Blog | Pacific Consulting Group

An Australian Construction Industry Slowdown? How Best to Prepare and Minimise Project and Operational Risk

Posted on August 9, 2023August 9, 2023 by Pacific Consulting Group

Most construction industry stakeholders and experts agree that further pain is ahead for the Australian Construction Industry with current economic conditions and looming recessionary forecasts, along with sustained supply chain and labour issues, driving expected industry contraction in 2023 (-2.6%) and marginal growth in 2024 (0.6%).

This is hard news to hear for an industry that already accounts for 31% of all insolvencies; and with overall accumulation of debt above 60 days trending upward, insolvencies are likely to increase, at least in the short term.

The largest impact will continue to be felt in the residential construction sector which has already seen a number of large firms including Porter Davis, Probuild, Condev, Waterford Homes and Pivotal Homes enter insolvency; not forgetting the flow on impact to hundreds of subcontractors and homeowners.

Recent issues associated with the bad marriage between over-populated and government stimulated residential pipelines, and a 17% increase in overall housing input costs, have started to subside. However, these issues are unfortunately being replaced by rising interest rates and the associated lowest level of new home purchasing or construction since 2012 (Figure 1).

Figure 1: Dwelling Units Approved in Australia (Source: ABS)

Even the industrial and heavy industry sectors, which have been buoyed by increased levels of government investment in new infrastructure projects, as well as the rebound of mining commodity prices, won’t be able to escape some of the pain ahead.

Although the start of 2023 has seen infrastructure material costs begin to flatten as many of the post COVID logistics and supply chain issues resolve, rising energy prices and continued inflationary pressures means that some cost uncertainty still remains. Additionally, as material costs have flattened, labour costs have grown by 4% in the last year alone as a result of ongoing skilled and unskilled shortages (Figure 2). With numerous infrastructure mega-projects currently underway across the country, these labour shortages will not only drive increased cost on traditionally small margins, but also impact the ability to meet project timelines.

Figure 2: Australian Labour Cost Index (Source: ABS)

The outlook however is not all negative, with the industry expected to record an average annual growth of 3.1% from 2024 to 2027 and medium to long term industry fundamentals remaining strong.

With falling housing vacancy rates, and the need for increased immigration to alleviate labour shortages across multiple sectors, residential construction growth will likely return within the short to medium term. Investment is likely to be focused on multi-residential and high-density apartment and townhouse projects, providing a needed boost for builders and subcontractors. Furthermore, once inflation is contained, interest rates are expected to moderate providing incentives for developers, homeowners and lenders to invest again in the detached housing market.

Additionally, $9.6 billion of investment in infrastructure projects across the next four years will be followed by over $120 billion in allocated investment in transport infrastructure projects in the following 10 years; providing the industrial and heavy industry sector with a very positive outlook ahead.

Hence whilst there may be further pain ahead in the short term, including the further demise of some large players, the longer-term outlook means that there are strong growth opportunities for those who best prepare for and effectively manage their commercial and operational risk over the next 12-18 months.

Opportunities to React and Benefit

To come out the other side of the downturn in the best position to capture available growth and market share, companies must start applying industry best operational, commercial and risk management practices. Three key areas of best practice which deliver strong ROI include:

1. Improving Procurement Practices

The power of procurement as lever to improve productivity and help mitigate pipeline, supply chain and labour uncertainties, has been consistently proven across recent construction industry cycles. Our work with clients across the sector has highlighted that companies with the best procurement practices have margins 5-10% higher than those with lower maturity; and that over 10% savings are available to those who apply these best practices.

Some fundamental best practices include:

Reviewing contracts and ensuring that terms and risk mechanisms best reflect operational conditions: This can be as simple as adding rise and fall clauses to standard building contracts that allow fixed price sums to change based on cost fluctuations; to the application of more collaborative contract types and terms focused on integrated project delivery (IPD) and the re-allocation of risk to maximise working efficiencies and enable the collaborative sharing of delivered upside.
Consolidating contractors and suppliers and building longer-term relationships: The generation of stronger and longer-term relationships improves procurement function collaboration, driving improved value for money and project related outcomes. Additionally, these relationships help build supply chain resilience, de-risking the common supply chain issues that have recently been felt across the industry.
Recontracting for what is coming, not based on what has happened: When establishing new contracts, procurement functions should be continually reviewing industry and economic conditions and applying this knowledge to procurement risk management plans. These risks should then dictate the type of contractual arrangements entered into, and the levels of due diligence required during the tendering, sourcing and supplier management phases to ensure adequate risk mitigation.

2. Rethinking Project Controls

The economic impact of COVID, followed by the post COVID construction surge, saw many builders desperately trying to just land and complete projects whilst struggling to manage the complexities brought on by supply chain and immigration constraints and cost inflation; let alone put in place effective project controls. However, with the impacts of the industry slowdown already widespread, effective project controls can not only help ensure survival but also provide the margin protection and cashflow required to invest in capturing the growth potential on the other side.

The first key step to improving project control effectiveness and maturity is to ensure all the basics are in place from the very start of the project life cycle. This includes making sure that a robust and standardised stage gate process is established that ensures that project risks are identified, eliminated and or mitigated before they can impact project cost, schedule or margin. It is also imperative that the right cross-functional stakeholders are identified and engaged at each project stage to maximise the availability of the information that is required to generate a true understanding of project performance and drive informed decisions.

Once the basics are in place the next step is to leverage data and technology to improve the efficiency and cost of understanding and assessing performance; and transition from just proactively managing the risks associated with underperformance to also identifying, accelerating and replicating areas of overperformance and opportunity. To help reach this level of maturity a robust project management system such as PCG’s Make It Happen solution is essential, enabling all types of project stakeholders to efficiently provide information for automatic consolidation and the provision of a view of performance at any project level.

3. Applying a Lean Construction Culture

Lean Construction practices are rapidly growing in popularity to combat the low levels of productivity improvement that have been observed within the industry over the past 20 years; averaging only 1% per annum compared to 3% for the total economy. The application of Lean Construction practices provides another mechanism to de-risk short to medium term market conditions by decreasing fixed and project costs, improving project delivery throughput and maximising project visibility and control.

However, too often companies are observed applying Lean tools and practices and not realising expected benefits, or ways of working eventually reverting to old practices and initial gains lost. This is because the true potential of Lean can never be fully realised until Lean becomes the core of an organisation’s culture. This fact can be most prominently observed within the practices of Toyota, the founding Lean company, whose people are empowered with the skills and toolkits to apply Lean practices in all areas of their work – the outcome being gradual and sustainable improvement every day.

