Growing with purpose Driving profitability through transformation Private Company Services /

Private Company Services / Tenth annual Business Insights® Survey of Canadian private companies
Growing with purpose / Driving profitability through transformation
Growing with purpose
Driving profitability
through transformation
www.pwc.com/ca/private
Saul Plener
National Leader,
Private Company Services, PwC
In this issue
3
Introduction
4
Business confidence
7Profitability, business
transformation and
thinking differently
10
Controlling cost
13
Consolidation
14
Supply chain
16
Key takeaways
18
Private Company Services contacts
Welcome to Business Insights
A message from Saul
Welcome to this milestone issue of Business Insights – our 10th year
conducting this program. It’s an exciting time here in Canada and around
the world as businesses are focused more than ever on innovation and the
need to operate as efficiently as possible.
In this report we look at profitability
and what it’ll take to create the basis
for sustainable growth. We know
that 81% of this year’s respondents
are focused on growth, but are they
doing all they can to maximize their
profitability? Reconciling the need
to trim with the need to grow means
working through a much more
complex set of considerations than
in the past. Given the importance of
Canada’s private companies as one of
the country’s major economic drivers,
their success is critically important.
several reports over the course of the
year that each take a closer look into
the opportunities and business issues
facing Canadian private companies.
I’m hearing a great deal of positivity in
the Canadian marketplace, and a lot
of that optimism is driven by private
companies. I look forward to sharing our
insight, learning what business leaders
like yourself are doing to position your
company for continued success and
how our Private Company advisers can
help you navigate the road ahead.
Just as private companies have
evolved to meet the demands of the
day, so too has the Business Insights
program. In order to better provide
you with relevant information in a
timely manner, we’ve transitioned the
program from one annual survey to
2
© 2014 PricewaterhouseCoopers LLP
Growing with purpose / Driving profitability through transformation
Growing with purpose
An introduction
Profitability pressures are relentless.
This combined with ongoing economic
challenges have prompted most
companies to find additional ways
to trim their operating costs. This
can be a tall order for businesses that
thought they had done all they could
to improve their cost structures and
margins over the past several years.
However, private company leaders
recognize that improving profitability
is a critical lever to achieve their
ultimate goal of sustainable
growth. In this report, we focus
on three elements that can help
businesses realize higher customer
value, lower costs in a sustainable
way and improve profitability:
controlling cost, consolidation
and supply chain management.
Three elements that can help improve profitability
Controlling cost
Consolidation
Supply chain
management
Are Canadian private companies as
profitable as they could be or are
there other opportunities that have
yet to be explored? It might be time
to abandon conventional wisdom and
consider doing things differently.
© 2014 PricewaterhouseCoopers LLP
3
Growing with purpose / Driving profitability through transformation
Business confidence
Canadian private companies remain confident, with many
respondents planning for double digit growth this fiscal year.
Optimism across the country is growing thanks in part to an
improving US economy, global markets and, more importantly, to
innovation. To drive innovation, it’s important for private companies
to look closely at their business, their processes, how they go to
market and make improvements to operate more efficiently.
Between 2018 and 2025, we’re
forecasting a highly competitive buyer’s
market, as boomers prepare to exit their
businesses. It’s likely that many
profitable, strong companies will be up
for sale creating the opportunity for
buyers to diversify, innovate and
enhance their existing businesses. This
speaks to the overarching theme of this
year’s report: the power of
transformation to maximize
profitability. Canada’s private companies
aren’t just acquiring new ideas, they’re
figuring out how to make them that
much better in order to sustain success.
Business outlook
In the next 12 months, which one
of the following strategies is your
company striving for?
81% 3%
Growth and
expansion
Consolidation
6%
2%
Survival
Exit / divestment
Research based on a total sample size of 113 senior
executives of Canadian private companies
4
© 2014 PricewaterhouseCoopers LLP
Growing with purpose / Driving profitability through transformation
The top priorities to improve competitive
performance include: improving
processes (55%), better targeting of
customers and reducing costs of
operations, which were both cited by
43% of respondents, followed by
maximizing return on investment (30%).
While it’s understandable that the top
areas of focus are better targeting of
customers and cutting costs because
they offer immediate, tangible impact to
the bottom line, improving staff skills
and building strategic alliances drive
sustainability. The key is to have a
comprehensive plan — one that looks at
both the short and long-term and how
the strategies work together. For
example, being able to better target
customers involves both strengthening
relationships and effectively anticipating
customer needs.
