquisition (M&A) activity has changed over the last 100 years, they remain a critical vehicle for executing a firm’s strategies. In spite of the current economic environment, there are a number of shrewd buyers with access to capital who are searching for the right target at the right price to help them expand into new customer and geographic markets; acquire new products, service, and capabilities; consolidate markets; and the like. While on the surface M&As appear to be a relatively faster way than organic growth to accomplish these strategies, the former have proven to be among the most challenging activities for to transact and implement, which explains why on average they have not lived up to the expectations of most executives.

Schweiger & Associates (S&A) through years of research and consulting has developed a proven approach to managing the M&A process. The approach identifies the major stages of the M&A process and the key activities that need to be successfully managed during each of the stages for value to be created. In this article, I will briefly identify and define these stages; the key challenges faced in each one, and some proven actions that executives and managers can take to successfully manage these challenges. Since this is a relatively short article, I cannot identify all the issues. If you are interested in digging deeper I suggest you refer my book M&A Integration: A Framework for Executives and Managers, published by McGraw Hill.

The M&A process can be divided into a number of stages as defined below:

Strategic Stage – During this stage buying executives first need to identify a set of target companies that can help them implement their strategies. The major challenge here is to find the right companies and develop sufficient information to rank order and decide on whether to pursue any of the targets further. Once a target is chosen an entrée needs to be made. This can be done directly or through an intermediary such as a banker or a board member, or an executive over a round of golf. Schweiger & Associates, as part of its strategy development process, has worked with executives of large and middle market companies to identify and evaluate target companies and to develop an entrée strategy. We work with teams to identify acquisition criteria and rely on our primary and secondary research capabilities to collect all necessary information to assess and rank order the target companies.

Transaction Stage - If a proper target is identified there are three primary activities that are conducted during this second stage. The first is due diligence which is an investigatory process whereby “deep” primary research on the target is conducted to ensure that all major issues (especially liabilities) surrounding the success of a deal are identified. Although company information is collected during the strategic stage, this is the point at which contact is established with the target and information is collected directly from them. A major challenge in conducting due diligence is the ability to know what information to look for and to trade off thoroughness of information gathering and analysis with available time. Another major challenge is that too often buyers get so caught up in the strategic and financial aspects of a deal that they fail to give enough consideration to softer issues such as organizational culture and key people. This is especially important in service-based M&As where the value of the company is often a function of its people. For more information on this see my post “Sources of Value in Professional Services Firms” on this web site.

The second is valuation, whereby the buyer tries to determine what the target company is worth. Since this activity is as much an art as a science a major challenge is to determine a reasonable range of values using multiple approaches such as discounted cash flow, internal rate of return price multiples, etc. The third is negotiation, whereby the buyers tries to not overpay for a company. A major challenge here is for executives to maintain objectivity and to avoid getting too caught up in doing a deal when the due diligence data reveals significant issues or major questions that remain unanswered, or when the price is bid up beyond a reasonable valuation.

Schweiger & Associates has worked with executives and managers to:

Organize the due diligence process
Identify the issues that need to be investigated during the process
Ensure that the information that is collected is objectively analyzed and factored into decisions concerning whether the buyer should walk away from a deal and the maximum price they should pay to get a deal done.

Moreover, S&A has conducted valuations and developed negotiating strategies.

Transition Stage – Once it is evident that a deal is going to be struck (usually captured in a merger or acquisition agreement) the executives need to plan how the companies involved will be integrated. Research and experience demonstrate that the earlier the integration planning occurs prior to the closing the better the subsequent performance of the M&A. Early planning enables a faster integration process and the creation of execution momentum. A major challenge during this stage is to gain the cooperation of the buyer and to have a well organized process for making key integration decisions. While it s not always possible, it is better for the buyer to engage key target executives and managers in the process, as they have critical knowledge of how their organizations operates. This is especially critical if the buyer wishes to retain a committed set of acquired people. Schweiger & Associates has worked with executives and managers to design integration transition structures and to facilitate them through it.

