Updated July 2, 2015
The kraken is an imaginary sea monster said to have attacked a ship by wrapping its arms around the hull and capsizing it. Sailors would terrify new crew members with stories of ships that were attacked by the monster with no warning. It’s common for fast-growing companies to suffer the same fate as the ships attacked by the kraken. The fast-growing-company kraken is the unexpected administrative complexity of a larger organization.
Often, acquisitions are abruptly added to the portfolio with little time to combine back office functions, organizations, or systems. Organization roles and responsibilities are not consistent and staff resolves issues as each group sees fit, which magnifies the problem. Reporting becomes a nightmare and investors become frustrated. The complexity of the environment paralyzes the company and bottom-line growth stops.
The kraken has been released!
How can fast-growing companies handcuff the kraken and realign for growth? It’s all about establishing structure to get the kraken under control. The most successful companies take the following steps when realigning for growth:
Integrate Common Functions
The first step to realigning for growth is to integrate common back office functions: finance, procurement, HR, IT, and billing. Integrating back office functions is not easy. Legacy owners and management would rather not give up control of their functional organizations. Legacy owners will argue that every function is critical and uniquely provides a competitive advantage. This is simply not true. Any non-customer-facing organization can be a candidate for managing centrally. Payroll, technology, finance, payables, and procurement all fall within this category. Developing a clear definition and company alignment of roles and responsibilities will help determine the reporting structure within an organization. Once defined, employees can be reassigned to clearly understand the role and align the business for success.
Deploy Standard Processes
Fast-growing companies don’t have the luxury of taking time to develop standardized processes and procedures. Each manager often leverages and implements what they have experienced with former companies, which creates conflicts between functions, product lines, and geographies. Developing and deploying standardized processes makes it easier to manage common back office functions, and time should be taken to standardize processes. Standardized processes improve information flow, reduce errors, and increase investor confidence in senior management’s ability to control costs.
Standardize Budgeting, Planning, and Forecasting
Investors want timely and accurate forward-looking performance information. In many cases, each acquired company is asked to provide a plan, which is manually consolidated and sent to investors for approval. The monthly process of manually tracking actuals to plan becomes a nightmare. Worse, investors become irritated and suspicious when the reports are not provided in a timely manner. Simplifying and standardizing the planning process is critical to keeping investors happy. Variances can be more easily explained and software tools can be implemented to provide more timely information.
Implement a Common ERP System
The last step in realigning for growth is to select and implement a common ERP platform across the acquired companies. A common ERP enables management to have real-time information of sales, inventory, customer profitability, and other critical information across the organization. Decisions can be made faster, standardized processes can be enforced, and portfolio companies can cross-sell products. Month-end close can be reduced because inter-company transactions and consolidations are automated. Investors will receive their information more quickly.
Companies may be able to eliminate unnecessary overhead by themselves. However, outside help is often required—pick consulting partners with the right qualifications, especially when spending money in this economy.