As featured in Dallas Business Journal: Dallas Business Journal

Turnaround of a $3.8B Liquor Distributor

Like any CEO, Bennett Glazer wants the Glazer’s Family of Companies to grow. But for his Glazer’s Distributors unit, the fourth-largest alcohol wholesaler in the country, growth has been an issue. By 2010, revenue had been stagnant for a number of years. Financial systems and technology were outdated, putting the business at a competitive disadvantage. Key suppliers were unhappy with the direction of the company, and wanted Glazer’s to merge with another large, unnamed distributor. Fast forward to January 2013. Under a new management team led by former investment banker Sheldon “Shelly” Stein, Glazer’s Distributors has added nearly $1 billion ...Read More

As featured in Beckers Hospital Review:

20 Best Practices for Healthcare Mergers & Acquisitions

The current healthcare environment is creating one of the most active hospital and health system consolidation markets in decades. This is partially driven by provider responses to the challenges and opportunities created by national and state healthcare reform. In addition to complex business considerations, hospital and health system transactions implicate a vast body of state and federal laws, which complicate a transaction process, leaving many opportunities for missteps or complications.

Here are 20 best practices to help hospital and health system executives navigate the transaction process from beginning to end.

1. Conduct a preplanning process. Preplanning allows hospital executives to consider problems and issues before meeting with potential partners or undertaking a transaction.

"The biggest factor I see is hospital executives saying they talked to a potential partner and all they need is advice on how to move forward. At this point, they are already a mile down the road…You need to know where you are before you know where you're going," says Max Reiboldt, CPA, president and CEO of healthcare consulting firm Coker Group.

In order to avoid moving too quickly, Mr. Reiboldt advises hospital executives to ask the following questions.

  • What do you want to accomplish?
  • What are your main goals?
  • Do you want to maintain healthcare in the community?
  • Do you want a partner to invest in the community?
  • Do you want to maintain jobs at the hospital?
  • Do you want to minimize ongoing losses?
  • "[Hospital executives] need to understand what their hospital needs to derive from a transaction. This is one of the biggest, most often missed points," says Mr. Reiboldt.

    2. Be systematic. According to Mr. Reiboldt, a hospital transaction can be an emotional process, so conducting a systematic process can help executives understand and pursue the outcomes the hospital needs in order to remain operational — without getting caught up in the emotion that may accompany a transaction. "Although emotion may play a role regardless, keeping the process as technical as possible will help. Just check things off the list," says Mr. Reiboldt.

    3. Use experienced advisers early. When hospitals get ahead of themselves, they may overlook opportunities that could be beneficial. For this reason, Geoffrey Cockrell, JD, partner at McGuireWoods, recommends that hospitals engage experienced transaction advisers in the preplanning phase.

    "A hospital may think [it has] considered all potential options, but an experienced adviser could expand the choices the hospital may consider. For example, I was working on a transaction in the Midwest with a fairly rural non-profit hospital. The hospital was eventually acquired by a large East Coast health system. This transaction was not on the hospital's horizon initially, and it ended up being the best choice," says Mr. Cockrell.

    What may feel like the most obvious candidate may be wrong for reasons that are not obvious initially. Taking a step back to think more broadly is critical.

    4. Build a strong team. Once hospital executives make the decision to move forward with a transaction, they need to build a strong transaction team. In order to maximize the potential of the deal, Mr. Cockrell and Mr. Reiboldt recommend choosing a few key people for the beginning of the transaction, and then adding others into the process as it develops.

    "At the beginning, you may build your transaction working group with members of the executive team, members of the board and the hospital's legal counsel. Then, you'll need to bring in someone who manages the transaction process for a living. You need that person in there especially for the regulatory and/or health department review process. The final person in the group should be a finance expert or investment banker who knows how to run a competitive process," says Mr. Reiboldt.

    While a hospital may need a specific and small team for the beginning stages of the deal, later on in the process executives may want to bring in other stakeholders. "Different constituencies of the transaction — medical staff, the nurses union, joint venture partners or local government members — may have different thoughts and views on what is going on. While they aren't part of the working group, keeping an eye on them will help. The last thing an executive team wants is to get bogged down with material that can cause delays and could kill a deal," says Mr. Cockrell.

    5. Slow down, spend time on partner selection. While it is logical for an executive team to want to keep momentum in the transaction process, nothing can substitute for applying due diligence and a systematic method when selecting a partner.

    "There are a variety of entities that could be a great partner — for-profit, non-profit or private equity fund. It goes back to the planning aspect of the process and laying things out," says Mr. Reiboldt.

    Mr. Cockrell agrees. "You do not know who the right suitor will be. There is a lot of benefit to a systematic process. You may think one hospital is a perfect match, but it is hard to gauge which hospital will really be the right partner without a systematic, diligent process," he says. "Make sure you understand the issues or all the skeletons in the closet so to speak. They don't come out of nowhere. Running due diligence brings them to light at the front end."

    6. Allow decision making to evolve through the process.
    Ideally, a hospital board will allow the transaction decision making to be gradual and comparative. "We advise boards to simultaneously explore their options — all the strategies they can pursue and the range of partnership models they can undertake," says Rex Burgdorfer, vice president at Juniper Advisory. "With all the options hospitals have at their disposal, a common thing we hear is that boards feel overwhelmed by the obligation or duty to understand all their options. This can be an important and difficult time."

    For this reason, the hospital board should refrain from finding only the best partner, but instead accept alternative proposals, refining objectives during the process instead of before.

    "It may be counterintuitive to folks on the board. They may think it is best to start the [transaction] process with a clear expectation of where the transaction will end. However, you can also make mistakes by starting a process zeroed in on one affiliation partner or one structural idea," says Mr. Cockrell.

    7. Run a competitive process.
    In order for a hospital to have a basis of comparison, it needs to create a competitive process and use that competition in its decision.

    "The hallmark of good decision making is a basis of comparison. Competition helps a board evaluate transaction options outside of a vacuum — in an academic, hypothetical way. It helps them understand and learn from the market of companies they might work with," says Mr. Burgdorfer.

    A competitive process will help accelerate the timetable to the selling or target hospital's advantage, maximize its negotiating leverage and help it evaluate alternatives on a relative and absolute basis.

    8. Focus on fundamental goals of the transaction. When there is a clash within the hospital's board and/or with the potential partner's board, Dale Van Demark, JD, partner at EpstienBeckerGreen, recommends putting the issues in perspective by focusing on the fundamental goals of the transaction.

    "Does the issue impact the possibility of achieving those fundamental goals? If the answer is no, then it becomes less of an issue. If the answer is yes, then there can still be a path forward but perhaps with more compromise," says Mr. Van Demark.

    9. Write a detailed letter of intent.
    According to Craig Garner, JD, independent attorney and healthcare consultant and former CEO of Coast Plaza Hospital in Norwalk, Calif., it is important to emphasize detail in the letter of intent when beginning transaction discussions.

    "Even though it may not be binding, it provides an outline of the transaction. If you are dealing with individuals who honor their word, they will use it as a template for developing the deal," says Mr. Garner.

    For instance, when Mr. Garner negotiated the sale of Coast Plaza Hospital to Avanti Hospitals in 2011, the letter of intent between Coast Plaza Hospital and Avanti Hospitals included:

  • Acquisition structure (asset versus stock purchase or merger)
  • Parties to agreement
  • Assets and liabilities to be purchased and excluded
  • Regulatory considerations
  • Valuation
  • Payment terms
  • Confidentiality
  • Diligence
  • 10. Do not get distracted by peripheral issues. According to Mr. Cockrell, board members need to keep the core issues of a transaction in mind instead of letting peripheral issues dominate the discussion. For instance, if a larger hospital is partnering with a small, community hospital, the community hospital's board would need to stay attuned to the larger hospital's vision for providing services. "Making sure the acquiring hospital is committed to a suite of services at the acquired hospital is a core issue to keep an eye on," says Mr. Cockrell.

    11. Look to the hospital's mission for inspiration. When an issue comes up during discussions or preparation for a transaction, the board should think back to the hospital's principles and/or mission.