Integration Stage – After the deal is closed is when most organizational changes are executed; e.g., manufacturing plants and IT systems are consolidated, new processes are introduced; organizational cultures are changed and integrated; new teams are built, new people are assimilated into the combined organization; among many others. A major challenge here is actually executing and dealing with the technical, organizational power and organizational cultural issues that emerge, all of which are critical to a successful transition. Research and practice have shown that this stage is where many organizations fail to create value. Prior to the closing, everything has been a theoretical exercise. After the closing is when the valuation numbers are either realized or not!

It is critical to remember that throughout all the stages, the decisions and behaviors of executives, managers and other employees are the most critical element in whether a deal succeeds or not. Ultimately, these people are responsible for:

Identifying and evaluating targets
Conducting due diligence, valuations and negotiations
Planning changes and
Executing changes.

Failure to deal with their limitations in the first three areas and with their concerns (e.g., do they have a job; what will their benefits be; who will they work for; do they have a reasonable chance for promotion) throughout all the stages will most certainly lead to poor decisions and lack of commitment and execution of these decisions, resulting in a failed or poor deal. Schweiger & Associates has worked with and coached executives through the Integration Stage to help ensure that these problems do not happen.

Evaluation Stage – In this last stage there are three major activities that are conducted. The first is to track key value indicators to ensure that what was planned for prior to the closing is realized afterwards. This may include leading and lagging customer, employee, financial and operational indicators. The second is to track the integration process itself to ensure that any issues or problems that emerge are quickly identified and resolved. No matter how well planned an integration, something is bound to need fixing! The third is to debrief after an merger or an acquisition has been successfully integrated to identify and institutionalize within the buyer improvements to its overall M&A process. Continuous improvement is critical to a buyer’s future successes. A major challenge during this stage is whether buying executives have the insight and discipline to implement these activities. Schweiger & Associates has helped executives in that regard.

In this short article I have tried to briefly explain the M&A process and what it takes to be successful in transacting and executing it. Please do not hesitate to contact me at Schweiger & Associates at David@scaas.com if you have any questions or would like to share your thoughts about this article.

Doing Secondary Market Research Successfully – Part 2

Written by Vishal Khushalani October 13, 2010 —

From reading Part 1 of this article, you would have captured the basics on assessing client needs and the technicalities of doing secondary market research. In this section, we will focus on the areas that the Schweiger & Associates team researches to provide a comprehensive analysis of an industry, a competitor, and/or customer.

Part 2: Secondary Research Structure

Industry Analysis

To perform a thorough industry analysis we research in detail on the below mentioned aspects of a given industry. In each area, we will guide you on what and where to look for the specific information.

Size: If the industry is large enough, you will find at least the size of the industry from the outline that is provided in several leading market research reports. Alternatively, a lot of news articles might also cover this kind of information. In case the industry is relatively new or if you are focusing on a niche segment of the industry then there are at least two ways you can find the size of the industry (i) Faster and cheaper option: Make a list of major players and find their individual revenues. Add up the revenues, speak with a few people in the market to finalize the estimated size of the industry; (ii) More thorough but expensive option: Perform primary research by conducting surveys and interviews to gain detailed insights about the industry.

Growth trends: Industry news reports and blogs are the best way to gauge growth trends. Another useful way to find this information is by reading 10-Ks/annual reports, investor presentations of publicly listed players of the industry.

Value Chain: Keep a tab on the different types of organizations that come up in your research of the industry. Make notes and you will be able to differentiate industry players based on the value they add to the industry.

Market Segments: Depending on the industry you are researching this information will become quite evident in your research. Again, it is very important that you continue to make notes as you review each tab of information as mentioned in Part 1.

Market Drivers: This section requires a lot of reading. From your readings you will really need to gauge as to what is driving this industry? Some examples include – Customer appeal, attractive export market, availability of labor, government regulations, etc.

