Strategy: The growth engineers

This article first appeared in Enterprise, The Edge Malaysia Weekly, on November 12, 2018 - November 18, 2018.
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When people think of Crowe Horwath, they usually think of tax consultants. Basically, men (or women) in suits, meticulously going through your company’s accounts to make sure you are compliant with the latest tax regime.

But the company has undergone a change in direction globally, moving from only statutory-bound work — such as tax-related services and auditing — to more consulting work. Its name has been shortened to Crowe and its tag line reads: Smart decisions. Lasting value.

Crowe Malaysia Sdn Bhd managing partner Poon Yew Hoe says while tax consulting is still a good profession, there is a demand in the market for growth strategy consulting. “That is really what our clients would want in the future. Audit and tax compliance is very statutory now. Clients require that service because the law says they have to do an audit or file a tax return whereas in the future, people would want more services that add value to their businesses.”

Growth strategy consulting includes helping clients make the right decisions. So, Crowe Global has come out with the Smart Decision Index (SDI, a booklet of more than 40 pages) to help its clients do just that, says Poon.

“What Crowe Global is trying to illustrate is that smart decisions are not easy to make — many factors come into play. It collaborated with some experts and research houses to better understand smart decisions. Then, it narrowed down the method of achieving smart decisions by looking at the Forbes Global 2000 list, that is, the high-performing companies,” he says.

From that list, Crowe Global honed in on those that were experiencing high growth and took a closer look at their quantitative and qualitative factors to ascertain how they made good decisions. It examined criteria such as growth in market capitalisation and the role of diversity (in terms of gender as well as ethnicity). In each case, it also took note of two qualitative factors — innovation and boldness.

Crowe Global ranked the companies according to these matrices and the top 100 made it to the Crowe 100 Decision Making Index. “We based our decision on four factors — growth in market capitalisation, diversity, innovation and boldness,” says Poon.

How do you measure boldness? “It is a subjective thing. Crowe Global combed through news reports on the 100 companies on the index to figure out what moves they made over the years that demonstrated boldness,” he says.

Crowe Growth Consulting Sdn Bhd managing director Michael Lim cuts in, “When I read the whole SDI, I am not just looking at the facts. I am learning how business people use their thinking and decision-making skills to influence where they will move next in their business.”

Another thing the SDI measures is diversity. “Some companies try to use diversity as one of the ways to make good decisions because they find that when you have diversity, you tend to have fewer blind spots. For instance, if the board of directors comprises only men, they may tend to focus on the bottom line, whereas women may be more sensitive to the social or environmental impact of certain decisions,” says Poon.

He is not just talking about gender and ethnic diversity. “Diversity in terms of specialisation is also important. Let’s say you have a company made up of only accountants. They would only look at the numbers. But if you have engineers and environmentalists, other things would be taken into consideration as well,” he says.

“Good decision-making is not just about the science of decision-making, the analysis of numbers and all that. There is also a very subjective and emotional element that comes into play when you are making a decision in a situation filled with uncertainty,” says Lim.

“When things are known, it is very easy. Just make a decision. But when things are uncertain, that is when good decision-making comes in.”

Crowe’s move into growth strategy consulting is exemplified by the two partners. Poon, who is highly polished and looks distinguished with his salt and pepper hair, represents the statutory side of the business. Lim, who is younger, more ebullient and bursting with ideas, represents the next generation.

“I like to observe businesses,” Lim laughs. “One of the things I like about great business leaders is they are always out there writing things they observe. This is my notepad and I have been writing my thoughts and ideas. I mind map a lot … because it presents the whole idea to me — how the businesses are interrelated and everything else.”

Lim says that as much as entrepreneurs like to do more of what they are already doing and trusting that something will turn out right, the successful ones plan for and carefully engineer their growth. “We have seen so many cases where the companies experienced an explosion in growth but lacked the foundation to promote this across the business. Then, you have that flappy bird game that we play — it flies off and then flaps down. You have a company today and nothing tomorrow. That itself is a danger when you look at growth,” he adds.

The flipside is a business that just doesn’t seem to be going anywhere. “This is equally alarming. So, when we look across the board, the large companies sometimes do not grow because they think they are in a comfortable position. But here is the thing: In those days, growth used to be a choice. Today, it is not a choice but a constant. If we stop growing, the world will outgrow us,” says Lim.