To build a Lean culture, construction companies must invest in their people and their contractors, providing them with the awareness, training and mentoring to understand the value that Lean can deliver. They must also provide them with ownership of their work area, enabling them to proactively identify and remove waste, and share the outcomes across the organisation so that new processes and associated benefits can be embedded and replicated on all projects going forward.

Need Help to React First?

Our specialised industry and practice teams at Pacific Consulting Group can rapidly undertake an assessment of your current practices and best practice maturity, helping to identify the key areas of improvement that will help your organisation to both manage the changing industry conditions better than the rest and capture available growth opportunities on the other side.

Our superior analytics, commercial focus, and industry experience have allowed us to deliver outstanding outcomes for clients at all levels of organisational maturity.

The role of the PMO; How they fulfil responsibilities whilst overcoming challenges

Posted on March 21, 2022March 21, 2022 by Tara Vantoorn

With the seismic shifts caused by Covid-19 and the challenges businesses have faced in transforming and adapting to these changes, the value of a high performing Programme Management Office (PMO) has once again been brought to the forefront. Throughout the pandemic, high-performance PMOs have proved their value by coordinating, coaching, and challenging their business throughout these large-scale changes to ensure the ‘burning platform’ is clearly communicated and the required transformation is delivered effectively.

What exactly is the role of a Project Management Office (PMO)?

Commonly described as the backbone of any successful and stable enterprise, the PMO sets the standards for projects and allocates resources efficiently to ensure individual projects and larger programmes run effectively. Working at an enterprise level the PMO is responsible for maintaining best practices to help businesses reach their targets. Ultimately, the PMO is an entity that assists the executive management of a business to translate strategy into results (Source: PMI). The PMO could be described as an orchestra conductor; setting the pace, coordinating timing and resources, and skilfully directing projects to run their course in the most effective and cohesive way possible, whilst avoiding any disharmony.

The key responsibilities of the PMO evolves over the main stages of project delivery, but always plays a key role in ensuring that projects are vetted to pass through the next stage-gate, and that they don’t stall along the way.

Key attributes of a high performing PMO:

The right mix of skills and experience to support the effective delivery of valuable opportunities for the business.
Willing and able to provide effective change management throughout any project or programme to ensure successful execution, as change management is a crucial component in any successful project implementation.
Delivery assurance through persistency and status reporting results in amplified success rates and assists with resource optimisation.
The PMO that cultivates a diversified team with an array of skill sets can see the benefits of transdisciplinary work come to fruition by providing holistic solutions.
Conduct regular project debrief reviews to identify lessons learned and guarantee independency between project management, project team and client. (Source: PMI)

Challenges faced by a PMO:

Keeping up to date with constant developments as business capabilities evolve requires fast-paced response rates, which can sometimes impact the quality of outputs.
While the PMO is great at task management and reaching projected goals, lacking access to real-time cost data can be detrimental to performance.
Limited access to information such as current project KPI’s can result in poor resource management and allocation.
A crucial skill of the PMO is to anticipate outcomes before they occur and mitigate undesired experiences. Failure to anticipate correctly can see things go pear-shaped.

The burning question is, is there something out there currently that can tackle these challenges and aid the PMO to be as effective as possible?

Pacific Consulting Group’s MakeItHappen cloud-based solution provides PMO’s with all the information and capability and deliver projects successfully. The portfolio workflow software allows PMO’s to manage tasks, customise workflows, and automate business workflows. Using Programme Management Software will be a game-changer for your PMO. Want to learn more? Book a MakeItHappen demo here.

Key Features to Look for in a Project Management Tool

Posted on March 3, 2022March 3, 2022 by Tara Vantoorn

Implementing the right project management software should make planning, executing, and monitoring initiative progress a breeze. They create a single source of truth and transparency, so that all stakeholders have visibility into the progress of each initiative and where key resources are allocated. With a range of features including flexible project views, as well as analytics, project tracking and resourcing, project management software is critical for creating a smooth workflow within your business. When you start to think about implementing projects, it’s important that you choose the best project management tool for your team.

Additionally, organisations that invest in project management tools save 28x more money than organisations that do not, and 77% of high-performing businesses use project management tools (Source: PMI).

What Is A Project Management Tool?

A project management tool is software that help teams plan, manage, and optimise resources across an organisation. The key features of any project management tool are:

Task tracking and assigning – A key feature of any project management tool is the ability to assign and track tasks across their lifecycle.
Initiative Subcategories – These tasks need to be assigned to specific initiatives, so most project management tools have both parent initiatives (a large-scale initiative that smaller initiatives fall under), and child initiatives (the smaller initiative that falls under the parent).
Collaboration and Accountability – Project management software allows enterprise-wide collaboration on key tasks, and accountability through the ability to monitor how each initiative is progressing.

Why use a Project Management Tool?

Choosing the right Project management tool is critical for organisations to ensure a project is successfully implemented from concept through to delivery. A project management tool can also help keep teams stay organised and ensure that processes are followed and provide a clear overview of all activity happening in relation to an initiative, project, or task at any given time. Cloud-based project management tools also allow teams to communicate clearly and quickly, in real time and from anywhere, which streamlines the process of remote working arrangements, saving the average employee up to 498 hours per year (Source: PMI).

Key Features to look for in Project Management Software:

Team Collaboration – Simplifies collaboration and creates a virtual workplace, encouraging collaborative project planning and work-streams for all key stakeholders.
Task Management – Ability to assign and prioritise tasks by deadlines and importance, as well as the ability to automate notifications about task activities and deadlines.
Forward Planning – Break up large initiatives into smaller tasks and set clear goals and timelines to work towards. Define and manage requirements for each initiative. Schedule initiative duration, milestones, and deadlines.
Workload and Resource Management – Get an overview of current and upcoming work commitments across teams and projects. Assign team members and allocate resources based on availability and capacity. Ability to balance workloads amongst team members. Track project budget, cost-to-date and expected outcome per project.
Monitoring and Reporting – Overview to monitor how all initiatives are performing. Dashboard that provides an instant overview of each initiative, status, progress, and performance. Centralised data that provides a single source of truth for reporting. Identify issues and manage any risks.

MakeItHappen is a cloud-based programme and project management solution that allows organisations to effectively manage and deliver large volumes of projects. It ticks all the boxes for a leading project management solution, including collaboration, task management, tracking, reporting, and many more.

Get a demo of MakeItHappen to learn how it can help your business deliver more value from projects.

Click here to book a demo today.

Keep Your Transformation Initiatives on Track

Posted on November 12, 2021November 12, 2021 by Tara Vantoorn

Want to ensure your transformation initiatives stay on track? The importance of an enterprise-wide single source of truth for large-scale change programmes cannot be understated.

Identifying and implementing transformation initiatives across your business requires a large investment of time, cost and employee focus but is essential to maintaining and improving overall results.