    "Whatever the issue happens to be — does it impact your organization's mission?" asks Mr. Van Demark. "My experience is that very few issues really come down to that fundamental point of mission, but it is always a good question to ask because it focuses individuals on why they are [conducting transaction discussions] in the first place," he adds.

    12. Keep lines of communication open. It is important to keep appropriate and clear lines of communication open at the board level so if issues come up during the course of the transaction, there is already a great foundation for productive discussion. "If you are very clear on your hospital's mission and goals with respect to a transaction, and they are communicated very clearly and consistently to the other party throughout the course of discussions, then it is less likely for misunderstandings to arise," says Mr. Van Demark.

    13. Keep the interests of stakeholders in mind. According to Mr. Van Demark, it is important to stay aware of stakeholders' interests when dealing with transaction issues among hospitals' boards.

    "I find this is sometimes ignored. However, whether the stakeholders are the hospital staff, physicians, lenders, regulators, patients or the political community, they may influence the ability to complete a transaction," says Mr. Van Demark. "It is always important when dealing with board clashes to understand how constituent groups might look at the issue," he adds.

    Mr. Cockrell agrees. "Some stakeholders can get worked up about the wording of a contract," he says.

    14. Use competition as leverage to negotiate price and terms.
    Competition during a deal becomes beneficial when negotiating the best price and terms during a transaction. According to Mr. Cockrell, there are various structures and types of considerations that have significant value implications. For instance, community hospitals associate considerable value to non-price matters (e.g., programmatic support, working capital, interim capital expenditures and commitment to services).

    When a board allows competition in its transaction process, it may have more leverage with the potential partners to negotiate for a structure that allows for these non-price matters or a structure that has market value as well as value to the community.

    For instance, competition during the process can help a selling hospital encourage an acquiring hospital to agree to softer issues that may be of particular importance to the community. The competition will help the hospital find the partner that appreciates and agrees with the soft issues.

    15. Expect to give and receive full disclosure during due diligence. According to Mr. Garner, the due diligence process between Coast Plaza and Avanti Hospitals moved quickly because the work group was small and efficient. Although there were a couple of phases of due diligence — initial diligence prior to the letter of intent, from LOI to definitive agreements and from definitive agreements to close — the process was streamlined by cooperation from both sides.

    Avanti Hospitals' diligence requests were more substantial than Coast Plaza's. For example, Avanti requested information on Coast Plaza's financials, corporate organizational documents, employees and ERISA, third-party vendors, real and leased property, tax and environmental compliance, intellectual property, inventory and joint ventures, to name a few. Coast Plaza diligence focused primarily on information relating to the financial viability of Avanti and its retained liabilities.

    Cast Plaza's willingness to respond to all of the requests for information about Coast Plaza helped the deal conclude successfully. "I wanted to make sure that we made all disclosures. I wanted to do this only once, and do it right," says Mr. Garner.

    16. Document transaction steps so the deal is defensible.
    A hospital and its board can never predict the reaction of the community when they propose a transaction. In addition, the length and intensity of an attorney general or Federal Trade Commission review is unpredictable. In order to have a strong defense for the rationale behind the transaction, the board needs to document its strategic goals and objectives as well as the extent to which the board and any advisors conducted a competitive process. Barton Walker, JD, attorney with McGuireWoods, recommends documenting the following:

  • The board's strategic needs and objectives including management updates from the past 12 months.
  • The extent to which the board and its advisors conducted a competitive process.
  • The comprehensiveness and rigor of the market-clearing process (e.g., how many partners were contacted and what ownership forms were considered).
  • The fairness and openness of the transaction as viewed by regulators and other stakeholders (e.g., competitors, lenders and payors).
  • The responses that were requested of these partners (e.g., what financial and non-financial issues were addressed and how the responses were documented in instruction letters and proposals).
  • The extent to which a detailed comprehensive analysis of the proposals was reviewed with the board.
  • 17. Manage confidentiality. One of the most important objectives for a board is to manage the confidentiality of transaction discussions. The board and the hospital will benefit from a broader search, which it will have time for under confidentiality. When there is a risk of a confidentiality breach, a broader consideration of partners is not as feasible.

    According to Mr. Burgdorfer, a strong confidentiality agreement is important for the following reasons:

  • To protect sensitive information from competitors.
  • To preserve management's focus on business.
  • To manage employer perceptions.
  • To avoid erosion of admissions by physicians.
  • To avoid third-party interference with the transaction (e.g., state agencies, competitors, payors and unions).
  • "A transaction may be a decision made once over a 100-year life cycle that involves hundreds of millions of dollars of community value," says Mr. Burgdorfer.

    Risking the confidentiality could jeopardize the whole deal.

    18. Design an integration strategy. Once due diligence is completed, hospitals need to plan an integration strategy, which helps to capture the positive synergies identified early on in the integration process. According to Bill Baker, partner and head of transaction services for healthcare at KPMG, this is a key driver for financial success.

    "[KPMG's] history with transactions tells us that [a hospital is] much better served by quickly working on the integration. Many times we work with our client to immediately begin integration planning once they are comfortable that a transaction will occur. This will help you start executing integration the day after closing," says Mr. Baker.

    The ultimate goal is to accomplish strategic objectives as well as reach a financially stronger position post-transaction. According to Diane Hueter, senior knowledge leader with Greater Yield, a change management consulting company, multiple integration details — such as culture, medical staff, support needs, board structure roles and responsibilities and change management — have to be addressed to reach that goal.

    19. Prepare for questions from regulators.
    In many cases, regulatory review cannot be avoided in a healthcare transaction. For this reason, hospital officials need to practice pre-transaction diligence in order to be prepared for potentially lengthy and in-depth reviews, especially when the FTC or a state attorney general can halt a transaction. According to Jim Riley, JD, healthcare attorney at McGuireWoods, state attorneys general tend to ask four main questions. Among others, hospital officials should address the following questions:

  • Why is the board considering this transaction? According to Mr. Riley, the answer should be that the board conducted a thorough and well-documented options assessment, and the board concluded this transaction is the best way — if not the only way — for the hospital or health system to survive. In addition, the board should show that this transaction is the best method for the hospital to position itself for success in the future.
  • Why did the board pick the particular suitor and structure? When officials are asked this question by an attorney general, they should be prepared to show that the board went to a broad market of buyers, arrived at a fair market value and selected the suitor and structure for clear, well-documented reasons that satisfy the board's fiduciary obligations.
  • Is the value to be received "fair market value?" According to Mr. Riley, the answer should be that through independent valuation and the transaction process the board achieved fair market value for the transaction.
  • If the hospital is tax-exempt and if there will be proceeds from the transaction retained by the seller, how will it be used? "The answer should be that the board will ensure the funds are used in furtherance of the hospital's mission," says Mr. Riley.
  • 20. Craft transaction message carefully, have proper documentation. Proper documentation will not only help with FTC and regulatory review but with community and stakeholder communications. Mr. Riley recommends that hospitals tightly control messaging and clearly present the transaction to the community and stakeholders as a solution or path forward. On the other hand, sellers should not minimize the severity of the situation or hide any information, such as information they failed to document properly or effectively evaluate. In order to document properly, a hospital board should follow these three steps to arrange documentation:

  • Ensure board and committee minutes are complete.
  • Ensure all policies and procedures are up to date.
  • Gather anticipated diligence materials and governance documents.
  • Although the structure of a healthcare transaction can take many forms, the best practices for successful partnership searches, negotiations, due diligence and final agreements apply to each situation. The above 20 best practices may help hospital and health system executives as they explore and pursue transaction opportunities. ]

    As featured in Pharmaceutical Compliance Monitor:

    The Board of Directors’ Role in Pharmaceutical Compliance

    Since the passage of the Sarbanes–Oxley (SOX) Act in 2002, the new regulations forever changed the way U.S. public company boards, management and public accounting firms handle compliance in the pharmaceutical industry and in other public companies.

    Within the pharmaceutical industry, board of directors (BOD) along with the assistance of management began reviewing the impact of SOX while implementing changes to conform to the new reforms. Corporate responsibility for compliance, enhanced financial disclosures, fiduciary duty to shareholders, and code of conduct are just a few of the significant compliance mandates.