One quarter of respondents plan to
expand in order to become more
competitive. This, too, ties into the
theme of transformation. In order to
realize the maximum value from core
infrastructure spend, you need to hit a
critical mass. With growth comes the
potential for improved margins,
competitive fees and pricing and the
ability to do more with your investment.
Priorities to improve competitive performance
What do you consider to be the higher priorities for your
business in order to improve competitive performance?
55% 43% 43%
Improving
processes
Better targeting
of customers
Reducing costs of
operations
30% 27% 27%
Maximizing return
on investment
Improving staff
skills
Strategic alliances
Research based on a total sample size of 113 senior executives of Canadian private companies
© 2014 PricewaterhouseCoopers LLP
5
Growing with purpose / Driving profitability through transformation
52%
of respondents have set a
growth rate of 7% or higher for
this fiscal year.
Strategies for growth
How do you plan to achieve growth?
Percentage of respondents who expect
to grow in the next 12 months
47% 40%
Improved sales
and marketing
campaigns
Developing new
products and
services
35% 33%
Acquisitions
Improved customer
experinece / retention /
loyalty
23%
Improved internal
systems and
processes
Research based on a total sample size of 113 senior executives of
Canadian private companies
6
© 2014 PricewaterhouseCoopers LLP
Growing with purpose / Driving profitability through transformation
Profitability,
business transformation
and thinking differently
Profitability is a balancing act and requires big picture thinking. It’s not
just about return on investment — it involves a comprehensive analysis
of multiple, overlapping dynamics. These considerations include
demand generation, customer service, overhead, labour costs, product
innovation, technology, energy costs and tax regimes. To improve your
bottom line substantially, you’ll need to align these dynamics better,
looking at each operational expense through a new lens.
It’s a message the majority of
respondents are acting on. Sixty-nine
per cent cite operations redesign and
business process transformation as a
top priority. They recognize that there
are more cost effective ways to do
things and that scaling a business
requires better management of
capacity. Unsurprisingly, cost
reduction, improving competitiveness,
enabling business growth and
increasing capacity are the top reasons
for investing in process transformation.
t
og y
C u s to m
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er v ic e
Tech
rs
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d g e n er a
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ol
an
io
De
Profitability involves an analysis of multiple, overlapping dynamics
m
En
b o u r c os t s
e r g y c os t s
La
Profitability
Transformation considers all aspects of
the business. It starts externally in what
you offer, how you deliver and how you
go to market. It looks at your processes
and what you do in order to make sure
you exceed client expectations. Most
important, it’s proactive. It’s about
learning from what you’ve done and how
you are going to improve in the future.
nn
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© 2014 PricewaterhouseCoopers LLP
Research based on a total sample size of 100 senior
executives of Canadian private companies
7
Growing with purpose / Driving profitability through transformation
Priorities for improving profitability
Which of the following strategies are a priority for
your business?
69%
Operations redesign
and business process
transformation
48%
Spend analysis and
cost containment
33%
30%
21%
9%
Consolidation of similar
functions to create
efficiencies
Supply chain
optimization
Enhanced procurement
and sourcing practices
Three quarters of respondents are
planning to implement profit
improvement measures over the next
two years and are focused on longterm sustainability over quick wins
and immediate savings. A holistic
approach is key to ensuring success.
In fact, 77% have invested in process
transformation over the past four
years, and of these respondents, 70%
have realized expected benefits that
will be sustained over time. This is
attributed to having a long-term view
on enhancing profitability and
planning appropriately from the
onset. Those who haven’t likely opted
for a quick win from their investment.
Almost a quarter (23%) of
respondents haven’t changed their
business processes in the last four
years. When asked why, half (52%)
stated they were busy growing
revenues. But by focusing solely on
revenue and not profitability, these
companies may be leaving money on
the table today and limiting their
ability to grow in the future.
Operational efficiency is in fact a
critical enabler to business growth
and expansion.
Outsourcing
Research based on a total sample size of 100 senior executives of Canadian private companies
8
© 2014 PricewaterhouseCoopers LLP
Growing with purpose / Driving profitability through transformation
4
Business
transformation
Best practices
Align your transformation strategy with
business objectives. For example, if you
plan to expand into new markets, you’ll
need to structure your operations to support
this growth.
effective transformation strategy takes
An
into account people, processes and
technology. For example, before investing in
a new sales tool, first think about how you
want your sales team to behave differently.