Implementing these initiatives successfully can be challenging, and so too can be tracking and monitoring their performance. It is essential to implement measures to monitor the health of your initiatives at each individual stage, to ensure that each target identified can be tracked and updated by all key stakeholders at any time. Creating accountability and transparency on the health and status of each initiative will help keep your transformation programme on track and help to identify which initiatives are running well, and which initiatives may be slipping and in need of support.

PCG’s Cloud Programme Management platform MakeItHappen provides enterprise-wide transparency into key transformation initiatives for all stakeholders, ensuring a single source of truth for large-scale programmes. Each initiative can be accessed or updated by all relevant employees (within clearly defined access rights to preserve integrity and confidentiality), creating transparency on the status of each initiative, and streamlining the process of tracking and reporting on the health of your transformation programme.

PCG’s MakeItHappen Solution has a proven track record of helping PMOs drive transformation programmes that deliver tangible results. Book a demo with a PCG Partner here: https://buff.ly/3lcloml

How Pacific Consulting Group uses Dimensional Profit Models to improve profitability

Posted on September 24, 2019October 16, 2019 by Pacific Consulting Group

PCG Founder John Stathis interviews Managing Partner Christopher Kernahan and learn how DPMs can help businesses identify the true profitability of their customers and products.

Watch the video or read the transcript below.

Transcript

John: Hi, I’m John Stathis, the founder of Pacific Consulting Group. I’m here today with Christopher Kernahan, the Managing Partner. Welcome Chris.

Chris: Thank you John.

John: We’re here to talk about dimensional profitability modelling and how we use it to drive initiatives and results across our client base. Chris, why don’t you start off by telling us what is a dimensional profit model?

Chris: We look at dimensional profitability models as the modern equivalent to activity based costing models. But, whereas in the past they were heavily manual, surveys and interviews, in order to generate that data. Today, we have the benefit of operational equipment, the internet of things, where all of these assets are producing information. Whether they’re vehicles, sites, stores, forklifts and we’re leveraging that data, combining it with our customer and financial information to give us a granular insight into profitability, across customers, products, geographies, whichever dimension we need.

John: Chris, why do our clients need the DPM and what are the benefits they can extract from it?

Chris: Let’s say you’re a hairdresser, you’ve only got two clients. Client A comes in and they just want a simple haircut. They’re in and out in 30 minutes. Client B, they want a cut, they want a colour, they want a wash, a shampoo or massage, they want a nice chair, premium products to put in their hair. Those extra costs, if you don’t identify them, you won’t know where your profit is coming from and you won’t know which of your customers are profitable and unprofitable. And that’s what the DPM does.

John: So it gives you a granular understanding of cross subsidization, across different dimensions of the business.

Chris: Exactly.

John: Which industries benefit the most from a DPM?

Chris: We think any industry that wants to understand the true profitability of their customers and products can benefit from DPMs, but we’ve seen particular effectiveness in businesses that are price makers, whether that’s consumer goods and retail, financial services. Also in freight and logistics, and even heavy industrials, that both produce and distribute their own products.

John: Once you’ve built a DPM, what platform does it sit in when you transition it to the client’s environment?

Chris: As you know, John, PCG solutions is platform agnostic. We’ve worked with all of the major platforms that are in use today, but we’ve been particularly effective with a platform called MODLR. MODLR has both a cubing engine and a database engine in the same solution. And that lets us build these very rapidly and get to those insights in a matter of sometimes weeks.

John: That’s impressive. Well, you’ve heard it from Christopher Kernahan. If you’re a CEO or a CFO, and you really want to get a granular understanding of profitability across any dimension of your business, so you can drive very specific initiatives.

John: Chris, thanks for coming today.

Chris: Thanks John.

The very model of corporate profitability – feature in Australian Financial Review

Posted on September 20, 2019September 20, 2019 by Pacific Consulting Group

Technology and data science have made operational and customer data more readily available, yet there remain companies that don’t understand the “true profitability” of their customers and products.

Christopher Kernahan, Managing Partner, outlined in the Australian Financial Review how Pacific Consulting Group’s data-driven profit improvement approach using Dimensional Profit Models (DPMs) can help companies create this important understanding.

“We see companies, even today, using averages of averages as a means of allocating costs to customers and thinking that they have an accurate understanding of profitability,” he says.

“Your least profitable customer can be three to five times as unprofitable as the average profitable customer. It is essential to have visibility into this because otherwise a whole range of decisions – pricing, investments, marketing – will be based on flawed assumptions.”

PCG has developed a Dimensional Profit Model (DPM) – a successor to activity-based costing – that provides companies with a methodology to “cohesively integrate financial, operational and customer data”.

DPMs utilise the abundance of automated data from operational assets such as scanners, stores and processing equipment to generate detailed cost allocations for different activities. Profitability can then be understood by various dimensions, including customer, product, channel and geography.

John Stathis, founder and chairman of PCG, says PCG developed its DPM a decade ago when it was engaged by a company in danger of collapse.

“They had suffered a $50 million loss the year before and could not understand why. We built a DPM with them and it completely changed their perspective,” he recalls.

“Before the DPM they had focused on collecting data site by site, process by process. With the DPM connecting all these sites and processes into a single model we were able to demonstrate the full flow of customers through their operations and highlight the highly unprofitable segments that were driving them out of business.”

The insights formed the basis of a successful three-year turnaround program.

Read the full article here.

PCG eCommerce Shipping Report

Posted on June 28, 2019May 10, 2022 by admin

The Australian eCommerce sector has undergone dramatic growth in the past few years, fuelled by increasing consumer comfort with online spending and the entrance of Amazon driving significant investment and innovation. Whilst there has been an explosion in online offerings, from fast fashion to multi-product marketplaces, there has been comparatively less focus on the fundamental problem of getting the goods to the end consumer. For example, most Australians still experience a 2-5 day service as their primary shipping experience.

In the next few years we forecast significant innovation in shipping options, from an expansion in the number of shippers offering same day and express services, to a move to supply from store instead of DCs, ‘Need it Now’ deliveries of 1-2 hours, and the use of autonomous vehicles and drones for the last mile.

Our prior research has shown the importance of shipping to the overall customer experience, but to date there hasn’t been a focused analysis of eCommerce shipping trends in the Australian domestic market. Our eCommerce Shipping Report fills that gap. We have analysed in detail the current shipping options and offers provided by our largest eCommerce shippers. The findings of our report can be used by all eCommerce shippers to benchmark their offerings against their peers, and by logistics providers to identify further opportunities for their own portfolios and service offerings.

You can download a summary of the report here.

The next shock for Australian eCommerce senders and logistics providers

Posted on June 28, 2019 by admin

Introduction

Jeff Bezos left investment banking to sell books online in the late 90’s through a website he called Amazon. Today Amazon has matured into a retail giant, having dethroned Walmart as the most valuable retailer in the US in 2015¹.