    Since the enactment of SOX, the importance of governance and the Board of Directors’ role in pharmaceutical compliance has heightened substantially. The driving force behind an organization’s success, sound governance protects shareholder value, empowers both the Board and management team, while maintaining the integrity of the company.

    Under SOX, the BOD’s role is strengthened in matters of establishing company policy, setting the strategic direction, making significant decisions and maintaining effective governance oversight. Ultimately, the Board is held responsible for the company’s activities, strategy, risk management and financial performance.

    Through various committees, the Board ensures that the policies and procedures are followed and in compliance with the law. Administered by a written charter, committees help enforce governance-related issues. In most pharmaceutical companies, committees oversee Audit and Risk, Compensation, Board Nominations, and Executive or Governance functions.

    The Audit and Risk Committee assists the BOD to ensure that appropriate management controls are in place to help certify the integrity of financial reporting. Some of this committee’s functions assist the Board in fulfilling oversight responsibility with respect to:

  • accounting and financial reporting principles, policies and practices;
  • internal financial controls and procedures;
  • the identification and management of risks;
  • monitoring and managing potential conflicts of interest;
  • compliance with accounting standards and applicable laws and regulations;
  • quality and integrity of financial statements and the independent audit and reviews; and,
  • selecting, evaluating and reappointing or replacing independent auditors.
  • The members of the Audit Committee may not receive, directly or indirectly, any fees from the company or any company subsidiary other than those incorporated in the Board Compensation policy and may not be affiliated persons, as defined in Rule 10A-3 under the Securities Exchange Act of 1934, of the company. The Securities and Exchange Commission (SEC) require at least one member of the Audit Committee be an “audit committee financial expert.”

    In addition to the Audit Committee expert, the Board requires that the chief executive and chief financial officers must certify the accuracy of the company’s financial statements and operations. The act of certification demonstrates that the officers are giving formal assurance to the Board, investors, lenders, employees and other interested parties that these documents have been reviewed carefully. More importantly, the certification process makes the C-level executives accountable for the accuracy of the reports.

    A Compensation Committee for a pharmaceutical company is responsible for selecting, evaluating and approving the company’s directors’, executive officer and senior management compensation plans, policies and programs. To ensure fairness and avoid conflicts of interest, this committee checks to see that compensation levels are appropriate, competitive, structured to avoid the encouragement of risky behavior, and promote effective performance and ethical practices, while properly reflecting the company’s objectives.

    In addition to salary-related matters, members of the Compensation Committee must satisfy the independence requirements of the New York Stock Exchange. The committee must meet the definition of “non-employee director” under Rule 16b3 of the Securities Exchange Act of 1934, and be an “outside director” for the purpose of Section 162(m) of the Internal Revenue Code of 1986.

    The Nominations Committee reviews the structure, size, and composition of the Board, and identifies and evaluates qualified individuals for appointment to the BOD. This committee is responsible for disclosure, communications and oversight of the process by which shareholder’s nominate Directors.

    Individuals considered for board appointment may have characteristics that include knowledge of the company and/or the pharmaceutical industry, skills (such as communication, strategic, financial, information technology, marketing, research and development, etc.), diversity, senior management experience, and compatible personal characteristics. The nomination of new board members often is based on the matrix of existing board members and filling voids where needed.

    The Governance Committee for a pharmaceutical company has the authority to oversee compliance-related management issues including:

  • development, periodic review and recommendations to the BOD concerning appropriate corporate governance principles;
  • review and approval of long-term strategic goals business objectives, monitoring of corporate performance against business plans, while evaluating performance against company peers;
  • oversight of an annual review of the Board and Board Committees’ self-assessments, evaluation of the overall performance effectiveness;
  • selection of the CEO, evaluation of performance, and monitoring of leadership progress; and,
  • administration of the Company’s Code of Business Conduct and Ethics, which dictates compliance with corporate policies and procedures, accountability of adherence to applicable laws, rules and regulations, behavior of honesty and integrity, and overall good business conduct.
  • Included in the Code of Conduct is the prohibition of certain types of payments and interactions between pharmaceutical companies and physicians / health care practitioners. It has been common practice in the past for pharmaceutical companies to take physicians to lunch or invite them to participate in educational seminars in an effort to talk with them about new and current product offerings.

    Under the Federal Physician Payment Sunshine Act, a provision under the Patient Protection and Affordable Care Act (PPACA) of 2010 (national healthcare reform), pharmaceutical companies are required to disclose the names of physicians and teaching hospitals who received any form of material payment or other transfer of value. The regulations require that companies list the amount of the payment, in addition to providing background information such as the date, exact form of the payment and a description of the payment. For example, PPACA requires details outlining specifically how the payment was used – for example, food, entertainment, gifts, travel, and/or consulting fees.

    The first report under the Sunshine Act will be due in 2013 for the calendar year 2012. The data in the reports will be reviewed to assess potential violations of the federal Anti-Kickback Statute (42 U.S.C. Section 1320a-7b(b). Like the company’s financial reports, this report must be certified, and any false statements are subject to prosecution under the Responsible Corporate Officer Doctrine.

    The Code of Conduct has some very specific applications for pharmaceutical companies. Under the Code, producers of drugs and prescription medications sold to consumers must provide the purchaser with details of all risks and complications that may occur from taking the drug.

    Furthermore, the Code mandates that drugs may only be marketed for the specific purpose approved by the FDA. All pharmaceutical sales and marketing are required to include key facts and to avoid deceptive marketing practices. Marketing strategies used to promote drugs for off-label use are strictly prohibited.

    Unfortunately, there are numerous areas that present potential opportunities for fraud. In the pharmaceutical industry, the most prevalent types of abuse include kickbacks, off-label marketing, consulting and advisory arrangements with health care professionals, and various sales and marketing courtesies.

    In recent years, the pharmaceutical industry has witnessed an extensive list of fraud-related settlements and judgments. In September 2010, Novartis pled guilty to off-label marketing of Trileptal. Forest Pharmaceuticals agreed to a settlement to resolve allegations related to the unlawful distribution and promotion of Levothroid; the promotion of off-label uses for Celexa; kickback payments to physicians prescribing Celexa and Lexapro for unapproved pediatric uses in treating depression; and the submission of false payment claims.

    During the same time-frame, AstraZeneca settled a case for the unlawful promotion of Seroquel and misleading physicians about the drug’s safety. Johnson and Johnson was cited for off-label marketing of Topamax. And just this year Pfizer agreed to settle allegations that the company’s employees bribed physicians and other officials in Europe and Asia. In November 2012, GlaxoSmithKline agreed to a settlement resolving allegations of false and misleading representations involving Avandia safety claims.

    Given the strict enforcement of fraud and abuse cases, proactive pharmaceutical companies carefully review physician, marketing and sales spending policies and practices, making the necessary changes to establish a “best practices” protocol to ensure Code compliance. The firm’s Code of Business Conduct and Ethics should be required reading for employees of all highly regulated industries – most especially pharmaceutical companies. While not a mandate, each BOD should require every director, employee, and agent acting on behalf of the company to sign a statement certifying that the individual must have read, understand and abide by the firm’s Code.

    Educational awareness emphasizing the importance of incorporating superior governance and ethics in pharmacy practices, while promoting transparency, accountability and adherence is critical in a strong compliance-based program. To make sure that the workforce is committed to honesty and integrity, ongoing communication of the Code of Business Conduct and Ethics is essential, and the Board must ensure that adherence to the Code is monitored and any infractions are promptly enforced.

    A strong Board, a well-developed compliance program and the adherence to sound governance practices within the decision making process, will optimize the performance and accountability throughout all levels of a pharmaceutical business. ]

    As featured in Beckers Hospital Review

    4 Emerging Models Provide Strategy Roadmap for Future Transactions

    A majority of mergers and acquisitions in the healthcare industry result in questionable success. From 1998 to 2008, only 41 percent of approximately 220 hospitals in hospital acquisitions analyzed outperformed in their market, according to a data analysis conducted by Booz & Company, a management and strategic consulting firm. In fact, 18 percent of the acquired hospitals went from positive margins before the deal to negative margins two years following the deal.

