Should Your Next Office be in Africa?

Posted on May 22, 2013 by ceriusInterim

Contributed by Ed Trevisani

As an executive that has worked in 40+ countries and managed a $350MM business where a good part of the responsibility covered emerging economies in Russia, CIS countries, the Middle East and Africa, there are some interesting learning points to consider if your company intends to expand into these Regions.

Africa is a market full of opportunity and RISK. The World Bank and IFC indicate that improvements have been made to the business environment in the East African Community (EAC) (Burundi, Kenya, Rwanda, Tanzania and Uganda). Much had to do with regulatory reform and an increase in entrepreneurship.

According to the IFC, a total of 74 institutional or regulatory reforms have been implemented, thus improving the business environment for entrepreneurs.

Each economy is still evolving and as such continues to have a high degree of RISK.

Countries such as Burundi and Rwanda however have experienced progress in the business climate. Western companies and companies from China are taking advantage of a changing environment and weighing risk vs reward. China, however, is taking more risk than most in my experience and as such reaping more of the reward. To be fair, much has to do with culture and how countries deal with corruption. Western countries are very risk adverse, and as such have more constraints on doing business in countries that have different cultures and rules.

Rwanda was the second economy globally to advance in closing the gap to taking advantage of its resources.

EXAMPLE: (cited by the World bank): “To start a business in the EAC now requires an average of 8 procedures and costs an average of 33.6% of income per capita — compared to 12 procedures and a cost of 140% of income per capita 7 years ago, in 2005.”

Africa, especially East Africa, could be closer than other emerging economies in becoming good global performers. Some statistics from the World Bankand IFC:

Although it is very difficult to fund a startup in Africa, there are a number of firm seeking help relative to labor. Many companies need to bring in outside skills in order to do business in Africa and using local skill can have its challenges. The culture in a number of place is such that if you are not sensitive to the local leaders, it might be impossible to hire local talent including laborers. In addition the infrastructure is still in need of major improvements – from roads to telecom services. Skilled labor needs not only include high tech but also individuals who can operate and maintain construction equipment.

Infrastructure is such in many places where a back-up system should be considered – eg gas or electric power.

The value of the mineral resources is virtually untapped and some countries – especially China are taking advantage of this. Lots of opportunity – lots of risk. Africa is indeed a market that is waiting to be tapped. If the right rules are in place by the local governments, than Africa will become a great place to do business.

CEO Confidence Up, but Worries Persist About Staff Quality and Availability

Posted on May 6, 2013 by ceriusInterim

According to the Q1 2013 Vistage CEO Confidence Index CEOs are cautiously optimistic. The underlying strength of the economy is allowing CEOs to finally focus on the issues within their own businesses rather than worrying about the national economy and policies. The Confidence Index was 96.6 in the 1st quarter 2013 survey, up from 87.0 in the prior quarter and the highest level since last year’s 105.1.

Working with as many company owners and CEO’s as we do, Cerius has a broad perspective on the business climate and on CEO’s attitudes towards risk and growth. We are seeing similar CEO confidence levels as being reported by Vistage.

Though optimism is increasing, CEOs continue to face stiff challenges. The top three challenges, according to the Vistage survey are:

Managing costs
Finding and hiring qualified employees
Maintaining and adding to their customer base

Three quarters of the CEO respondents said it is difficult to find qualified talent, which in part explains why our phone is ringing more these days as CEOs look to tap our pool of over 1,000 interim executives coast to coast for part-time and interim assignments.

Here are some of the major findings from the Vistage survey:

49% are reporting improved economic conditions
40% plan on increasing their spending on capital expenditures
36% anticipated continued improvements in the national economy in 2013
52% planned additions to their payroll
66% expected growth in their revenues for 2013

These figures are encouraging, but they certainly don’t forecast an economic boom ahead. CEO’s continue to invest cautiously, which includes a greater interest in the strategic use of contingent work forces as alternatives to traditional full-time employment.