Amazon has not only disrupted the retail world but also sought to take on any industry it relied on in conducting its business. Jeff Bezos has a modern approach to vertically integrating companies. He harnesses the cost-saving benefits while minimising the pitfalls of internal complacency that in the past have eroded the increased margins typically sought through creating these structures. By creating an external customer offering in each of the industries in which it vertically integrates itself, Amazon has converted some of its largest expense line items into revenue generating assets while ensuring it continues to provide superior service levels.

The first example of this strategy was Amazon’s move into cloud computing through the 2006 launch of Amazon Web Services, also known as AWS. Amazon went through a period of dramatic growth at a time when enterprise-class SaaS was not widely available nor economic. Amazon was therefore forced to build its own computing infrastructure. Given the enormous costs associated with this, Amazon decided it would convert the new infrastructure into an external product. Doing so would both offset the internal costs and insure against inefficiency and technological stagnation. AWS is now a US$17.5b revenue business with revenue growth of 42% over the last financial year.

Not long after that came Fulfilled By Amazon (FBA); a service in itself, but in essence a non-core revenue generating entity tasked to reduce one of Amazon’s largest operating costs – fulfillment. This Fulfilment-as-a-Service allows any third-party seller to store their inventory at one (or multiple) Amazon warehouses from which Amazon will pick, pack and deliver each order and even manage the entire returns process, including providing 24/7 customer service. Amazon does not limit this service to orders placed through the Amazon marketplace but extends the offering to all orders placed with the third-party, regardless of the online channel. Customers of Amazon can ship their products directly from supplier to an Amazon warehouse and not directly incur the setup and operational complexity or overheads associated with the warehousing, fulfillment, returns or customer service.

The benefits to Amazon are three-fold:

Increased utilisation of excess warehousing floorspace
Reduced last-mile delivery contract rates obtained from its logistics providers by leveraging higher freight volume; and
Generating revenue from its fulfilment services.

With physical operations currently spanning 14 countries and growing, Amazon employs over 560,000 people and recorded US$178b in revenue during 2017. Jeff Bezos revealed in his annual shareholder letter for 2017 that it had more than 100 million Prime customer accounts² worldwide, with this number set to grow further as online shopping increases its share versus physical retail spending.

Logistics is a critical operational value driver which enables Amazon to meet and exceed customers delivery expectations. Currently, it is essential for Amazon to partner with a reliable network of logistics providers as well as using their own internal capabilities. This level of service comes at a cost. Amazon’s shipping costs³ grew by 34% to $21.7b in 2017 (2016, 40%; $16b), outpacing ecommerce sales growth of 31% for the year (2016, 25%). This, together with forecasts⁴indicating that by 2020 the eCommerce marketplace will have 900 million customers spending over a trillion US dollars annually, highlights that shipping will continue to be an area of high cost growth.

To date, Amazon’s business strategy has focused on converting its largest internal operating expenses into revenue generating external service offerings. Could logistics be next? If so, what may it look like?

How has Amazon developed its logistics capabilities?

“We expect our net cost of shipping to continue to increase to the extent our customers accept and use our shipping offers at an increasing rate, our product mix shifts to the electronics and other general merchandise category, we reduce shipping rates, we use more expensive shipping methods, and we offer additional services. We seek to mitigate costs of shipping over time in part through achieving higher sales volumes, optimizing placement of fulfillment centres, negotiating better terms with our suppliers, and achieving better operating efficiencies. We believe that offering low prices to our customers is fundamental to our future success, and one way we offer lower prices is through shipping offers.” – Amazon 2015 financial report

Products sold through Amazon’s global marketplace ship to more than 100 countries⁵. Despite the high cost to establish capabilities across this global value chain, it has already started investing in this area of its business. It has:

over 298 fulfilment centres world-wide;
secured the long-term leasing of 40 cargo carrying aircraft;
gained approval in 2016 from the Federal Maritime Commission to act as an Ocean Transportation Intermediary (in essence a freight forwarder);
tested last mile delivery of products not sold via its own eCommerce platform; and
made substantial technology-based investments over the years to support the fulfilment of its retail business.

In 2016, Amazon bought a stake in two European logistics companies, Yodel and Colis Privé⁶, gaining access and partial control of a fleet of 6,700 delivery trucks which deliver around 170 million shipments per year in the United Kingdom and France. This has led to Amazon UK delivering around 50% of the goods sold through its marketplace. In September 2015 Amazon piloted Amazon Flex in Seattle, a last-mile delivery service using on-demand contractors. Operations have since grown to include contractors in 50 cities⁷across the US and have also rolled out to the UK market.

Currently Amazon has over 142 fulfilment centres serviced by over 90,000 full-time employees in the US alone^8,9,10. Estimates suggest that including sorting and distribution centres, the number of facilities jump to around 327 in the US¹⁰. Globally Amazon is building on this number, expanding its footprint to build a network of facilities which will ensure timely delivery of the products bought through its marketplace regardless of the delivery location. The continual expansion of its network of facilities increases its attractiveness to retailers as a logistics provider. Amazon has fulfilment centres in the US and UK within a 50km radius of at least 80% of thepopulation, allowing it to service most of the population within a relatively short period of time.

With industry leading technology and strong capital investment in its own network of warehousing and distribution centres, including local sortation and data centres, Amazon is well positioned to offer logistics and delivery services to third parties. It seems clear from their pattern of investment in other countries, and their mantra of externalising their largest cost bases to market competition, that an Amazon logistics service in Australia is highly likely. But in what form and when? And will they win over customers of existing logistics companies?

How might Amazon enter the Australia logistics market?

Even though it has the necessary infrastructure in place across the US, a review of both social media feeds and customer complaint sites highlights that it still struggles to meet the demands of customers who are living in remote and rural parts of the US. In Australia, the vast distances required to service the country’s population combined with sparse population density makes establishing a comprehensive logistics operation more difficult. The Australian population is a tenth of that of the US and spread across 7.7 million square kilometres (only 20% smaller than the US), which means the economies of scale for Amazon in Australia are lower than that of its market in the US or UK. The lower population density and large geographical spread will create new challenges for Amazon as to date its success has been achieved in countries which have a relatively high population density across the entire country. Australia has no shared land borders, so Amazon will be unable to leverage off cross-border fulfilment as it does with its European, Mexican and Canadian fulfilment centres.

To be successful in Australia, Amazon would need to improve on the service offering and delivery footprint of Australia Post and StarTrack, which have the most comprehensive B2C parcel delivery services and largest footprint in Australia. Australia Post have access ‘to the footpath’ through their integration of the Letters & Mail and Parcels businesses, providing a low-cost mode for residential parcel delivery. Private global operators such as Toll, DHL, and FedEx also create significant competition for Amazon.