    For this reason, the healthcare industry needs new and different approaches to hospital and/or health system mergers and acquisitions, especially as financial outcomes become increasingly important and the complexity of transactions increases post-reform, according to Sanjay Saxena, MD, partner and North American hospital and health systems practice co-leader at Booz & Co. Hospitals need to base their transaction strategies on their capabilities, clearly identifying their value proposition, so that they may develop and pursue a transaction that will be successful.

    Use a capability-based strategy
    In order to improve financial success, hospitals and health systems need to make sure they are very clear and distinctive in their vision and goals. Booz & Co. suggests that a hospital develop a clear view of its desired future or end-state before venturing into transaction discussions. Once it has clarity around its future strategic direction, acquisitions as well as partnerships or affiliations can be evaluated against this frame for more successful outcomes.

    "Capability-based M&A logic is decisively superior to traditional merger logic — deals that demonstrate capability fit achieve demonstrably greater financial returns," says Dr. Saxena.

    Booz & Co.'s data analysis, mentioned above, found that deals with capability coherence outperformed those with limited capability fit. On average, coherent deals — where both parties had a clear set of capabilities in line with their strategy — had a 27 percent performance premium above the limited-fit deals, which had negative 32 percent returns compared to the market. According to Dr. Saxena, this suggests that capability-based M&A creates superior results.

    Diana Hueter, senior knowledge leader with Greater Yield, a change management consulting company, and former CEO of St. Vincent Health System in Little Rock, Ark., agrees. "A capability-based strategy will help [a hospital] identify value in a merger or acquisition. It will begin to provide a vision of where the hospital wants to go," says Ms. Hueter. "Through that process executives begin to identify other hospitals, physician groups or even post-acute providers that may have strength in a market place, service lines or capability that would complement their organization."

    So, how does a hospital pursue capability-based transactions?

    Identify value proposition
    In order to adhere to a capability-based strategy, it is critical that hospitals, looking to be acquired and/or to acquire, ask a few questions aimed at developing a value proposition. Dr. Saxena recommends asking: What is your hospital's distinctiveness in the market place?

    Then, given how your hospital desires to differentiate its services: What kind of capabilities does the hospital need? What kind of footprint does it need?

    "Part of doing a strategic assessment of your organization is identifying its capabilities. Where are its strengths and weaknesses?" points out Ms. Hueter. "How do you continue to shore up your strengths? How do you begin to diminish your weaknesses?"

    Once executives know their hospital or health system's value proposition in the market, they can assess what type of transaction they need in order to achieve, bolster and maintain that value. When hospitals employ a capability-based strategy, they identify their goals and strategic visions in a way that informs future transaction choices. Those choices may be to affiliate, merge or acquire. Whatever the decision, it will be focused on their current and desired capabilities.

    Once executives have this clarity, the following four models may help them think through and evaluate their transaction decisions. "These are pure tone models. In reality, hybrids or variants of them are likely to emerge for health systems depending on the specifics of their mission, brand or market position," says Dr. Saxena.

    Four transaction models

    Scaled portfolio. This model characterizes systems that operate a portfolio of care delivery assets, typically across a broad geographic footprint. "This model drives value by sharing capabilities (e.g., electronic medical records, revenue cycle management, regulatory compliance, etc.) across a portfolio to generate economies of scale and lower cost," says Dr. Saxena.

    And life balance issues factor in for many women. The National Alliance for Caregiving reports that more than 65 million people, 29% of the U.S. population, provide care for a chronically ill, disabled or aged family member or friend during any given year and spend an average of 20 hours per week providing care for their loved one. “Caregiving in the United States” (November 2009).

    A hospital or health system may pursue a scaled portfolio model if it needs the size to justify capital expenditures, survive in the market place, reach a certain reimbursement level with payors or engage physician investors with antitrust issues, says Mike Malone, JD, an attorney and shareholder at Greenberg Traurig.

    Most often, hospitals that have excelled in operations succeed with a scaled portfolio. The hospital system is efficient and can easy replicate its operating model as it grows its scale through affiliations and acquisitions.

    "These entities can identify clinical best practices and protocols through their learning experience within the network and apply them throughout," says Dr. Saxena. "An example might be Brentwood, Tenn.-based Life Point Hospitals or Livonia, Mich.-based Trinity Health. Those health systems successfully run hospitals in many geographic reasons. They are very good at leveraging their capabilities and repeating them in different locations."

    Geographic cluster. According to Dr. Saxena, with the geographic cluster model systems concentrate care delivery assets in a contiguous market, typically close to where patients live, enabling the hospital to take care of a whole population. "You usually benefit because you are strong in the local market and can manage risk across populations. Boston-based Steward Health Care System, Advocate Health Care in Oakbrook, Ill., and Fairview Health Services in Minneapolis are good examples," says Dr. Saxena.

    According to Mr. Malone, a geographic cluster model also gives a hospital or health system more advantage with managed care payors. "You can show a payor, or even an employer, that you have market strength in their patients' geographic area," says Mr. Malone.

    Dr. Saxena agrees. "This model creates value by enhancing market power and building virtuous physician referral relationships within the network," he says.

    Hub and spoke.
    The goal of the hub and spoke model is to position a care delivery facility as a central hub and build a network of feeder or spoke facilities. The hub is typically a tertiary or quaternary care hospital, says Dr. Saxena.

    According to Mr. Malone, a large hospital may develop a hub and spoke model to broaden a suburban or rural area's access to services. "The hospital will affiliate with or acquire hospitals, creating a system that includes outlying hospitals. Those hospitals will not have every specialty service so physicians will refer patients to the hub hospital," says Mr. Malone.

    "These systems create value by generating learning curve benefits at the hub (e.g., complex heart transplants) as well as by operating all assets within the network at maximum utilization. The idea is to isolate complex cases to the central hub. It appears that it is a strategy [Chicago, Ill.-based] Northwestern Memorial Hospital is pursuing," adds Dr. Saxena.

    While a hub and spoke model can help a hospital reach success in specialization, according to Joe Lupica, chairman of Newpoint Healthcare Advisors, there could be downfalls for communities where spoke hospitals are located. "You have to keep your eye on the higher purposes in healthcare, more so than trying to reduce the risk to the health system stakeholders," says Mr. Lupica. "Unless it's a question of quality, making patients travel from their 'spoke' just to secure the profitability of a hub model really disturbs me. That kind of thinking can fracture access to care for real people."

    According to Dr. Saxena, a hospital or health system pursuing the innovation model wants to be a destination hospital. Its value is offering a distinctive product or service. "You can be a clinical innovator if you are pursuing the other strategies, but with the innovation model a hospital works to increase its clinical innovation. MD Anderson Cancer Center in Houston, Cleveland Clinic or Mayo Clinic in Rochester, Minn., are examples," says Dr. Saxena. "[In this model], the intellectual capital obtained [through] innovation may be exported and monetized at other health systems, [such as] through co-branding and affiliations."

    Some of these models may be in place today, but Dr. Saxena believes most of them are still emerging. "In the coming years, [the industry may see] more health systems assembling the pieces and building the capabilities that will allow them to be more closely aligned against these models," he says.

    Although the four models are descriptive of many transactions that have occurred in the industry, Mr. Lupica believes executives should exercise caution when looking to the models to provide advice for future-decision making. "Of course we should be aware of previous patterns. Whether they are merely descriptive or should induce behavior is a serious question. These aren't hedge funds; every community embeds its own variables in the numbers," says Mr. Lupica. "Behind the models and theories are real patients. We have to keep that in mind as we pore over our precious spreadsheets."

    The main message here is that the financial success of mergers and acquisitions between many hospitals and health systems has been questionable in the past, but there are techniques to make consolidation successful in the future. According to Ms. Hueter, the difference between successful and non-successful deals will be the thought involved. Executives will need to place emphasis on strategy and understanding their own needs as well as another entity's needs before a deal can be formed with positive financial outcomes. By identifying its ideal future state, what that looks like and the required capabilities, a hospital can move toward a positive transaction with clarity. The four models may then act as a strategy roadmap, guiding the hospital toward its destination. ]

    As featured in Beckers Hospital Review: Beckers Hospital Review

    Capturing Transaction Synergies: 3 Critical Steps for a Financially Successful Deal

    The healthcare industry is unique in its transactions. Although many industries have cashless mergers, only the healthcare industry can merge two non-profit organizations, whereby no compensation in cash or stock is paid to another party, says Bill Baker, partner and head of transaction services for healthcare at KPMG. This may not occur that often, but it is possible. Given the current state of the healthcare industry and regulatory pressures, mergers of non-profit hospitals and health systems are an increasingly common transaction in the sector.