Barriers to Entry: Here you are trying to get information on what a new player needs to have to compete with established players in this industry. For a large industry segment, one should be able to find this information quickly. Else this information will become evident as you get into “Competitor Analysis”.

Key Success Factors: This helps you to understand what the leading players have been doing right to succeed in this industry. The best way to find this information is to dive into individual “Competitor Analysis” and then analyze information of all competitors together to get this detail.

Key competitors: The most cost-effective way to find the list of key competitors is to check if any market research company is selling the industry report of your industry. If they are selling then they will mostly provide the list of major competitors in their table of contents. Alternatively, check if the industry you are researching has an industry association. These associations generally mention the list of members, which can be a good starting point. If the industry is a relatively new industry or if you are researching on a niche industry segment then the best way is to keep making notes as you review each tab of information as mentioned in Part 1.

Key customers: Start by making a list of industries that benefit from the industry that you are researching on and then follow the tips mentioned for researching “Key Competitors”. Alternatively, when you get to “Competitor Analysis”, a lot of companies mention names of their customers either in the news section, case studies, and/or they provide logos of their customers in their marketing material.

Competitor Analysis

Detailed company information: The best way to get this information is from the respective company’s website. In case the company is publicly listed then it makes this task easier by reading their 10-Ks, annual reports, investor presentations, new articles, case studies, etc. Over several years of research, Schweiger & Associates has developed a template in which we feed in all possible information which further helps us to compare different competitors.

Current goals & strategies, Future intentions & assumptions: It’s easy to find such information about publicly listed companies. The challenge comes in when you are researching on a privately held company. This can take time and the best way to find this information is to completely scan their website and every news article that has ever been published about them.

Competitive advantages & weaknesses: As you research more competitors in the industry, this information will become evident as you compare them side-by-side on each aspect of the company. For e.g. geographic presence, product or service offerings, key customer markets, financial strength, and more.

Potential entrants: Information like this is not easy to find. You will need to get lucky by stumbling upon a news article or report where the CXO of an organization has mentioned about their plans of venturing into the industry that you are researching upon. Alternatively, you can brainstorm within your team based on the attractiveness of this market.

Customer Analysis

Researching on your customers is quite similar to performing competitor analysis (mentioned above) except that your focus now will be on how to provide an appealing value proposition so that your customers will favor your product and/or service compared to that of your competitor. Some areas that you want to research on regarding your customers include but are not limited to:

Goals & Strategies
Key Competitors
Key Suppliers
Information on key executives

Researching on the above mentioned aspects of the customer will help you strategically understand your customer better than your competitors and will help you speak their language.

Performing primary and secondary market research is the forte of the Schweiger & Associates team. We have researched and advised clients in various industries including Packaging, Material Handling, Manufacturing, Infrastructure Construction, Banking and Insurance, Engineering, and Information Technology, among others. To perform primary or secondary market research or for any guidance on performing research, please feel free to reach me at vishal@scaas.com.

Doing Secondary Market Research Successfully – Part 1

Written by Vishal Khushalani October 13, 2010 —

During the Strategy Development and Execution process with our clients, market research plays a vital role in validating the direction that our clients are pursuing or wish to pursue. Schweiger & Associates regularly conducts both types of market research (i) Primary Market Research and (ii) Secondary Market Research to meet the needs of our clients. There are several articles that talk about primary market research, its process, benefits of primary research vs secondary, and vice-versa but there is no article that exists as of today that highlights the process for doing “Secondary Market Research” successfully. From my several years of experience in market research, I wish to dedicate two articles today highlighting the Schweiger & Associates process and structure of doing secondary market research and how to succeed at it.

In Part 1 of this article, I will highlight our research process from understanding our client needs to the technicalities of doing the research and in Part 2, I will cover the different areas in which our team researches depending on our clients strategic focus which could be to gain insights into their own industry, know more about their competitors, and/or their customers.