In addition to these challenges, operating costs in Australia are historically some of the highest in the world. High labour costs¹¹, record high property prices¹², and rising energy and fuel prices means the outlook for the logistics industry tends to one of consolidation rather than expansion. Wages in Australia are the highest compared to those of developed market peers such as the US, UK, Canada, France, Germany and Japan. Add in a largely unionised workforce with employment guidelines including penalty rates for work performed outside of tradional working hours and it is clear that Amazon will experience signficantly higher operating costs in Australia under a traditional operating model.

Indeed, to enter the Australian market in 2017, Amazon chose to leverage off Australia Post, StarTrack, and Fastway Couriers established networks.

Given these challenges, the path to a logistics service offering for Amazon will likely follow an incremental approach while it builds sales volumes, which is similar to the rollout to date in the US. The current network of facilities in the US enables Amazon to distribute the products sold through its marketplace to 80% of the population in 2 days or less. The network is primarily made up of a complex combination of redistribution centres, fulfilment centres, distribution centres, sortation centres, delivery stations, and Prime hubs.

Redistribution centres are primarily inbound cross-dock (“IXD”) facilities which are located close to major ports, allowing Amazon to streamline the inflow of goods into their network. The fulfilment centres can be broken down further into small sortable, large sortable, large non-sortable, specialist apparel and footwear, speciality small parts, returns processing centres and 3PL outsourced facilities. Amazon Pantry and Amazon Fresh have dedicated ambient, cold storage, and distribution facilities but utilise the existing Amazon network of sortation facilities where possible. Towards the end of 2013 Amazon rolled out the first of its delivery stations. These are smaller facilities compared to its sorting centres and are positioned close to the larger metropolitan cities and neighbouring airports. The main function of these stations is to sort parcels for outbound routes thereby ensuring timely and efficient last-mile delivery in narrowly defined urban areas. The product mix that is sorted and delivered ranges from non-perishable goods to multi-temperature fresh foods (where Amazon Fresh is available). The last-mile delivery from these stations is typically handled by independent contractors, and when available, Amazon Flex drivers.

To gain greater control over its outbound shipping costs and reduce the time required to deliver a product once purchased, Amazon decided to implement larger regional sortation centres in 2014. This has enabled it to shift shipping volume away from FedEx and UPS to the US Postal Service. These sortation facilities are largely stand-alone buildings in which parcels are received from the fulfilment centres and sorted into pallets based on zip code (“post code”) and delivery routes. These pallets are then delivered via road to the respective post office responsible for delivering small packages to the zip code.

More recently, Amazon has reduced its reliance on the US Postal Service for last-mile delivery and has instead utilised independent contractors or its own network of delivery drivers (Amazon Flex). With the introduction of their Prime hubs and delivery stations it will further utilise the sortation centres to deliver to both the hubs and stations ensuring that rapid delivery service levels are maintained. Amazon is also expanding its network of sortation centres to include airport sortation hubs at several smaller airports near major cities in the US¹³ enabling connectivity between domestic inbound air freight and local fulfilment centres.

During the same year, Amazon decided to rapidly expand its distribution network consisting of smaller buildings situated near to the larger metropolitan areas across the US¹⁴. These were given the name of Prime hubs. Amazon curates and stocks the hubs with popular, high velocity items tailored to the customer demographic. These hubs allow Amazon to deliver these select products in less than an hour, effectively becoming the equivalent of a traditional brick and mortar store without having a physical shop front accessible to the customer.

With a fleet of 40 aircraft and 4,000 prime movers distributing products between fulfilment centres, Amazon is building the capability to manage its freight internally. Amazon Flex is a first pass at securing control over the last-mile delivery. It is currently not in the position to meet the demands of fulfilment from the Amazon marketplace but this does allow Amazon to test and gauge any pain points. This would enable them to take the lessons learned from Amazon Flex and its current partnerships with USPS, UPS, and FedEx and implement a last-mile delivery service that would meet both the customer and its own demands.

Last-mile delivery is the final link in the logistics value chain that Amazon will need to establish to operate a comprehensive logistics and transportation network in the US. A hybrid of delivery methods may be used to ensure operational requirements are met on a consistent basis. These range from independent part-time contractors using their own fleet of vehicles (Amazon Flex) to traditional delivery vans and potentially even Amazon Prime drones.

Over the course of 5 years Amazon rolled out a national end-to-end logistics system in the US. Whilst the density and cost challenges of the Australian market will constrain the scope of their offering, Amazon’s activities in other markets strongly indicate it is unlikely to be dissuaded from capturing and internalising important components of the value chain like metro distribution and delivery.

Can Amazon win over Australian customers with a logistics offering?

Why would a business place its reputation in the hands of Amazon, predominately an online retailer, as a logistics partner rather than the established players in the market such as DHL, StarTrack, FedEx, and Toll? Looking at fulfilment from the end-consumer perspective helps provide answers to this question.

A recent report by Temando¹⁵, a world-wide multi-carrier shipping platform for commerce, shows how important shipping and last mile delivery is in generating sales and creating a great customer experience. According to the Temando report across the US, UK, and Australia, over 80% of online shoppers find shipping costs are too high. Roughly 60% of all survey respondents said they would turn to a brick and mortar store to purchase an item if shipping costs were too high. In the US, 74% of respondents said they preferred free shipping over fast shipping, while this number grew to 85% when looking at Australian consumers. Most respondents said that they would increase their basket size to qualify for free shipping.

Apart from free shipping, the main driver to convert an online shopping cart to sales was an offering of multiple delivery options. The research undertaken by Temando also indicates that less than 20% of online retailers absorb the cost of regular last mile delivery of a product; that is, over 80% pass this cost on to the end-consumer.

In the US, where online shopping is more established, consumers were found to be looking for new alternatives to standard and express delivery, demanding hyper-local, same-day, specified timeslot, and weekend delivery options. There is still a large gap between consumer demand and retailer offerings, however, with less than 30% of retailers offering these options.

Therefore, retailers require a logistics partner that can offer competitive rates across a broad range of flexible delivery options, whilst also ensuring any requirement for reverse logistics and real-time delivery tracking is taken care of. As online sales grow, retailers will need to ensure their logistics partners are able to scale alongside them to absorb the increased demand for shipping, both locally and internationally.

Retailers can and are pushing their logistics partners to make the necessary investments in operating flexibility and technology innovation to deliver on their customer’s needs, and logistics partners are responding, as evidenced by the increasing spread of features such as real-time tracking. From a pricing perspective, however, negotiating leverage is driven principally by volume; the number of items that a retailer has to ship. Without a large volume of goods, in one-on-one negotiations with a set of logistics partners the individual retailer will usually be stuck paying rack rates.