He describes a business as a living organism. “As a living organism grows, so does a business. And as it grows, we tend to see it capitalising on smart decisions and lasting value. Because as you grow, you learn. And as you learn, you make smarter decisions and start to bring value to the ecosystem,” he says.

Lim points out that today’s market is about the ecosystem and not just the business. “Once a company does not take the ecosystem into consideration when it makes decisions, it loses the plot.”

He adds that Crowe’s growth strategy consulting arm focuses more on entrepreneurship. “We look at engineering growth. So, we look at three key areas — catalysing growth, cultivating innovation and capitalising on performance.”

Basically, Crowe wants to get down and dirty (in a manner of speaking) with the entrepreneur. “We journey with the entrepreneur from top to bottom and from the bottom up. We actually get our hands dirty, down to the level of making operations work,” says Lim.

“When we say engineer growth, we mean it literally. I have actually employed only engineers because they are the ones who set up the schedule and get things moving. They make sure that the variances are being monitored.”

Having worked with many CEOs, he has come to see that the smartest of them — the ones who really know how to grow their businesses — spend time on strategic and tactical matters rather than operational ones. Being strategic is looking at how well your operation can run, he says. “It also means looking at the bigger picture of how the different parts of the company interlink and how the business can grow.

“Being tactical is about looking at how you can bring complementary values within the ecosystem. Being tactical takes a lot of time and consideration. It is what we call the existential decisions that you make that will propel the business to another level.”

Lim gives an example of a tactical move. “We were consulting for one of the largest web EDI (electronic data interchange) companies in Malaysia. It processes RM2 billion worth of modern trade in the country. So, if you buy things from these modern trade companies such as Tesco or Giant, this company processes the invoices. If you look at the business strategy, it is simple. It is about moving from modern trading companies to capturing the more traditional markets such as your mom-and-pop shops,” he says.

“But a tactical move for a business like this is to look at the entire ecosystem to see what is needed. And what do some of the suppliers in this particular ecosystem need? Invoice financing. So, we planned out the whole business and got them a peer-to-peer financing licence for invoice factoring.”

Lim says that by factoring the invoices of small and medium enterprises, they are helping the SMEs get more working capital and, thus, increase their fulfilment rate. “The SMEs out there do not have enough cash for their working capital. When you look at some of these modern trading companies, their expected fulfilment rate is at least 90%. Large companies such as Nestlé are fulfilling at 99%. But most SMEs can only fulfil at a much lower rate — less than 60%,” he adds.

“Just by increasing the working capital, we actually increase the capacity of the overall ecosystem. And that is the whole idea of being tactical when it comes to ecosystems.”

Sometimes, the solutions do not have to be so complex. “One of our clients is the second largest Malay fashion retail company in the country, selling baju kurung and baju kebaya. When we first met the business owners, they had more than 30 outlets. This business had no aspiration to go to the rest of the world. It was more about, ‘How can we do better in our business?’” says Lim.

“And it was just simple things like arranging the shop in such a way that every shop had the same layout and standard. So, when you walk in, you know there will be a certain type of clothing on the left and another type of clothing on the right. Simple things like putting all the premium clothes in the front and the less expensive ones at the back.”

The company also went online and one of the things it was able to do was offer 100 colours, he adds. “We actually re-innovated their business, so they now have more than 70 outlets. The business has doubled in less than two or three years and it is making very good money.”

Lim points out that just by making simple changes and making it easier to shop, its client was able to improve the shopping experience and increase the turnover rate. “And once you increase the turnover rate, you can accommodate more customers. Not only that, by having colours that are coordinated, by having retail best practices in the local setting, even during off-peak seasons, you can build your business model easily and quickly,” he says.

This company, which had peak sales for three months of the year every Hari Raya season, moved into formal and office wear to stimulate activity during the off-peak seasons. This was a case of accentuating its offerings by raising its standards to global levels.

But Crowe does the flipside too, which is help global clients localise solutions in their markets. “We have a China-based client looking to bring its solution to this part of the world and we are looking at localising its solution. Because whatever works in China may not work in this region,” says Lim.

