Finance for Growth. Creating a strategy. March 2014

Transcription

1 Finance for Growth Creating a strategy March 2014

2 Agenda Introductions Potential methodology for strategy creation Strategic considerations re sales, operations and IT Case study exercise Your people strategy Funding your strategy

3 Finance for Growth Introductions Terry McAdam

4 Baker Tilly Ryan Glennon Top 10 accounting practice Employ over 100 professionals Member of Baker Tilly International Multi-disciplinary compliance and consulting Offices in Dublin, Galway and Midlands Work closely with Enterprise Ireland across various programmes including Lean

5 Finance for Growth Potential methodology for strategy creation Terry McAdam

6 Strategic planning context Economic environment within sector or markets At outset planning informed by some key questions including: Who are our stakeholders and what are their needs? What outcomes address these needs? What changes can we achieve? How do we deliver outcomes in the most efficient/effective way? How do we unlock efficiencies in product delivery costs? How do we adopt and embed continuous improvement? How can we innovate given budget pressures?

7 Potential approach to strategy creation Build strategy around number of pillars Customised to business Pillars act as enablers to achieve strategic goals Informed by mission, vision and values and guiding principles re ethics, standards etc. Pillars impacted by internal and external factors

8 Potential approach to strategy creation (cont.) External Factors Entity Strategy Vision Mission Values Guiding Principles Your Products Associated Services Marketing initiatives Growth Finance Funding Budget Controls Systems Internal Factors Staffing Skillsets Human Resource Experience People Operations Procedures Processes Systems Quality Implementation Plan

9 Potential approach to strategy creation (cont.) A successful strategic planning project will address five key elements: Understand the Context (economic and political) and Stakeholder Need Report Monitor and Learn Building a Vision, Mission and Strategy Develop Implementation Plans Test and Challenge

10 Potential approach to strategy creation (cont.) Approach has four basic phases: Analysis or assessment: an understanding of the current internal and external environments is developed Strategy formulation: high level strategy is developed and a basic organisation level strategic plan is documented Strategy execution: where the high level plan is translated into more operational planning and tactical action items Evaluation or sustainment phase: on-going refinement and evaluation of performance, culture, communications, data reporting and other strategic management issues.

11 Potential approach to strategy creation (cont.) Dynamic, iterative process Analysis Evaluation Vision Mission Formulation Execution

12 Potential approach to strategy creation (cont.) Who is involved? Key directors Representative management Possibly selected staff below these levels Multi-disciplinary Representatives of different sites/divisions Third parties (by invitation) Facilitator?

13 Potential approach to strategy creation (cont.) Other considerations: Bottom up v top down approach Communication of constraints time input, budget Setting of strategic KPIs Frequency of planning three years? Frequency of reporting of progress Frequency of review of plan annual Time allocated to process, cost-benefit approach

14 The role of project management To deliver a strategic planning project on time and to a quality standard requires robust project management:

15 Finance for Growth Strategic considerations sales, operations and IT Terry McAdam

16 The top line challenge Without a strategy to sell profitable services or products to customers who will pay on time, planning can cease Our top line strategy: what one sells to whom and at what price point impacts all aspects of the business including your: Operational delivery model facilities, locations, processes and systems Risk management environment Compliance obligations Team shape, scale and skill mix Funding model

17 Strategic sales considerations Products/services which mature, under threat, facing retirement Potential new product/service development opportunities Markets which mature, under threat, possible exit of markets physical and virtual Potential new markets for entry Customers who mature or at risk Development of new customer relations Potential for alliances, joint-ventures, acquisitions Repositioning manufacturer to fabless or distribution Marketing initiatives and campaigns reflecting decisions reached

18 Strategic operational considerations Assessment of capacity (and options) given likely demand and product/service mix Capex requirement with regard to new plant, automation and facilities physical foot print Investment needed in personnel with required specialist skills/experience Changes in operational processes to support effective and efficient product and service delivery (Lean?) Requirement for processes to support risk management, ensure compliance with all regulations and laws and consistently high levels of quality Development of supply and distribution networks

19 Strategic IT considerations What data must be captured? What data is also desirable to retain? What information can be gleaned from the data to assist decision-makers or those charged with compliance? Are new systems required due to new processes/activities requiring support, changes in scale or end of life issues? Do you need to own your infrastructure, applications or communication links? Are managed services an option? How resilient are your business critical systems? Have you a Disaster Recovery plan in place? Is your product and customer data secure?