Intermediaries such as freight brokers and shipping platforms like Temando has stepped into this gap, becoming quasi-freight-forwarders in that they accumulate volumes and stream them to shippers based on the most attractive rate and performance for particular services. Ultimately, though, they are still only on-selling the services of the established logistics providers, which means that they have little control of the value-added features desired by end-consumers.

This indicates that the potential customer profile of an Amazon Logistics Service would be a customer that does not have sufficient volume to negotiate better shipping rates by themselves. Customers would be micro to mid-sized businesses who trade predominately through an e-commerce channel and who don’t have the infrastructure or management resources required to operate a logistics function internally. Across the US, roughly 68% of online retailers shipped 1,000 articles or less per week on average, with almost half of these retailers having average weekly shipping volumes of no more than 100 articles. Retailers of this size are categorised as micro to small retailers and are ideally suited to an Amazon logistics service offering due to their low volume, increased need for reliable and scalable logistics capabilities, and limited ability to invest in their own logistics infrastructure.

Interestingly, this customer profile mirrors closely Amazon’s original AWS target client – small and in need of on-demand scalable infrastructure but without the capital to invest.

Amazon, then, is well positioned to provide a third-party logistics service given its understanding of online retail and the importance of customer satisfaction. It has already enhanced the parcels delivery experience for its customers by providing not only same day delivery but taking it a step further with a hyper-express delivery option, providing expedited delivery from online checkout to delivery in two hours or less. Throughout the fulfilment and delivery process the consumer is notified of key parcel movements, enabling them to better understand the estimated delivery time. With their own service, they can control the entire logistics process and also take market share from existing logistics providers who are unwilling or unable to keep up with the demands of the B2C market.

What does this mean for eCommerce senders and logistics providers?

In its 2016 annual report¹⁶, Amazon emphasised the value in rapidly expanding global operations, increasing both its product and service offerings, and scaling the infrastructure to support both its retail and service businesses. Speaking at a symposium in Washington, D.C. on “The Future of Freight” in September 2017, David Bozeman, Vice President of Amazon Transportation Services, highlighted that to meet customer demand, Amazon has had to systematically build out its sortation centres, linehaul middle-mile and air network. He mentioned that due to the sheer volume of freight that is being generated through the online retail channel, Amazon does not believe there is any one entity that has the capacity to handle the entire demand.

At the time of writing this article, eligible third-party sellers can secure space on an Amazon controlled ocean vessel allowing them to ship products world-wide. Sellers can use Amazon Prime’s logistics services which consists of growing truck and trailer and aircraft fleets to distribute products both within the US and abroad. FBA allows third parties to store their inventory across the globe at Amazon’s fulfilment centres, from which Amazon will take care of the end-to-end fulfilment process. Bloomberg has also reported¹⁷ late last year that Amazon is in the process of piloting “Seller Flex”, a service which will pick up packages from third-party warehouses and deliver these packages to a customer’s home. If “Seller Flex” was to be rolled out nationally across the US, it would effectively enable Amazon to manage and control its entire logistics supply chain. Once this is achieved, it could have the capacity to offer all or part of these services to third-parties.

From an Australian perspective, Amazon’s infrastructure is embryonic with one fulfilment centre in Melbourne and a second very large fulfilment centre currently being built in Sydney. A simplified FBA offering has only recently become available to third-party sellers which does not yet enable sellers to fulfil orders across external channels. In its current state Amazon in Australia does not appear to have the structures in place to offer an end-to-end logistics solution to third-parties. Without dedicated sortation centres or fleet of vehicles to enable last-mile delivery, an Amazon last-mile delivery service is not possible, and so shippers will need to continue to rely on established providers.

For logistics companies, however, the signs are ominous. Amazon has established the core components of an end-to-end logistic supply chain in its other major markets, and there is no reason to believe that they will leave the Australian market alone despite the challenges presented. Certainly, warehousing, distribution, and last-mile delivery services will be on their radar. We can expect that within 5 years, with internal and third-party volume, they will develop their own express last-mile delivery services in major capitals. In response, Australian logistics companies need to pay closer attention to their service offerings and competitiveness in their long tail of smaller customers. Whilst major shippers have historically driven their volume and consequently held their focus, their overall profitability has typically been low. The competitive changes that Amazon will help accelerate may mean that the incrementally profitable long tail of customers instead chooses to partner with a company who intimately understands the challenges and needs of the B2C market.

About Pacific Consulting Group’s Freight and Logistics practice

PCG’s Freight and Logistics practice has delivered profit and productivity improvement for leading companies around the world. We have worked in partnership with senior leaders across industry segments like parcel express, road/air/rail freight and intermodal providers, last-mile specialists, and 3PL. Our superior analytics, commercial focus, and industry experience have allowed us to deliver outstanding outcomes.

References

By market capitalisation: “Inside Amazon: Wrestling Big Ideas in a Bruising Workplace”. The New York Times. August 16, 2015
https://www.sec.gov/Archives/edgar/ data/1018724/000119312518121161/d456916dex991.htm
FY16 Annual results show $17.6 billion in fulfillment expenses, of which $16.2 billion of this cost relates to shipping.
Reseach report compiled by Accenture and AliResearch (Alibaba Group’s research arm).
https://www.amazon.com/gp/help/ customer/display.html?nodeId=201074230
http://fortune.com/2016/01/11/amazon-french-delivery/
https://flex.amazon.com/
https://www.amazon.com/p/feature/98dnmkwyztuv8ur
https://www.businessinsider.com.au/amazon-warehouse-locations-in-us-2017-9?r=US&IR=T
http://www.mwpvl.com/html/amazon_com.html
https://www.conference-board.org/ilcprogram/index.cfm?id=38269
http://www.demographia.com/dhi.pdf
http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=RssLanding&cat=news&id=2241026
https://qz.com/636404/how-amazon-is-secretly-building-its-superfast-delivery-empire/
Temando – State of Shipping in Commerce Report 2017 (http://temando.com/en/resources/research)
Amazon Annual Reports (http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-reportsannual)
https://www.bloomberg.com/news/articles/2017-10-05/amazon-is-said-to-test-own-delivery-service-to-rival-fedex-ups

Foresight from hindsight

Posted on June 28, 2019 by admin

Why capture Lessons Learned?

Capturing Lessons Learned is not a new idea, it comes highly recommended.

Two of the most recognised project management methodologies, PMBOK (Project Management Body of Knowledge) and Prince2, highlight the importance of learning from good and bad experiences on projects.

Good Lesson Learned processes will deliver material value in companies with multiple projects, but also in businesses where there are repetitive high cost processes (such as on-shore well drilling or manufacturing lines).