    However, despite this unique possibility, healthcare mergers and acquisitions can still result in financially unsuccessful outcomes, even when no cash is exchanged. A recent data analysis highlights this point. When consultants at Booz & Co., a management and strategy consulting firm, analyzed data from 220 hospital transactions from 1998 to 2008, they found only 41 percent of all the acquired hospitals outperformed in their market. Eighteen percent of the acquired hospitals went from positive margins pre-deal to negative margins post-deal.

    According to Mr. Baker, in a payment scenario, transactions may fail because an acquiring organization paid too much. "The target made sense, it fit their strategy, but they just paid too much. From a hindsight perspective that's a failed transaction," says Mr. Baker. In addition, cashless mergers may be unsuccessful if an acquired hospital is struggling financially and the acquiring organization is not conscientious in its diligence; factors could materialize post-deal, slowing financial growth. "The day you begin to own a hospital, you have to put cash into it, and it could drag you down. There are a lot of potential negatives that could arise post-close, even in a cashless merger," says Mr. Baker.

    To develop a deal with positive financial margins, both parties need to approach the deal guided by strategy and with eyes open. The following three steps could help a hospital avoid a situation where it overlooked a factor with a negative effect post-close.

    1. Set a strategy and stick with it. "To help ensure success in a transaction, the first thing to do is set clear goals as an organization, ideally before a deal is on the horizon," says Mr. Baker. "Once goals are defined, they can become a frame of reference for potential deals. For instance, how is [this deal] helping us to execute our strategy? A lot of time executives will look at a merger as separate from their strategy, but this is the first step toward failure."

    According to Diana Hueter, senior knowledge leader with Greater Yield, a change management consulting company, and prior CEO of St. Vincent Health System in Little Rock, Ark., executives need to know how the transaction will help them reach their hospital's strategic vision.

    "When I was CEO [of St. Vincent Health System] we were acquiring a 300-bed hospital and affiliated physician practices. In the course of doing that, I never lost sight of why we were going about it. The acquisitions filled a need in our strategic vision," says Ms. Hueter. "If CEOs ensure that they are merging or acquiring for the right reasons, the deal will produce more value. The goal will shed a light on where they are going and what they have to do to get there successfully."

    2. Conduct robust due diligence to identify synergies. If a transaction fits your strategy, then robust due diligence must be performed in order to understand the synergies of a transaction —the true picture of what two hospitals working together would produce.

    Synergies are tangible justifications for making an acquisition, such as whether a large pool of employees will enable the organizations to negotiate for more cost-efficient health benefits plans, eliminate duplicative roles to save on payroll expense or negotiate better pricing in services. Due diligence can reveal both negative and positive synergies; however, the costs of both are often underestimated.

    "It comes down to what makes the most sense from a synergy standpoint for two organizations to merge together. Sometimes people look at the negative synergies of the transaction, and it mitigates the financial benefits of going through with the transaction," says Mr. Baker. "Maybe your hospital has worse payor contracts or you have a more expensive operating structure. One would hope that once you merged with another hospital, those negative synergies would be handled to become more positive," says Mr. Baker.

    Usually if there are too many negative synergies, hospitals or health systems will dissolve the deal. The biggest transaction failures are actually those where executives do not incorporate the cost of capturing positive synergies. "A lot of effort can go into moving someone into your accounting platform or moving someone off a legacy IT system and onto your IT system. There could be a lot of people expense, software expense, terminating contracts, etc.," says Mr. Baker.

    When hospitals assess the potential deal, looking diligently at synergies and the related costs, there will be more financial success. "Usually it comes down to whether the positive synergies outweigh the negative synergies," says Mr. Baker. "It is not so much the historical financial performance that determines the value of a hospital. It is what that company would be worth if owned by you."

    3. Design an integration strategy. Once due diligence is completed, hospitals need to plan an integration strategy, which helps to capture the positive synergies identified in the due diligence phase early on in the integration process. According to Mr. Baker, this is a key driver for financial success. "[KPMG's] history with transactions tells us that [a hospital is] much better served by quickly working on the integration. Many times we work with our client to immediately begin integration planning once they are comfortable that a transaction will occur. This will help you start executing integration the day after closing," says Mr. Baker.

    The ultimate goal with M&A is to accomplish strategic objectives as well as reach a financially stronger position post-transaction. According to Ms. Hueter, multiple integration details have to be addressed to reach that goal, such as culture, medical staff, support needs, board structure roles and responsibilities and change management.

    Looking at a transaction holistically will position a hospital to come out of a deal in the best way possible. If a hospital's deal clearly lines up against its overall strategy, it finds a target to meet that strategy, pays the right price, conducts due diligence to understand the partner's business and potential synergies and has a detailed integration plan, it positions itself in the best way possible. Then, the path to financial success post-close is open and free for the taking. ]

    As featured in Ezine Articles:


    Meaningful business measurements are essential and critical management tools for success. If you don't know where you are, or where you have been, how can you know where you are going? You can't manage what you can't measure. A very applicable quote by Albert Einstein, "Not everything that can be counted counts, and not everything that counts can be counted." This thought needs to be fully understood when talking about measurements.


    If there is a thoughtful approach to measures, many times a "Balanced Scorecard" approach is taken aspiring to attain meaningful measures for the business. What occurs more often is that most of the scorecards end up being financial measures with a few measures on people development (training) and some aimed at business development (new customers or new markets). When examined for effectiveness, we find most results being measured are lagging indicators. This approach is similar to driving down the highway at 70 mph but only looking in the rear view mirror and not ahead to see where the business is going. What is missing is a meaningful set of Driver measures which can predict if the business is on track. What are Driver measures? These are usually Business Process measures such as Order Fulfillment Cycle Time, Product/Service Development Cycle Time, New Product time-to-market and key measures of Quality - First Pass Yield which quantifies doing things right the first time.

    Too often we find the prevailing conditions and state-of-measurements within companies are:

  • Business managers are frustrated by measures that are hard to interpret and use,
  • There is an unreasonable amount of effort expended in data collection,
  • There are long delays before measurement metrics are available,
  • Too often there is little correlation between business strategies, goals and performance measures,
  • High cost of measurements create strong dissatisfaction,
  • There is a heavy emphasis on financial measures unrelated to operational realities, and
  • In many cases there are too many measures and too little time.
  • These points are verified by testimonies from executives who require accurate and undistorted views of their business to make critical decisions. Some of their statements are:

  • "We use 2% of what we measure; the rest is CYA."
  • "We measure the wrong things to four decimal places of accuracy."
  • "We are masters of the micro. We measure paper clip acquisition times."
  • "We measure far too much and get far too little for what we measure because we never articulated what we need to get better at and our measures aren't tied together to support higher level decision making."

    The pertinent question that should be asked is, “What metrics are relevant and meaningful to business success?” There are four axioms of meaningful performance measurements:

  • The goal of measurement is not to measure, but to improve business performance
  • You must know what you want to measure and why before you worry about how
  • Strategic clarity must precede measurement
  • Processes are the key inflection point of an organization
  • All business executives and managers, at every level, have a critical need for accurate, timely and meaningful performance data to navigate through the highly demanding environment to successfully compete, grow and sustain profitability. Foremost, whatever strategic goals and purposes exist for the business, the product(s) and/or service(s) delivered must align economically with the resource capabilities and facilities to deliver them. The delivery resources must also produce them with an acceptable quality, at an affordable price and with timely availability to meet customer needs.


    Fundamental business metrics generally fall within three overall major categories: Financial, Operational and Quality. Within each of these major categories we find three essential attributes of cost, quality and time associated with each task. And traditionally, we find most business measurements are designed to measure functional results which lack one or more of these attributes with a focus on history. The major disadvantage with managing operational performance with historical data is that results have already been experienced. This is similar, as previously stated, to trying to drive a car looking into the rear view mirror.