20 Finance for Growth Case study exercise Gerry Rooney

21 Case study ABC Systems Please take five minutes to read the case study provided

22 Case study ABC Systems (cont.) In your groups, for ten minutes, consider the key strategic options open to the business as it seeks to maximise its potential? Tables 1 & 6 Table 2 Table 3 Table 4 Table 5 Sales and Marketing strategy Operational strategy IT strategy People strategy Funding strategy

23 Case study ABC Systems (cont.) Group feedback

24 Finance for Growth Your people strategy Gerry Rooney

25 Harnessing our greatest resource To achieve any of the potential strategic goals discussed including: new market entry new product development marketing initiatives continuous improvement IT transformation The business must engage its people in a meaningful way

26 HR strategy an introduction Strategy bridges the chasm between vision and tactics - Strategy defines how the enterprise will occupy a unique place in the market to achieve sustained business success Strategy is about making hard choices - Deciding what to do and what not to do Strategy is about doing the right things, not doing things right - Strive for performance but make trade-offs

27 Why have a HR strategy? Helps your leaders consider and make tough choices Identify best opportunities Avoids potholes - provides a clear organisational identity Keeps professionals moving in the same direction Everyone knows the general direction in which to progress. When no one knows what the business is striving to accomplish, they have no idea of what to work towards Reduces risk of giving in to pressure from individuals

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29 Why the need to align people with strategy? It provides leadership and direction to your staff It helps deliver an effective strategy, properly executed It allows you consider solutions across all areas. Foster a team approach It manages interdependencies between units. Avoids a silo approach Maximise your resources. Engenders accountable culture throughout organisation

30 Why the need to align people with strategy? (cont.) Measurement of our progress on real time basis Harness our people s minds to arrive at solutions Assess our Management Team s skill/experience mix have we the right people in place to meet our challenges Provides a structure to people by which they can deliver outcomes Information systems have we the right information to make informed choices Identify early warning signs are goals being attained? Control labour and talent costs

31 Put simply High performing organisations: Know where they are going Ensure their people have what it takes Develop and enable their people Help their people stay on track What should ABC Systems have done?

32 Strategic alignment Strategy Means of Implementing Strategy Results Strategic Plan Leadership & Decision Making Annual Priority Setting Business Unit Plans Performance Management Personal / Career Development Plans Promotions & Reward Systems Culture Outcomes Key Differentiator (Focus on People)

33 Ensure your people have what it takes HR supports Skills and competencies analysis for achieving future goals and objectives Job descriptions Sourcing the talent (grow or buy), and how to create and maintain a high-performance culture Positioning your people Employment law compliance

34 Develop and enable your people HR activities Skills analysis Training needs skills, knowledge, behavioural gaps Succession planning HR capabilities and operational excellence policies and procedures performance management tools, processes and infrastructure IS support

35 Help your people stay on track - appropriate metrics Balanced scorecard Headcount Recruitment Learning and development Performance management Scores on people metrics today will largely influence a firm s financial performance six to twelve months forward Succession planning

36 HR as an investment Value-ADDing activities Align your people to your strategy. They need to understand your business and buy into your strategy Design your HR processes and supports to enable your people Deliver your services through performance management and appropriate people activities Line Managers must assume the on-going responsibility

37 Successful HR strategy Gets the best performance from employees by ensuring employees: Have something (skills, competencies, abilities) Feel something (commitment, engagement, motivation where the good stay). Do something (their behaviour and attitude - productive and profitable, focussed on the customer)