Finally, there is the little matter of cost. How much does Crowe charge for its consulting services? “We are not expensive, we are premium,” insists Lim.

“There is a lot of difference. Because expensive is when you do not deliver value to them. When we talk about premium, it is not necessarily in terms of fees. It could be in terms of other structures that we can work out with our clients,” he says.

“I think we call ourselves premium because we always deliver value above what we actually ask from them. And I think a lot of our clients would say the same thing as well.”

 

How to modernise a heritage business without taking away its legacy

According to Crowe Growth Consulting Sdn Bhd managing director Michael Lim, modernising a heritage business without taking away its legacy requires a delicate balancing act. On the one hand, the heritage element has to be retained. On the other, to modernise it enough so that it appeals to millennials and is able to travel abroad.

“We came up with the concept of putting the name of the street on the label. And just by changing and modernising it, we have allowed millennials to relate to a heritage business. But we did not remove the heritage element. When you go into the store, it still looks like a heritage business, but it is clean and modern,” says Lim.

The real modernisation came in the modifications made to the kitchen. “Those days, when they had their own franchise, they were running 400 to 600 sq ft kitchens. Now, if they were to move out of Malaysia to a higher cost country, say, Japan, Taiwan, Hong Kong or even Singapore, they would not be able to afford kitchens of that size. So, we reduced their kitchen to about 110 to 150 sq ft. By doing so, we actually managed to reduce the rental cost per sq ft as well as the overall rental cost to set up a franchise,” he says.

Lim’s team also modernised the central kitchen by introducing new machines to ensure the quality and taste of the food. “These are new machines because not many people have gone into central manufacturing for things like cendol. So, they basically bought new machines and innovated them so they were able to increase production. By increasing production, they could expand to as

many outlets as they want.”

Crowe also introduced the concept of franchising to this company so that wherever it chose to expand, its margins would be able to cover their business and break even or get a return on investment within the first 12 to 18 months of a new franchise. “And it was successful,” says Lim.

The first franchise was in Paradigm Mall in Kelana Jaya. It was so successful that in its first month of business, the queues were so long and it received close to 1,000 franchise inquiries.

“The company has grown by leaps and bounds. The next question is, how do we bring them out of the country? There are plans to go to Singapore, Indonesia, the Philippines, Vietnam, South Korea, Japan and Taiwan,” says Lim.

 

 

Turning around a business in a dying industry

How do the exhausted owners of a business in a sunset industry conduct a turnaround? By freeing up their time to play golf.

“There was a business that was manufacturing plastic bags, which is a dying industry with so many shopping centres opting not to supply them anymore. Now, if there are 24 hours in a day, the business owners were working 28 hours just to get things done,” says Crowe Growth Consulting Sdn Bhd managing director Michael Lim.

Basically, there was always some fire to put out. “The owners were too involved in the business and so operationally inclined that they took no time to look at strategy. And once you stop looking at strategy, you lose focus of what makes the business profitable,” he says.

The business owners kept doing what they had always done, without taking into account that they were in a sunset industry and more of the same would just not cut it. “We went in and set up systems — Lean, Six Sigma, you name it — to reduce wastage and increase yield because wastage in plastics is a very expensive affair,” says Lim.

“At the time, oil prices (the raw material of plastic is an oleochemical product) were on the high side so everything was against our client. The owners came up with innovations such as new ways to cut the plastic without installing an additional cutting machine.”

All these were well and good, but the real solution was putting in the systems and structures so that the business could be run by the staff. The owners would only need to manage the key results and key performance indicators.

After a while, they found that they were becoming redundant in their own company. The management could handle everything and they moved from four-hourly to hourly reporting.

“In fact, it came to a point where we were doing every half hour, especially when there was a very high run. The plastics were measured out every half hour to ensure that the quality is there and the wastage is under control,” says Lim.

When all this was in place, the owners suddenly found time to play golf. “And in playing golf, they started to network with other suppliers and business owners who had need for plastic products. Eventually, because of that, they started getting international orders from more developed countries and they started doing higher-margin plastics,” he says.

This revitalised the business and it went from a sunset industry to one with larger clientele and higher margins.