    When we analyze functional results, we find they are generally aligned with the structure of most financial budgets. Their shortfall is that they do not provide a true operational performance picture of business processes. Functional results give poor visibility, if any, to current or future delivery capabilities. True operational performance results can only be attained by focusing on business processes and their associated attributes. Ideally, the best visibility is attained from real-time data; however few companies have this capability. Even fewer companies are equipped to provide predictive forward projections based on current business conditions.


    This white paper illustrates the importance of understanding the hierarchical relationships and linkage of meaningful process measurements to business success. Every action in a business is achieved through the execution of a process. Business processes can be simple or complex, inexpensive or costly, slow or fast, inefficient or efficient, poorly designed or well designed and can achieve results in one location or in multiple locations. Every process has common elements with three basic meaningful process measurement attributes, cost, time & quality which are drivers of performance. The metrics are the drivers, which if measured and managed will provide the control and visibility of true operational performance.

    By closely examining the three major categories of business process metrics, financial, operational & quality, we find that the foundation and driver of financial and quality results squarely rests on acceptable operational performance of business processes. When business processes are designed, measured and managed appropriately, the financial and quality metrics will follow with positive results. There are other factors which can impact business financials and quality, i.e., outside uncontrollable costs and material quality, etc. However, in every case the controllable actions within a business entity will be driven directly by the effectiveness and efficiency of business processes. Using driver measurements immediately identify problem areas at the time when they are occurring and can be fixed. No more waiting until historical data is analyzed and effort is expended trying to discover what happened.

    Every action in a company, whether it is white collar or blue collar related, fits within a business process. There are many key performance indicators (KPI's) which are important quantitative measurements to know about the product or service related status, such as meeting the schedule, performance to budget, raw material inventory, WIP and FG inventory, customer needs met, pipeline, etc. However, these are not indicative of the measure of operational efficiency of process tasks.

    Each task:

  • Has a Process Flow that can be Developed
  • Has History that can be Analyzed
  • Has a First Pass Yield
  • Has a Theoretical Cycle Time
  • Has a Performance Baseline and a Realizable Performance Level
  • Has Activities that are Non-Deterministic (unpredictable)
  • Can be Measured by Cost, First Pass Yield (FPY), and Cycle Time (CT)

    Holistically, when we analyze business entities, we find four core sets of processes:

  • Strategic Thrust: Defined as the aggregate of all processes applied to determine the motivating principle/objective for the existence of the business;
  • Design/Product Development: Defined as the aggregate of all the processes required to provide the products or services to be offered;
  • Make/Market: Defined as the aggregate of all the processes necessary to fulfill the business objectives. This is the Revenue Generation Process;
  • Management/Support: Defined as the Executive governorship with supporting Financial, HR, IT and Facilities management processes.
  • When core business processes are interconnected, analyzed, measured and managed, the full process performance capabilities can be determined and monitored. This also provides clear visibility to all the sub-sets and any constraints and barriers which restrain attaining full performance. This approach provides executives and managers with timely and accurate information from which they can manage effectively for desired results.

    A simplified example of a set of Strategic Thrust associated processes below:

    Vision » Mission » Objectives » Strategy » Tactics » Market Positioning » Strategic Plan » To Development & Revenue Processes

    This set of processes is shown to illustrate that the flow of more intangible white collar work tasks are as identifiable and measurable as those involving substantial hands-on work activities. The major task blocks, from the creation of a Vision to completion of the Strategic Plan, all have multiple sub-tasks which can be measured, by time to complete, invested costs and a required level of quality which produce a corroborated and acceptable forward direction for the business. The aggregate of these process measurements summarize the financial costs, the responsiveness and the approved quality of the Business Plan.


    Business entities with meaningful business measurements have demonstrated the value of these essential and critical management tools for achieving and sustaining business success. These tools which contain true performance results and actual business process capabilities provide not only clarity in decision making, but timely management intervention when needed. The measurements of cycle time (CT), quality (FPY) and costs ($) are proven key attributes which provide the mechanisms to steer, correlate and directly link operational performance to business financial results. With these measurements, effective business controls can be implemented and monitored with an added measure of performance and delivery predictability which in most cases is available without the investment of costly real-time IT systems. These measurements provide business executives and managers the capability to determine if they are maximizing current business performance against their full realizable potential. Unobstructed visibility also exists to drive continuous operational improvements. Ultimately, the ability to successfully compete, grow and sustain profitability is critically dependent upon accurate and timely meaningful measurements in order to maximize asset utilization and provide all stakeholders the returns they expect.

    To further investigate how to determine your full operating potential, apply these meaningful business measurements to improve your business performance and manage for success, call Greater Yield at 972-308-8533 or email at ]

    As featured in

    When Women Entrepreneurs “Tip the Scale”

    After reading some stats on the growth of women-owned companies, I was tempted to get depressed. According to the U.S. Department of Commerce (2010), 88% of all women business owners are sole proprietorships without employees. 80% of all women-owned businesses earn less than $50,000. (It’s not so fabulous for men-owned businesses either: 77% for ownership and 59% for income). It seems like a huge amount of toil for very little return. And isn’t business about getting a return on investment? What kind of return on your investment of blood, sweat, and tears can you get if your business is “just you”? (Answer: bupkis)

    Hard lessons
    I’ve been noodling on this because I learned some hard lessons not long ago. In mid-2007, the revenues of my 11-year-old law firm choked. I saw that for all of our efforts over more than a decade, my business partner and I had never achieved real leverage within our law business. And given the lack of scale–or anything saleable about our company—there was nothing we could do but shut our doors. All that work, for all those years, and no return on the time, money, and effort. (Let’s leave aside the thousands of dollars in debt the firm had accumulated—that’s for another post). I can make the money back, but I can never reclaim the time.

    Looking at the stats, I’m not alone in having a business that couldn’t “scale.” That got me wondering: at what point do women business owners realize they need to “tip the scale”—that is, leverage their service business organization so that it can function independently of them?

    The owner-independent business mindset
    It helps to have worked in industries where owner-independence is a matter of course—and part of the consciousness. Elle Kaplan, CEO & Founding Partner of Lexion Capital Management LLC, came from the investment management world. Plus, she had a particular social mission that, by definition, had to have huge impact. “I want to build a better Wall Street for all Americans,” she announces. “That’s not something I can—or should—keep to myself because there are so many who can benefit from this perspective.” Her fee-only advisory firm surpassed her first-quarter goals within three hours of opening its doors.

    Debbie Womack, Principal of Texas-based Greater Yield, Ltd., earned her stripes in the U.S. Air Force, having served nine years in the Pacific and European theaters. “The big lesson from the Air Force,” she says, “is the importance of structure, discipline, and having a strategy.”

    Similarly, serial entrepreneur and Gen Y change-agent Erica Nicole already had one robust business humming along when she founded YFS Magazine (get this: horsepower products for the marine engine market). A prior background in global business also provided perspective. When the magazine’s traffic skyrocketed within a matter of months, she saw the monetization opportunities, and the need for a platform that didn’t require her active involvement. “I got out of the dirty details and up to the strategic bird’s-eye level real fast,” she quips.

    Accidental lessons
    For those from more traditional (read: less male-oriented) service industries, “scale” is a lesson learned somewhat by accident. Bonnie Dewkett took “accident” literally. Her epiphany was a 2010 running injury. Given the physical demands of her professional organizing business, The Joyful Organizer, Dewkett’s injury put her out of commission for nearly 3 months. “That got me thinking about developing a sustainable business that didn’t depend on me,” she confides. “Fair enough in my late 20s that I can work 60 hours a week on my hands and knees. But there are quality-of-life issues that I realized I needed to address … and I didn’t want to keep working those hours when I was ready to start a family.” As a result, Dewkett developed multiple streams of income in the form of information products, online marketing, and assembling a team of subcontractors.

    And life balance issues factor in for many women. The National Alliance for Caregiving reports that more than 65 million people, 29% of the U.S. population, provide care for a chronically ill, disabled or aged family member or friend during any given year and spend an average of 20 hours per week providing care for their loved one. “Caregiving in the United States” (November 2009).