What should their daily workflow look like?
How are you going to make that happen
within your culture? Technology has
amazing capabilities but many businesses
don’t invest in effectively deploying it.
Start small. If possible, pilot smaller process
changes to test your assumptions, assess
impact and demonstrate the value.
Tax planning
through
the lens of
profitability
Effective tax planning is a tablestake for
maximizing profitability within your business and
can have immediate benefits.
à
à
à
à
re you tax compliant and are you using
A
all of the rules available to minimize the
tax you pay?
ow do you employ your labour force?
H
This will impact your cost structure.
Is your corporate structure and the way
you move profits to shareholders tax
efficient?
re you taking advantage of government
A
assistance programs such as research
credits both domestically and
internationally?
Don’t introduce too much change at once
and over communicate it. Understanding
the rationale for change and your
commitment to it will be critical to your
team effectively adopting it.
© 2014 PricewaterhouseCoopers LLP
9
Growing with purpose / Driving profitability through transformation
Controlling cost
Controlling cost can be an effective way to stop the wrong spends.
Certainly, part of understanding where to spend is knowing if you’re
spending in the right areas. Employed as a short-term fix, however,
cost containment focuses on a number. If you’re simply telling people
to temporarily behave differently to achieve that number, then at
some point they’ll revert to old behaviours. The savings aren’t
sustainable. Operational transformation is proactive and focuses on
how to extract the greatest value from business spends to improve
long-term business performance.
Almost half of respondents (48%) cite
spend analysis and cost containment as
a top priority. About eight in 10 have
undertaken some sort of cost
containment measure in the past four
years. Fifty-two per cent report those
measures led to sustained cost savings
that continue today, while 26% say the
savings have diminished over time.
Strategies that were less successful were
often focused on short-term quick wins,
didn’t address cost management and
control, and weren’t explained to
employees and embedded in the
organization.
Among the respondents who continue
to see the success of their cost
containment strategies, nearly all agree
that the strategies were focused on
long-term sustainability. Rather than
quick wins, they identified cost drivers
and assessed return on investment,
monitored and measured the results of
their efforts and ensured senior
leadership stayed committed to the
initiative.
Research based on a total sample size of 100 senior
executives of Canadian private companies
10
© 2014 PricewaterhouseCoopers LLP
Growing with purpose / Driving profitability through transformation
Outsourcing
Has your organization outsourced or considered outsourcing some
of your business processes?
One effective tool to drive profitability
and contain costs is outsourcing, yet
only 9% of respondents cite outsourcing
as a priority to improve operational
effectiveness. About one-third of
respondents (36%) are currently
outsourcing some aspect of their
business while 57% haven’t undertaken
any outsourcing in the past and don’t
plan to in the future. The top reasons
cited for not outsourcing include: loss of
control (47%), cost (35%) and operating
risk (35%).
The fact is, outsourcing should be
considered to drive more efficiency.
There are many approaches that can be
adapted and some degree of
outsourcing can be relevant to
companies of all sizes. It’s a way to
focus on your core business
competencies and helps free up time
and resources within your organization.
57%
Have not and do not
have plans to outsource
business processes
36%
Have outsourced
some business
processes
7%
Have plans to
outsource some
business processes
Reasons why respondents are not outsourcing
Please indicate the reasons why your organization is not
considering outsourcing
Percentage of respondents who are not outsourcing
47%
Loss of control
35%
35%
26%
14%
12%
Company isn’t large
enough to consider
this as an option
More costly than
internal delivery
Unable to identify
the appropriate
outsourcing partners
Adds to
operating risk
Never evaluated
options
Research based on a total sample size of 100 senior executives of Canadian private companies
© 2014 PricewaterhouseCoopers LLP
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Growing with purpose / Driving profitability through transformation
Consider outsourcing
as a way to transform
your cost structure
à
à
à
à
12
It’s a cost-effective way to scale your business as
service providers are becoming more nimble in
their ability to offer affordable solutions to
smaller organizations.
Your team can focus on your core capabilities
and differentiators.
utsourcing non-core competencies reduces the
O
risk of those areas of the business because the
responsibility is given to expert providers with
much more robust processes and risk mitigation
strategies in place.
It’s a monthly operating expense. Outsourcing
frees up capital for investing in areas that
differentiate your business.