Part 1: Secondary Research Process

Step 1: Understand your own or your client’s purpose and direction

John F. Kennedy rightly said, “Efforts and courage are not enough without purpose and direction”. As this statement applies to anything and everything in life, it applies most importantly to Market Research. Even before initiating any research, it is imperative for us to understand our client’s needs thoroughly. For this, we ask several questions, for e.g.:

What is it that you exactly want to find out?

What is the strategic purpose of gaining this information?

Who in the organization will use this information and how will it help them?
In your mind, how does the end-product (research report) look like?
Do you have any existing information which you want us to verify or build on?
What is your current knowledge or impression of the topic you’ve asked us to research on?
How much time do you think we should spend on finding this information?
What is the information you definitely need to know and what is it that you can do without?

Questions like the above helps us in several ways:

Thoroughly understand the goals and needs of our clients
Set expectations by creating a template of the final research report
Understand the priority areas of research
Allocate the right amount of resources and time to complete the project

Step 2: Prepare yourself technically

This aspect is quite important to speed up and organize your secondary research effort.

Browser: One can use any browser (Mozilla, Chrome, IE, or Safari) for research but the feature that you want to use the most is to be able to open new pages in a new tab and in the same window. This helps in organizing your research for a particular “keyword” in just one window instead of opening several windows. Sometimes, we have over a 100 tabs open for one single topic in one window and it takes 2-3 days to review all of them. Similarly you can have different windows open for different keywords with each window having several tabs to review.

Search engine: We tend to use “Google” a lot but recently have been getting good results with “Bing” as well.

Make notes: You could either use Microsoft’s OneNote, or use Notepad, or just make notes on a word document. The beauty about using “OneNote” is that if you “cut & paste” any information that you like, it automatically adds the source (hyperlink) of the information. This saves a considerable amount of time.

Step 3: Keywords to use to get good results

The suggestion I would give here is to use keywords exactly the way you think. For e.g. if you want to understand the future of the packaging market. You could use keyword “packaging market trends” or simply use “what is the future of the packaging market?” on Google. Ask the right question and you’ll get the right answer quickly. In the above example using Google, the keyword “packaging market trends” yielded 294,000 results while “what is the future of the packaging market” yielded 51,700,000 results i.e. 175 times more hits than a typical keyword.
In this internet age, there are several mediums of communication – blogs, social networks (facebook, twitter, etc), news articles, among others. Using colloquial language in your keywords correlates better with the writing style of the current generation and hence it yields better results for you.

Step 4: Don’t stop – There is light at the end of the tunnel – believe me!

I regularly ask people who research on the internet as to how many pages they review before trying another keyword. The typical answer is 2 pages or at best 3 pages. The Schweiger & Associates team is trained to review at least 15 – 20 pages i.e. over 150 links on each keyword. Doing this is much faster than you think it is.
Google/Bing provides a brief description of what you can expect if you open each link. You don’t need to open each link. At the first stage, just read a quick description of the link and if it interests you then open the page in a new tab. Don’t read the new page now. Go through 15 – 20 pages (150 – 200 links) and keep opening them in a new tab.
Take a break.
Then review all the new tabs that you’ve opened up and quickly screen them and make notes.

Once you’ve understood the basics above, now you are ready to read Part 2 of this blog where I will cover the different areas that you can research to complete a comprehensive analysis of your industry, your competitors, and/or your customers.

Global Economic Indicators: 2010-2030 – Part I

Written by Collin Shaw July 14, 2010 —

One of the most frequent questions asked of me from clients is, “where is the global economy headed over the next 5, 10, and 20 years?” If that isn’t the question we’re all wondering I don’t know what is. In this series of posts entitled Global Economic Indicators: 2010-2030, I will try to put some perspective around this question and examine where the global economy might be heading over the next 20 years.