The process is meant to secure future value for the business by repeating good results or avoiding sub-standard results. The earlier the benefit of a lesson can be captured, the greater the value that will accrue to the business.

A survey of 130 Project Management Institute (PMI) members revealed that the overwhelming feeling was that a Lessons Learned process is important. We would expect therefore that the Lessons Learned process is regularly executed and is adding value.

If everyone agrees that capturing Lessons Learned adds value, are all companies doing it?

The short answer is a resounding “No”.

In the PMI survey, that same group of project management professionals were asked describe the extent to which their organisation had performed Lessons Learned capture in the previous 12 months.

Even though 91% of respondents in the survey indicated that there was clearly value in the Lessons Learned process, only 13% were confident that the process was always executed.

It’s clear that learning from the past can produce value for the future and project management professionals believe the process is important. Why do companies fail at this?

Why do Lessons Learned programs not succeed?

We asked our clients why Lessons Learned capture was not occurring or, if it was, did not add value to the organisation or were unlikely to add value. The responses could be mapped to three key areas of Culture, Process and Technology.

Culture

Little or no support from leaders
No internal champions appointed to lead Lessons Learned capture
Process has been allowed to devolve into form-filling or box-checking exercise
Fear exists that the process will be used to pin blame
No faith that the process will add value
Present effort is required to capture a future benefit
Organisational belief that no-one will go to the effort of learning from documented lessons

Process

No documented, communicated standard approach
No time allocated or allowed to conduct the process
Results not shared with the business
Output is not useful – inconsistent, no longer relevant, no quality review, poorly documented or simply not valuable lessons
Lessons are difficult to retrieve

Technology

No technology support for Lessons Learned
System too complex to use
System does not fit our business and cannot be customised
Too reliant on a single person to maintain
Data is not managed
Data is not relevant / out of date

For businesses to extract the maximum benefit from Lessons Learned, three fundamental areas must be considered:

Culture: Senior leaders must set the tone that Lessons Learned is a vital and valuable resource for the business.
Process: The company must have a mandated approach that is consistently applied to collecting Lessons Learned.
Technology: There must be systems or solutions available that align with the Lessons Learned process.

What does a good Lessons Learned organisation look like?

Culture sets the tone

At PCG, we advocate a leadership-led Lessons Learned culture. The best process and technology will not deliver maximum benefit without the right management attitude.

A good culture is demonstrated by the following traits:

Senior leadership buys in to Lessons Learned framework, accepts and expects that value will accrue
Project leaders are equipped to perform Lesson Learned capture sessions
Capturing Lessons Learned is part of the management scorecard
The business is comfortable relying on independent help in Lessons Learned capture (internal or external independence)
A Lessons Curator is appointed and Lessons Learned Champions are trained to assist the organisation

A solid framework provides consistency

A generic lessons learned process is as follows : Collect > Validate > Store > Share.

A company must describe how it expects lessons to be matured through this process and who is responsible.

A simple Lessons Learned policy and process document goes a long way to setting expectations and providing guidance on the approach to lessons learned.

Collect: Collecting the lesson includes all activities related to recording the lesson. This may take a few forms, such as workshops, interviews or questionnaires.

Validate: Validating the lesson is the process of making sure that the captured lesson will add value to the organisation. This is a quality review exercise aimed at removing ambiguity and clearly defining the lesson benefits.

Store: Storing the lesson refers to how a company will maintain the lesson for future benefit. Lessons management systems, databases, intranets or simply shared files and folders can all provide a storage solution. The storage solution is the vehicle that is used to share lessons with the organisation.

Share: Unless a lesson is shared or an action taken, no value will accrue to an organisation. The most important part of a Lessons Learned framework is therefore this “last mile” in the process. The framework must provide clear guidance as to how to share lessons with the wider business community.

Technology supports the framework and increases the value

Technology can be used to facilitate all stages of the Lessons Learned process.

PCG research indicates that where technology solutions are implemented in the Lessons Learned space, they tend to be simple databases.

These databases can be searched to find previously recorded lessons.

Lessons Learned technology re-imagined

In researching the use of Lessons Learned, we noticed that the solutions to support process provided little support to the Lessons Learned framework (if one exists).

We noted a clear gap in the market of technology solutions that add value to the Lessons Learned process.

PCG have developed the Xperien Lessons Learned Management system to support organisations through every step of the Lessons Learned Process. Consistency is guaranteed as the system guides users through the Lessons Learned framework.

We have amended the standard Lessons Learned Framework to three steps: Capture, Curate and Circulate.

Capture

Self-service lesson capture means that lessons can be captured more frequently.

Standardised questions tease out the value of the lesson and ensure consistency of input.

Entry is made directly into the system, ensuring lessons are not lost.

Lessons can be tagged with metadata to improve search results. Fields for activity, business unit, and other key search terms can be customised so that it makes sense for your business.

People and roles can be tagged on each lesson, making sharing lessons automatic.

Curate

Quality control is managed through process flows, no Lesson is published until it has been reviewed.

Reminders are sent to Lessons Learned curators to review unapproved lessons.

Curators can make decisions regarding immediate actions that may be required (e.g. Process change, technology fix) versus simply documenting the lesson.

Curators can create tasks and assign accountability relating to immediate fixes.

Curators populate an expiry date for the lesson and are notified to review the lesson on the expiration date to make sure the lesson is still applicable.

Circulate

Once approved, lessons are immediately available to the community for searching.

Cloud based storage means that lessons are available via any device.

Actions pertaining to fixes can be stored in the same system.

Once lesson is approved, users are informed immediately of the lesson if the lesson tags match their user profile or if they have been listed as a person or role to notify.

Users are able to upvote lessons that they think are useful, making relevant lessons more likely to be discovered.

Users can comment on lessons or ask for clarification to make sure that the maximum value is extracted from each lesson.

Users can search the database in a variety of ways: keyword search, tag filters, most recent lessons, most voted lessons.

What is the role of the corporate centre?

Posted on June 28, 2019June 28, 2019 by admin

Introduction

There are numerous factors currently responsible for placing heavy demands on corporations and their senior executives.

Companies are in a state of perpetual structural flux, resulting in the increased need for engagement on organisational redesign.

Historically, smaller scale changes often provided sufficient scope to drive the leverage required for meeting new targets, competitive market challenges and desired outcomes. However, today’s organisations can require a complete redesign in order to improve performance, meet objectives and deliver on targets.

As part of those organisational design decisions, determining which role the corporate centre should play can add significant value to an organisation. This must be balanced against the risk that the consequence of the centre playing the wrong role can be dire and lead to negative and sustained impact on the bottom-line.

Not only is there a significant loss of time and investment but the direction, focus and morale among senior executives becomes undermined.