© 2014 PricewaterhouseCoopers LLP
Growing with purpose / Driving profitability through transformation
Consolidation
Consolidating similar back office functions particularly among private companies that have
multiple divisions or businesses is an emerging trend. Even if the businesses don’t have a lot
in common they may still have similar needs in terms of finance, HR and technology. If you
can bring those together you can achieve a higher level of service at a lower cost. This is
certainly an example of transformation, thinking differently and creatively about how to
maximize return on investments. It’s also proving to be an appealing tool to attract top
talent who seek challenges and are enticed by a larger scope of responsibility.
One-third of respondents (33%) have
prioritized consolidating similar
functions to improve profitability. Forty
per cent have consolidated some part of
their business in the past, with an
additional 15% planning to consolidate
similar business functions in the future.
Slightly less than half (45%) don’t have
any plans to consolidate similar
functions. Those companies that are
using consolidation as a means to
improve profitability have consolidated
a variety of business functions. The
most common are finance (63%),
human resources (48%), technology
(45%), sales (38%) and customer
support (38%).
Commonly consolidated business functions
Within which business functions have you
experienced consolidation?
Percentage of respondents who have consolidated
63% 48% 45%
Finance
Human resources
Technology
38% 38%
Sales
Customer support
Research based on a total sample size of 100 senior executives of Canadian private companies
© 2014 PricewaterhouseCoopers LLP
13
Growing with purpose / Driving profitability through transformation
Supply chain
Strategic supply chain
management — a
different mindset and
a focus on making
change happen — can
enable superior
performance and
industry leadership
FURTHER READING
Driving growth with
your supply chain
Globalization and increased market and currency volatility have
made effective supply chains critical to achieving profitable growth.
The supply chain is an end-to-end process—it’s not just about
sourcing and suppliers. The ideal supply chain involves a seamless,
integrated flow of materials and information. It’s important to view
your supply chain as a strategic asset within your business and
re-evaluate your supply chain strategy regularly.
The majority of private company leaders
(65%) agree their supply chain’s current
operating model gives their company a
competitive advantage. Looking forward
to the next two years, 90% report supply
chain improvements will be important to
reduce costs, while 89% believe supply
chain improvements will be important to
delivery performance. About 72% say
that supply chain improvements will be
important to their company’s bottom
line, if well implemented.
Fifty-nine per cent of respondents view
their suppliers as strategic partners and
help influence business strategy. Fully
leveraging the strategic partnerships
with suppliers can lower cost of goods as
well as improve sales and
competitiveness.
Supply chain
and competitive advantage
Does your supply chain’s current
operating model give your
company a competitive
advantage?
65%
Yes
24%
No
11%
Not certain
Research based on a total sample size of 100 senior executives of Canadian private companies
14
© 2014 PricewaterhouseCoopers LLP
Growing with purpose / Driving profitability through transformation
View your suppliers as
strategic partners, not just
vendors. Understand your
entire supply chain, how it
works and how it can help
you win.
Five keys to an effective supply chain strategy
iew your supply
V
chain as a strategic
asset. Design the
supply chain around a
defined basis of
competition that will
enable the overall
business strategy.
Develop an end-toend process
architecture—
and integrate supply
chain with other core
enterprise processes.
© 2014 PricewaterhouseCoopers LLP
esign your
D
organization for
performance. Identify
the internal structure
and skills you’ll need to
define and manage the
supply chain in the
future.
ollaborate.
C
Understand your core
competencies and
choose partners that
will maximize focus,
profitability and ensure
they’re working
together to meet
performance targets.
Measure performance
and use metrics that
will drive your supply
chain strategy
forward. Ensure
they’re balanced,
comprehensive and use
these metrics to not only
measure the health of
each core supply chain
process, but also to
identify problem areas.
15
Growing with purpose / Driving profitability through transformation
Key takeaways
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All of this is good news for both
individual companies and Canada as a
whole, as these actions will help
improve our overall competitive
performance. It’s also a clear indication
that Canada’s private company leaders
are positioning themselves well for the
fast-changing future.
This is about driving strategic growth
that balances profitability and revenues.