    A matter of survival
    Other women entrepreneurs developed a bigger vision from a personal challenge. For example, Donna Miller, Founder and President of New Jersey-based Above & Beyond, Inc., watched her father struggle financially. When Miller became her family’s breadwinner, she was determined not to suffer the same fate.

    A frequent speaker on the subject of “building a self-sustaining organization”, Miller sees many women entrepreneurs falling into the “I can/should do it myself” mentality. “They don’t delegate or hire staff to build an organization,” she laments.

    Financial frustration, leading to legacy
    Serial entrepreneur Jill Salzman learned about the importance of “scale” from too many years on the profit rollercoaster. With home-based Paperwork Media, she endured financial ups and downs in her artist management and event company. To even the cash flow, she formed, which sells baby anklets. opened her eyes to the freedom that creating a scalable business could provide through outsourcing and delegation.

    For Salzman’s next phase, she wanted to create something that didn’t rely on her. She began to consider the “legacy” she wanted to leave to the world of women’s entrepreneurship. Enter Founding Moms, a community for mom entrepreneurs. Salzman has created systems for training and orientation so that anyone who wants to start a meet up group has the template for resources and monthly calls. Founding Moms is now in 30 cities nationwide, along with an international presence in countries such as Mexico, Australia, Canada and the Netherlands.

    Some signs you need “scale”
    Injury, legacy, determination to learn from the past—all provided the tipping point that made these women business owners realize they wanted a good income and freedom. For them, it’s not just about building a business—it’s about building a life.

    Womack stresses: “If you want a balanced lifestyle and better health, you have to be able to walk away from your business and wean its dependence on you, the owner,” she says. All of her C-level employees have 20+ years of experience walking in their C-level clients’ shoes. Many of them leverage their own connections and networking so that rainmaking responsibilities don’t fall on Womack alone. “You want the right business processes in place. You want employees who have a mix of complementary and identical skills so that you can entrust them to step in and step up.” Most importantly, “owner-independence makes a business that much more sellable.”

    Other signs you may need (want!) more scale in your service-based business:

  • You’re fed up not making the kind of money that can support the life you want to lead
  • Your personal relationships are suffering
  • You can’t take time off
  • You had to miss a family vacation because you were back in the office fighting fires
  • You spent your child’s Little League game/dance recital/[insert activity of child's choice] with your head in your BlackBerry/smartphone
  • You jump on every RFP, even if it means giving up your weekend plans
  • You’re facing health challenges brought on by stress
  • You’re working way to hard for way too little money
  • You’re a woman on the verge of a nervous breakdown
  • You’re dropping the ball; having difficulty focusing
  • You’re constrained and frustrated by your inability to make a greater impact in the world
  • You’re the family breadwinner and need to bring in the dough and make time for your family
  • Scaling in stages
    Scaling your business, like scaling Mt. Everest, is not an overnight proposition. Often, creating an owner-independent company comes in stages.

    Miller’s Above& Beyond business went through several evolutions. First, she delegated client fulfillment tasks (Miller had been a virtual assistant before opening Above & Beyond as a shared office facility and administrative support company). Next, she put a management team in place. More recently, she stepped back from being the prime rainmaker and sales generator. As she crows, “last year, I pretty much took the summer off, which was fantastic!” Her company is on the verge of opening a second location, and aims to have five locations with the next five years.

    Similarly, Molly Matthews, now President and CEO of the Starfish Group, grew her business in stages. “First, it was about survival. As a single parent, I had to put food on the table for my three small children.” When seeking larger and more lucrative contracts, she hired other people. She moved the office out of her home when sister became horrified by the legion of Post-It® notes all over the house. (Plus, the FedEx® trucks showed up too often for the neighbors). She brought on VPs to lead sales efforts. Ultimately, she grew the Matthews Media Group to 150 people.

    Creating an options strategy
    Many women business owners shy away from—or simply don’t entertain—thoughts of selling their business. As a result, they don’t take steps to give their companies sellable potential. Which is a huge waste of potential, because women business owners unknowingly curtail their options.

    That’s why Built to Sell author John Warrillow encourages business owners to develop an “options strategy.” Not just an “exit strategy”—but rather, a strategy for structuring a company to maximize options. What are the options if your business is totally owner-dependent? Few. You can never leave it … or else it will fall apart. What are your options if your company is ready to “tip the scale”? Many.

    William Bruce, President of the Association of Business Brokers, concurs. He points out that only 10 to 20% of service-based businesses can be sold successfully. “Key criteria for a successful sale include (1) a profitable business, (2) an upward trend of revenue and profits, and (3) a solid management team so that the business does not depend on the personality or presence of the owner.”

    Leslie Grossman, former President of the New York City chapter of the National Association of Women Business Owners, says that in her experience, “Women in service businesses generally don’t think about exit strategies and positioning their companies for sale.” There’s a danger in not knowing your options. “If you’re not prepared, you can’t adapt to changes like an economic downturn, or the competition that wasn’t there when you started your business.” Currently the Chief Connections Officer of Cojourneo, [] an online learning community for connection and collaboration, Grossman stresses “the time to prepare properly to sell is not when you past your prime–it’s just before you’ve reached your height.”

    Molly Matthews was lucky. Unconsciously, she had created a framework for her company so it could function independently of her. She didn’t really have “sale” on her mind until she was speaking about her business at a conference. “A man came up and asked me if I had any interest in acquisition,” which planted a seed. “I had to look up ‘acquisition’ in the dictionary. Who knew you could sell a business … like a house?” she jokes. “Turns out that you can and I did for 8 figures!”

    What are you doing to “tip the scale”? And what’s your motivation for doing it? ]

    As featured in American Management Association:

    Getting the “Right Start” in Managing a Successful Business

    The one thing that all owners of companies and C-level executives share is the desire to be successful. Most define success as the ability to sustain continuous positive results that steadily grow over time. To better support the growth of a successful business and yield greater results, senior executives need to evaluate the effectiveness of their management strategy. In many cases, the management style, the current business model, and the efficiency of current operations need to be analyzed to ensure they contribute to the desired financial and performance results without unwanted side effects.

    Fundamental management initiatives are well known, but many times they are not executed in an efficient manner. Greater Yield uses nine areas of focus, referred to as “Decisioneering,” to help senior management “Right Start” the reenergizing process to put any business on the road to reliable and sustainable results. Regardless of industry or business size, these nine criteria are vital to the success formula of any company. Each step in the Right Start process encourages many drill downs, allowing for measurement, evaluation, and improvement along the way. These “Decisioneering” factors are:

    Operational excellence involves identifying and removing root causes of any effort that does not add value to the end-to-end business process. Removing activity that slows down the outlay-to-cash cycle or which creates avoidable waste and rework enables the enterprise to:

  • Selecting and managing the right team of people
  • Communicating properly with team members
  • Creating and managing cultural change
  • Running effective meetings
  • Breaking through silos
  • Using the right tools and measure the right things
  • Managing the regulatory environment
  • Developing an executive mentoring program
  • The Right Team. Operational staff is a resource that senior management must influence in order to achieve success. To begin with, senior management needs to balance the skill sets required to accomplish the goals at hand with skills to manage work teams. For instance, acquiring and developing the “right” talent to lead the team is equally as important as creating the “right workplace attitude.” As far as team building, the focus needs to be placed on the company, not on individual “all-stars.” The team needs to be forward thinking and proactive, while concentrating on building relationships within the group. Once a cohesive team spirit has evolved, the business has succeeded in forming social capital that allows for more efficient handling of day-to-day activities and also creates a more productive environment that is better prepared to deal with the emergencies and unplanned events. In team building, many managers start by breaking the team into four major personality types: analytical, amiable, expressive, and driver. The goal is to create a diverse and healthy balance by avoiding having too many of the same type on the team. Thereafter, the business is positioned to move ahead more effectively through the other eight “Decisioneering” initiatives.

    Communicate. Effective communication sets performance expectations. Frequently overlooked, effective communications plays an important role in helping employees to avoid conflict and comply with the goals and objectives of the company. Establishing rules for proper communication, including feedback, helps ensure that management’s key messages are understood. By instituting clear expectations reinforced from the top down, a consensus-building environment is achieved and productivity and profits grow.