About the Vistage CEO Confidence Index

The Vistage CEO Confidence Index, established in 2003, is a quarterly survey of small- to mid-sized business CEOs about the U.S. economy. The Q1 2013 Vistage CEO Confidence Index includes responses from 1,546 U.S. CEOs, surveyed between March 11 and March 20, 2013, with a margin of error of 1.6 percentage points. Since its establishment in 2003, the Index has proven to be a reliable harbinger for changes in GDP and Employment, two to three quarters hence.

Get the Facts. Is the Temporary Workforce Here To Stay?

Posted on April 30, 2013 by ceriusInterim

The job market has definitely changed from what prevailed throughout the 20^th century. The trends we are now seeing is that there is a lack of job security and loyalty among companies and employees. Employees who have full time positions no longer expect to indefinitely keep those positions. Here are some facts and stats to consider:

According to The Bureau of Labor Statistics, the average worker today stays at their job 4.4 years, but the tenure for the millennials (the generation born between 1982 and the early 2000’s) is about half that number.
The most recent report from the American Staffing Association states that companies across the U.S. employed an average of 2.95 million temporary and contract workers during the third quarter of 2012.
A recent survey by Careerbuilders in March reported that 40% of employers planned to hire temporary workers in 2013.
MBO Partners recently reported that roughly a third to 40% of American workers are in part-time or contract jobs. They are also projecting that there will be 23 million part time or contract workers by 2017, up from roughly 17 million today. This is a significant increase.
Another interesting fact came from Katherine Stone, a law professor at the University of California, Los Angeles, stating that the emergence of contingent (temporary) workers isn’t confined just to the United States. In a 2012 study that looked at ten countries, including Italy, Australia, Germany and Japan, Stone found evidence that the kind of standard, full time employment that was once a feature of the labor market is increasingly a thing of the past. Since 1985, according to data from the Organization for Economic and Cooperative Development, most European countries have seen a decline in permanent employment.

We are seeing more and more companies expanding their workforces through the use of temporary workers (and executives) rather than full time employees. They are continuing to take a cautious approach to hiring; thus utilizing temporary workers to spearhead growth-oriented projects. Companies appear to like being able to adjust their staffing levels when and as needed to meet competitive changes in their industries.

So do I believe that the temporary workforce is here to stay? Absolutely. As reported by the National Bureau of Economic Research, the 2007-2009 recession was the longest and most severe post World War II recession in our history. The total private employment losses were 7.6% 26 months after the start of that recession. Prior to that, the largest dip in employment was 6% 11 months after the start of the 1948 recession. Because of the severity of this last recession, companies are looking differently at their workforces. They are seeing that for a portion of their workforce, they are better off utilizing temporary or contract workers and executives to help them accomplish their goals and initiatives for the year. This helps them control costs by bringing in talent when and where you need them as well as bringing in workers with the specific expertise they need rather than risk using one of their permanent employees who does not have the skills needed.

If you are not already taking advantage of this temporary workforce, I suggest you start investigating how this new concept could bring you the competitive edge and cost savings you need in today’s rapidly changing world.

12 Signs That an Acquisition Will Crater

Posted on April 26, 2013 by ceriusInterim

Contributed by Robert Sher

I have noted previously that the most successful acquirers don’t see all acquisitions as being equally challenging. They know acquisitions fail on average 50% of the time, so they evaluate each deal on risk and complexity, then decide if they have the competencies to deal with them. They make deals with their eyes wide open.

We have found 12 risks and complexities in every mid-market business acquisition we come across:

#1: M&A skills and experience. How much acquisitions experience is on your leadership team, and how long have those executives been with your company? Firms whose executives don’t have deep acquisitions experience or are newly hired will face many more surprises and problems. They need to know how to integrate any acquisition just as well as they know the acquirer’s people, culture, strengths and weaknesses.

#2: Cultural differences. How different are each company’s values, beliefs, work styles and behaviors? When there is a vast difference, integration gets complicated fast and the “people” problems are slow to resolve. For example, I just met with a large firm where the norm is that executives hit their numbers or “die trying.” The company does not tolerate poor performers. That kind of culture often gets into trouble when it buys closely held middle-market firms from $20 million to $50 million in revenue. These firms typically have been run for years without formal business planning or a high-performance culture, and collaboration with the parent company has suffered as a result.