38 Properly thought out HR strategies also work for SMEs Comparison of informal HR strategies and their results in SMEs Cornell University For SMEs state of the art HR strategy delivers: low capital intensity, high growth, and high product differentiation

39 Building your HR strategy Analyse your industry/sector Understand your value chain Recognise your key processes Identify your key people Tailor your HR strategy

40 Funding your strategy Brian Hyland

41 Translating your strategic goals into a financial model Test Strategy Funding Options Financial Modelling Funding Gap

42 Translating your strategic goals into a financial (cont.) Once chosen strategy has been identified and incorporated into your financial model, able to identify your funding gap Funding gaps can arise from the following strategies: working capital requirements in excess of profitability investments/sales and marketing initiatives require funds acquisition strategies Scenario planning essential to test robustness of financial model Modelling helps assess strategy and underlying assumptions

43 The funding requirement Upon completion and testing of your financial model the funding requirement emerges Considerations: available options cost of funds debt versus equity May be necessary to undertake further modelling to assess impact of funding options on the financial model chosen strategic option + chosen funding strategy = final strategy for the business

44 The funding journey

45 The funding journey (cont.) Stages of development of the business will impact the funding options:

46 Venture capital and funds Venture capitalists invest with management in ambitious, fastgrowing companies with the potential to develop into significant businesses Venture capitalists operating in the Irish market today include: Frontline Ventures, Kernel Capital, Delta Partners and Enterprise Equity. The NPRF has made investment commitments of 375m to three long term funds - BlueBay Ireland Corporate Credit I Limited, Carlyle Cardinal Ireland SME Equity Fund and Better Capital Ireland SME Turnaround Fund

47 Venture capital and funds (cont.) Provide equity, credit and restructuring/ recovery investment for Irish SMEs and mid-sized corporates. Other players include: KfW Bank, Germany: 100m SME fund expected to be available by mid Private equity

48 Venture leasing Venture lessor buys the equipment Leases it to start up firm Typically over 36 months Start up repays principal plus interest and grants warrants Less prominent

49 Venture debt Secured financing for start up companies Financing equipment, financing revenue growth, bridging between equity rounds and pre-ipo financing Higher interest rates for extra risk Typically requires a lien on all the assets of the borrower Typically lenders will request warrants over equity in the range of 5% to 20% of the value of the loan

50 Venture debt (cont.) May require rights to invest in the next financing round on the same terms as the investors Less restrictive covenants Medium-term Hybrid of debt and equity

51 Venture debt (cont.)

52 Traditional banking Level of finance provided to SMEs by the pillar banks is increasing Of EU countries, Irish SMEs most likely to have used debt financing in the past six months. There was a considerable increase in full bank approval for SMEs in Ireland. In 2011 only 28% were granted the full loan but this rose to 64% in SMEs Access to Finance Survey European Commission

53 Other sources of finance Enterprise Ireland (EI) responsible for supporting the development of manufacturing and internationally traded services companies. Provides funding across all stages of a firm s lifecycle from initial ideas to large companies expanding operations EI Seed Capital Funds AIB Fund - 32 investments totalling 5.2 million in 2013 Similar EI funds set up with BOI, UL and NUIG The Employment and Investment Incentive (EII)

54 Other sources of finance (cont.) Davy EII Tax Relief Fund raised 4m in December 2013 and actively seeking suitable SMEs for investment. Green EII Fund Crowd funding Linked Finance, Fund It, Seed Ups. Invoice discounting pillar banks and other providers such as Bibby Financial Services Ireland (BFSI) City/ County Enterprise Boards (CEBs) can support businesses employing up to 10 people

55 Funds raised Source : Accountancy Ireland

56 Questions

57 Next month Implementing your strategy Monitoring and reporting progress

58 Contact Details Terry McAdam Consulting Partner T: E: Brian Hyland Consulting Partner T: E: Gerry Rooney Consulting Director T: E:

59 Thank You