This report identified three elements that
can help businesses realize higher
customer value and improve profitability:
controlling cost, consolidation and supply
chain management. Respondents that
have succeeded in each of these areas
took a holistic approach and understood
that each pillar works with the others—
not in isolation. They were also focused
on the long-term as opposed to shortterm quick wins.
d
in
tin
con uou
le
ge
Continual improvement is only possible through business
transformation and the majority of this year’s respondents have made
operations redesign and business transformation their top priority in
the coming year. They’re looking at every aspect of their businesses
and making the changes necessary to ensure they can achieve
sustainable, long-term success. It’s a proactive approach and one that
will ensure they’re always learning in order to come out in front of the
next opportunity.
|C
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olidati
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S upp
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© 2014 PricewaterhouseCoopers LLP
Growing with purpose / Driving profitability through transformation
© 2014 PricewaterhouseCoopers LLP
17
Growing with purpose / Driving profitability through transformation
Contacts
For more information, contact the local Private Company Services leader in your region
National Leader,
Private Company Services
Saul Plener
416 941 8299
[email protected]
North American Life Building
5700 Yonge Street, Suite 1900
Toronto, Ontario
M2M 4K7
Atlantic Canada
Mike Anaka
902 491 7442
[email protected]
1601 Lower Water Street, Suite 400
Halifax, Nova Scotia
B3J 3P6
44 Chipman Hill
P.O. Box 789
Saint John, New Brunswick
E2L 4B9
125 Kelsey Drive, Suite 200
St. John’s, Newfoundland
A1B 0L2
500 George St, Suite 220
Sydney, Nova Scotia
B1P 1K6
710 Prince Street
Truro, Nova Scotia
B2N 1G6
Calgary
Nadja Ibrahim
403 509 7538
[email protected]
Suncor Energy Centre
111 5th Avenue SW, Suite 3100
Calgary, Alberta
T2P 5L3
Edmonton
London
Saskatoon
David Bryan
780 441 6709
[email protected]
Chirag Shah
519 640 7914
[email protected]
Lee Braaten
306 668 5968
[email protected]
Toronto Dominion Tower
10088 102nd Avenue NW, Suite 1501
Edmonton, Alberta
T5J 3N5
465 Richmond Street, Suite 300
London, Ontario
N6A 5P4
128 4th Avenue South, Suite 600
Saskatoon, Saskatchewan
S7K 1M8
Montreal
Vancouver
Yves Bonin
514 205 5220
[email protected]
Brad Sakich
604 806 7730
[email protected]
13450 102nd Avenue, Suite 1400
Surrey, British Columbia
V3T 5X3
1250 boulevard René Lévesque Ouest,
bureau 2800
Montréal, Québec
H3B 2G4
PricewaterhouseCoopers Place
250 Howe Street, Suite 700
Vancouver, British Columbia
V6C 3S7
Greater Toronto Area
National Capital Region
Waterloo
Neil Manji
416 687 8130
[email protected]
Marc Normand
613 755 8733
[email protected]
Glen Dyrda
519 570 5715
[email protected]
Damian Peluso
416 814 5776
[email protected]
99 Bank Street, Suite 800
Ottawa, Ontario
K1P 1E4
95 King Street South, Suite 201
Waterloo, Ontario
N2J 5A2
Fraser Valley
Leo Smyth
604 495 8941
[email protected]
Jason Safar
905 815 6399
[email protected]
Matthew Kenny
416 814 5777
[email protected]
North American Life Building
5700 Yonge Street, Suite 1900
Toronto, Ontario
M2M 4K7
900, boulevard de la Carriere
Bureau 101
Gatineau, Quebec
J8Y 6T5
Quebec City
Windsor
Giancarlo Di Maio
519 985 8911
[email protected]
Thomas Bouchard
418 691 2448
[email protected]
245 Ouellette Ave, Suite 300
Windsor, Ontario
N9A 7J4
Place de la Cite,
Tour Cominar, Bureau 1700
2640 Boulevard Laurier
Sainte-Foy, Quebec
G1V 5C2
Winnipeg
Danny Wright
204 926 2427
[email protected]
One Lombard Place, Suite 2300
Winnipeg, Manitoba
R3B 0X6
18
© 2014 PricewaterhouseCoopers LLP
Growing with purpose / Driving profitability through transformation
Making a difference
to you and your business
Entrepreneurs and business owners face a unique set of opportunities
and challenges. Our Private Company Services group understands
this. We’re part of a global network of advisers who are committed to
driving your success. We’ll make a difference by connecting you to
affordable solutions that help you navigate the road ahead, build
value in your business and achieve the return you’re looking for.
www.pwc.com/ca/private
© 2014 PricewaterhouseCoopers LLP
19
© 2014 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership,
which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. 4324-03 1114
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