The corporate centre does not have to select a single role to apply uniformly across all business units or functions. It should instead select the role that matches the organisation’s unique situation and will generate the most value.

We look at the how a corporate centre can adapt the role it plays across various business functions.

Form must follow function

The first step to defining the role of a value-adding corporate centre is to define both the short and long-term strategic goals of the company. Only then can the role of the corporate centre be evaluated.

There is no absolute or prescribed paradigm for success for every organisation. The unique mix of the organisation’s people, culture, strategy and resources requires a customised solution to questions around governance, allocation of decision-making and definition of the role of the corporate centre.

It is important to scope the definition of roles from the perspective of the value created for the company. The organisation may need to transform major business functions in order to harness this value.

Such thinking forms the basis in determining the role of the corporate centre. Transforming the strategy into reality also requires designing a centre whose structure, people and processes support the strategy.

The role of the corporate centre

The optimal corporate centre strategy must be aligned with the needs of the business units and the functionality required from the corporate centre. For example, in a more mature industry a company may prefer to leave more autonomy to the divisions.

The innate culture of a successful organisation must be given consideration and this may restrict the scope of changes and the level of autonomy of business units.

The flexibility of the corporate centre may also be restricted, with its requirements to comply with local legal requirements, labour laws, taxation and its obligations to investors.

To achieve a lean and effective corporate centre, its architecture must be built with rigor and a defined allocation of responsibilities between the centre and business units across different dimensions such as its business lines, customer types, and geographical factors.

This requires a detailed understanding of the strategic issues for each business line, as well as the required level of autonomy for each business and function.

The three key questions

When evaluating the relevance and scope of a corporate centre re-design, we typically ask three key questions.

What are the organisation’s long term and short term strategic goals?
Which corporate centre role adds the most value to each function in the organisation?
How will the corporate centre engage with the rest of the business?

Corporate centre roles

An effective corporate centre has a clear focus on those activities that add the most value to the organisation.

In determining the key drivers that will shape the strategy, companies need to drill down to identify the levers that will achieve this value, including its business synergies, financial planning, optimal operational practices and the development of its business strategies.

As a tool for understanding we have drawn an analogy between the management of sports teams and the various roles a corporate centre may play across business functions.

The challenge is picking the role that adds the most value to the organisation.

1. The board member / financial backer role

Involved mostly in the key decisions, provides funding for and authorises major investments, sets the financial targets and organisational objectives of the business unit or function.

2. The referee role

Sets the rules by which business units or functions interact, develops and manages the service level agreements. Makes sure all the rules are followed. Makes sure different business units are operating well together.

3. The coaching role

Encourages synergy among the business units or functions. Sets the strategy and roles of the business units. Evaluates performance during the year and makes necessary adjustments to correct. Empower employees to play an effective role in the overall value chain of the organisation and deliver value to customers.

4. The player role

In this instance the corporate centre is effectively “on the field” providing the service. They will set the objectives, direct activity and take accountability for success and failure. Functions may not necessarily be performed by the corporate centre, for example low value, transactional work may be outsourced if this makes sense.

Examples of role definition

Large group of unrelated companies

The main sources of revenue are different, the companies service different markets and they have different corporate cultures.

In this instance the group was best served by a lean corporate centre, providing guidance and setting group wide objectives.

The group did not exist to provide any synergies between companies, but a decision was made to search for talent within the organisation first.

Value was seen in centralising the legal function due to a relatively weak legal function in a number of the companies with low productivity.

Large group of similar companies

In the group above, the companies have businesses that are much more related, operating in the same industry.

In this instance value was obtained by centralising a number of functions to be executed by the corporate centre. All low productivity functions that were similar across business were centralised to improve efficiency and reduce cost.

Value was also extracted by the centre being more involved in setting corporate policies and processes as well as driving the rules of engagement on intercompany dealings.

Small group of very similar companies

The organisation above has a number of very similar businesses. Had it not grown through acquisition it may have existed as a single company.

A far greater level of control is exercised in the corporate centre, freeing the business to get on with the core value producing activities. The centre acted as a supplier of expertise and services.

In the case of R&D, holding this function in the centre allowed for a bigger pool of funds to pursue larger projects, completely changing the R&D portfolio management process.

Global group of identical companies

This global group produced the same product and distributed it through the same or very similar channels but operated across a number of countries.

The control was divested into those regions in order to allow the regions to organise and respond to the various cultural differences.

Where it made sense to perform a function centrally, this was done. R&D was determined to be largely region agnostic and the benefit of pooling of funds was pursued. Compliance and risk was centralised in order to reduce headcount.

Deciding which role the corporate centre should play

Working through the three key questions and considering the factors below should assist in determining which role the corporate centre should play in each function, business unit or company.

Delegate or do?

Do any functions generate more value by being centralised (benefits of scale, concentration of capability)?

Are functions being duplicated within the organisation presently that may be better executed centrally (research and development, environmental affairs, audit)?

Do any functions lose value by being centralised (large cultural differences due to company history or geographic separation, loss of customer centricity)?

Must any functions be centralised due to high risk profile of that function in this organisation (marketing and shareholder communications in a company which is cross-listed)?

Are any critical functions being poorly executed as they are of low tactical or operational significance but have high strategic significance (research and development, innovation)?

Business unit variation

How do individual business units currently impact on the performance of other functions in the company?

Are there differentiated value targets for each business unit, based on an understanding of their full potential?

Which business units require a disproportionate amount of caretaking and support relative to their output and value?

How is each business unit’s performance benchmarking against the competition in product quality, product innovation, distribution, operational efficiencies and cost?

External Factors

In what ways do we expect our industry’s competitive dynamics to change in the short term?

What are the technology and consumer trends that will impact on the business and drive growth in the next three years?

What will it take?

How do we size the selected functions within the corporate centre?

What are the opportunities to leverage resources?

What leadership and management model components or attributes will drive the transformation?

How big is the gap between the current model and the proposed model?

How do you manage the transition and define new operating practices?

Have the expected benefits of change been documented so that they can be managed through a structured benefits realisation process?

PCG background

Pacific Consulting Group is a boutique management consulting firm focused on providing superior results to our clients.

For more than 20 years, our professionals have used their outstanding credentials and experience to deliver significant and sustainable outcomes for companies.

We are known for our deep industry expertise and insights, our functional capability and our service excellence.

We combine superior consulting and specialist knowledge with a wealth of practical business leadership experience, and offer our clients unique perspectives and strategic thought leadership. We work in a collaborative business partnership with our clients but keep our focus highly objective. We advise clients with integrity and professionalism, even if the journey is uncomfortable at some stages of the process.

Our work provides a focus on only the highest value portions of our clients’ issues. We tailor our process to meet our clients’ particular needs and scope the project to determine only the necessary resources required to achieve results.