#3: Size of acquisition. Compare the revenues of the acquirer to the revenues of the target: This percentage is a key indicator of bumps ahead. Most acquisitions below 10% are small enough for the acquirer to integrate without risking core operations or financial stability. At 20% or above, there is significant complexity and higher risk.

#4: Amount of integration required. Merging operations and financial systems is hard work. Some companies are purchased and left to run on their own. They make only periodic financial reports to the parent, and the new ownership structure may not be publicized. This is almost no integration at all. On the other hand, a merger of equals, in which factories, teams and IT systems are merged into one, is a massive integration challenge.

#5: Earn-outs. When the owner/managers of acquired companies must earn a portion of the acquisition price after the deal closes, it seems like a great way to bridge the gap between how buyers and sellers perceive the acquisition price. If the acquired company performs well, the seller gets more since it proves that the acquirer bought a healthy business. In practice, however, earn-outs are hard to manage due to conflicts of interest, resource allocation disputes, and egos. Bad feelings, litigation, and morale issues often abound.

#6: Operating team’s involvement. In some companies, the CEO and/or the corporate development department find, assess and buy businesses largely on their own. Once they’ve done the deal, they hand it over to the operating executives to integrate and operate. This dramatically increases the integration’s complexity and risk of failure. In contrast, some companies involve their operating executives from start to finish. Assuming they are interested, enthusiastic, and have the time and energy to devote to an acquisition, they decrease the risk and improve the outcome.

#7: Murky due diligence. The purpose of due diligence is to gain clarity on what you’re acquiring and its future prospects. When due diligence is cursory or the truth is illusory, it makes for surprises that increase complexity and risk. A manufacturer conducted limited due diligence in buying a retail business that it thought was highly profitable. After the close, the manufacturer discovered that the retailer was actually losing money. It took a year to diagnose the problem and six months to fix it. After adding the losses to its purchase price, the acquirer found its return on investment vanished to nothing.

#8: The need for unpopular actions. Some acquisitions, especially of distressed companies, require the acquirer to make harsh, even drastic changes – e.g., layoffs, plant closures and cancellation of projects. These actions have a chilling effect on the morale of the acquired company, and hence, performance.

#9: Change required of acquirer. Many companies make acquisitions to shake up their own organizations. The biggest of these are called transformational acquisitions, and they are often mergers of equals. When two companies embark on massive change, they can suffer enormous distraction and decreased productivity.

#10: Visibility of change to customer base. The greater the change in brand image of the acquired entity, the greater the complexity and risk. In a merger of equals, often a new company brand emerges, which is a complex process. The more severely that the merged company changes pricing, products and services, the more complexity increases.

#11: Expertise in acquired line of business. Many businesses choose to acquire companies they fully understand. Many are direct competitors or companies in the same industry. In a worst-case scenario, an acquirer with strong industry knowledge could run a firm it acquired even if all its employees left. This reduces the complexity and risk. When I was CEO of an art publishing company, I made sure this was the case with all my acquisitions. But many companies buy firms in other industries to diversify the portfolio. The fact is these deals are much more complex and risky.

#12: Cash available to manage complexity. Acquirers that spend all their available cash on buying a company will have no money left to manage the integration. Acquirers often underestimate or even ignore what kind of investment it must make to support an acquisition’s success. If you have extra cash to invest in integration without destroying your ROI, your chance of a respectable result increase.

If many of these 12 factors are sending alarm bells about a business you’re about to acquire, you may very well be about to “bite off more than you can chew.” The strategic need for the deal better be high because the integration is likely to keep you up for many nights.

Contributed by Ed Trevisani

About the Vistage CEO Confidence Index

Contributed by Robert Sher

Robert Sher is the founding Principal of CEO to CEO and has been a Member & Director of the Alliance of Chief Executives since 1996.