With this first post in a series of posts I would like to lay a foundation, therefore I do not plan to detail every country in the world; rather this post will give a very high level overview of how global GDP growth based on regions of the world could likely head over the next 20 years.

First for those unfamiliar with how growth is measured in economics, I will be using GDP as the statistic by which growth is measured. GDP or Gross Domestic Product is simply the total market value of all final goods and services produced in an economy, usually over the space of one year. For example a company that produces motors for lawn mowers wouldn’t count its motors towards GDP because the motors would already be counted in the total value of the lawnmower sold to the final consumer.

Using data provided by the USDA’s Economic Research Service (ERS), I have compiled a chart that shows what the global economic picture may look like 20 years from now as measured by GDP. The chart below has divided the globe into 10 different economic regions, which are described within the chart.

I find this chart helpful because it dramatically shows how economics may shake out over the next 20 years so clearly. These are some of my thoughts about what this chart says:

As confirmed by the recent news that China has overtaken Japan has the worlds second largest economy the East Asia region will likely become the largest economic region in the world, led by China.
Though China will grow impressively over the next 20 years, its important not to forget South Asia and South East Asia (which are separate in this chart), led by India. India will most likely grow faster than China over the next twenty years. Countries like Vietnam and Thailand are very young demographically and offer a very attractive place for Foreign Direct Investment (FDI). Mature banking countries such as Singapore and Malaysia will be able to offer capital to growing countries.
Despite of the recent economic turmoil the North American region will still post positive economic gain and continue to be a very attractive region for investment.
The picture behind the EU 27 is a bit misleading. Its most likely that Germany and France will prop up most of the other countries financially, like we’ve seen with Greece. Also the emerging countries such as Hungary, and other former Soviet Block countries will post solid economic gains, but the actual value of their growth won’t be enough to pull the EU 27 out of very low growth.

I hope that this gives a good foundation on where we are now in the world with respect to GDP and where we will be heading in the future.

Going forward I plan on discussing the numbers and assumptions behind this first graph with a series of posts. The most likely evolution will follow a path that looks something like this:

High Growth Countries of the next 20 years
GDP Per Capita in Key Economies and what this means for a rising middle class
Economic Segments of the EU, NAFTA and BRIC countries
Construction and Infrastructure Spending in the Top Countries
Population by Region: 2010 vs. 2030
Population Demographic Shift of Key Economies: 2010 vs. 2030

Sources of Value in Professional Services Firms

Written by Dr. David Schweiger July 14, 2010 —

During the past 25 years, I have been engaged in academic research and consulting on how to create value through mergers and acquisitions. One area that I find quite intriguing, is professional services acquisitions. This includes firms in areas such as law, accounting, consulting, engineering and the like.

In any sound acquisition analysis, one of the key activities is to identify the sources of value underlying the deal; i.e., what are the real and sustainable sources of profit and cash flow. For example, is it specialized equipment and systems, access to new customers and geographies, proprietary technologies, consolidation and cost reduction opportunities, etc. In many acquisitions there are elements of all of these present, but they may not be equally important.

In professional services acquisitions in particular, my research, consulting experience and role as the president of a professional services firm indicate that the most crucial source of value is the people and the intellectual capital that they bring to bear. Typically, this includes their knowledge and skills in developing and utilizing tools to effectively solve clients problems; the relationships they have and are capable of developing with clients; their ability to manage teams of people in the execution of work; among others. As such, it is pivotal in such acquisitions that an acquiring company pay significant attention to assessing the quality and depth of key people in the firms (preferably prior to doing the deal); assessing key people’s willingness to remain with the acquirer and developing strategies to retain and motivate them. Failure to do so will likely result in the primary source of value walking out the door!

I would like to invite those of you who are interested in this area of inquiry to share your opinions and experience. Do you agree or disagree with my observations? Do you have examples of successes and failures in this area that you would be willing to share? I look forward to what I hope will be a fruitful learning experience for those who choose to participate.

Resources