    Cultural Change. Typically, corporate culture entails the attitudes, beliefs and actions of the top management of the company, and it is often the biggest barrier to making improvements within an organization. Examples of roadblocks range from simple blaming behaviors to a nonaccountability mindset, to ownership-related attitudes that say “this product or service was not invented here.” For executive managers determined to significantly increase a company’s return on assets, a close examination of cultural issues is warranted. Eliminating culture problems is most often the most difficult part of a company’s goal in trying to improve results, but the payoff can mean profound and sustainable change.

    Effective Meetings. As companies grow, new functions develop and departments grow. A common result of this phenomenon is that employees hold more meetings in an effort to communicate. Frequently, employees complain that they never get anything accomplished due to “back-to-back meetings.” To implement more effective meetings, the leader must have a clear plan as to what the meeting is for and what the expectations are as a result of the meeting.

    Leadership. Leadership increases the value of the company in the eyes of its owners, employees, and customers. Leadership is also about understanding the company’s environment, anticipating how that environment is changing, and having the knowledge and courage to make the right decisions to improve and maintain the company’s competitive advantage. The leader must have a clear vision as to where the company is going, and how to navigate the balance of urgency and focus, all while meeting the needs of both the customer and the business. Leaders must also understand the direction the business is headed, and know the milestones that need to be accomplished within a reasonable time frame, which indicates that the organization is on the right path.

    Silos. At times, employees within a department work so well together that they appear to operate independently from the other parts of the company. However, while the “silo” appears efficient to outsiders, it is an extremely inefficient business model. The employees of each silo fail to understand that the lack of integration within the company creates an organization that is more complex, requiring layers of management which must now manage that complexity. In this environment, such cumbersome business structures fail to satisfy the customer, which should be the overarching goal of an organization. Effective leaders must find ways to promote cooperation across departmental, hierarchical, and functional boundaries. To break the silos, leaders establish enterprisewide goals with metrics to indicate progress and instill the mindset that each person within the organization has the obligation to contribute to the common goal. Usually, the organization must adopt a “process view” work model with cross-functional departmental teams dedicated to improving customer satisfaction. Senior management should reward collaboration, encourage networking, and create an environment of alignment.

    Measuring Success. Measuring progress is indispensable when it comes to demonstrating the actions taken and the effort required to yield positive tangible results. Progress is seldom linear and sometimes the organization’s momentum will tumble. Measurements gauging progress help “reenergize” an organization by showing how much the company has advanced, while instilling confidence in the company’s strategic plan. A good measurement system has clear objectives, is integrated, relevant, meaningful, and accurate and timely, while being understood organizationwide. Most important, it is utilized throughout the organization. Built with the customer in mind, the measurement criteria should be action-oriented, using leading indicators to give the organization immediate feedback.Thus, corrective actions can have real impact.The design and implementation of a system of measurements are a difficult undertaking and generally need outside intervention to help the organization’s leadership.

    Regulatory Management. While executive leaders are trained to run a company, few are familiar with the complex regulatory environment. Business leaders must develop the ability to understand and respond to various government regulations quickly, while spotting, analyzing and dealing with other legal issues that may be distracting at best and are many times detrimental to business operations. To be successful, management must learn to work effectively and efficiently with inside and outside legal and regulatory counsel to resolve problems and proactively manage risk. A most common problem is the way a business manages regulatory compliance. Finance manages financial reporting compliance; HR manages EEOC compliance and other departments handle compliance as a stand-alone function. By taking a strategic view of compliance costs, management can reduce the redundancy of efforts, while gaining a clear understanding of corporate risk, companywide.

    Executive Mentoring. At times, most leaders could benefit from the counsel of a seasoned executive from outside the organization. A successful leader recognizes the benefits of independent counsel and will seek advice in times of need, and as a source of ongoing executive level development.

    An executive mentor is a coach that provides open and honest advice as well as an independent viewpoint to organizational challenges, while offering sage advice to help fine-tune leadership skills. As a confidant, a mentor is a safe sounding board and a supportive listener that has the ability to talk an executive through tough leadership issues. A mentor also encourages critical thinking through situational teaching and known outcomes. As a company ages, senior management must continue to provide innovative performance improvement solutions to an increasingly complex organization in order to keep a business on track. Improvements and new processes are not necessarily of long duration, nor are they costly in terms of company resources in time and money. Executing the nine “Decisioneering” principles can bring change to any organization. And the investment of resources should help an organization realize substantial savings by performing operations the right way, the first time. Right Start management results in “less scrap with no rework,” requiring less time, less money and reduced cost. A Right Start management approach to business results in a better-managed company that operates at peak performance, while generating higher profits. ]

    Cloud Computing Surprise
    Corporate Compliance Insights
    August 2, 2012

    Cloud Computing Surprise

    cloud computing compliance

    As featured in:

    Cloud computing has truly been a phenomenon in the IT and business communities for the past several years. The underlying concept of a cost-effective, ubiquitous, and scalable technical service environment is hugely attractive. A prodigious amount of literature exists regarding the pro's, con's, risks, benefits and "how to's" of planning and implementing a cloud computing-based service. The literature also includes general descriptions of issues that might arise if cloud computing services are not thoughtfully implemented.

    What does not exist, however, is a corresponding body of literature devoted to compliance issues associated with a particular cloud-based service. Compliance exposure is generally true with the introduction of any new service. However, cloud computing creates a special case.

    Cloud computing services range from straightforward technology services to sophisticated "on demand" business services. Cloud computing vendors do not always operate all elements of their product offering, and the use of sub-contractors is not uncommon.

    Further, many cloud computing vendors operate multiple technical facilities in multiple locations around the world. In fact, an implicit assumption in cloud computing is that a user need not know where a cloud computing service is operating. As such, a client's cloud computing service implementation may exist in multiple locations simultaneously, be executed by multiple organizations, and those locations may dynamically change.

    Unfortunately, few compliance standards exist in the cloud computing environment today. The addition of a cloud computing service to an "in house" environment changes the overall compliance setup and results in a unique and more complex compliance environment.

    Furthermore, compliance professionals are far too often surprised to find out about a new cloud computing service after implementation. At that point, there are two questions that must be asked: 1) How should the business exposure be documented? and 2) What is the best course of action to minimize business risks resulting from noncompliance?

    In assessing the noncompliance potential, it is often useful to go back to basics and create a "cost to conform" risk assessment. The "cost to conform" is a two-step approach. The first step is a worst-case scenario where the cloud service provider cannot or will not support any required compliance activities. That worst-case assessment is translated into financial terms as a "maximum cost" to the business if nothing is done.

    The second step is a gap analysis and "cost to conform" using existing documentation for the relevant compliance activity. The gap analysis is based on key requirements from the organizations' documented compliance environment. In creating a "cost to conform" assessment, each compliance requirement is reviewed against the cloud computing vendor's service and a gap analysis is documented.

    Cloud computing vendor dependencies on sub-contractors, existence of multiple locations, and dynamic resource allocation of a client's service must be understood and documented. For each gap identified, two questions must be answered: Can the compliance gap be closed and, if so, how much will it cost? If the compliance requirement cannot be met and the gap closed, why not?

    The total "cost to conform" calculations along with the "maximum cost" calculation provide the basis for quantifying the business risk. It is possible that the "cost to conform" may be greater than the "maximum cost" for noncompliance. It is also possible that the "maximum cost" is low enough to represent an acceptable business risk. Both possibilities are the ends of the spectrum. The real situation likely lies somewhere in between.

    Anyone who has dealt with "after the fact" corrective activity will agree that such events are almost always time consuming and expensive. The obvious action is to avoid the situation by anticipating the possibility and being proactive.

    Four recommendations for doing so include:

    1. Understand the variety of cloud computing services and how they might impact compliance activities.
    2. Educate users, IT staff, internal auditors, legal staff, etc. on the implications of various cloud computing services on compliance requirements.
    3. Make certain that documentation about current compliance requirements is complete and up to date.
    4. Stay involved in various parts of the business that might be considering cloud computing services so the compliance professional can be involved up front.

    In addition, one of the thought exercises that compliance professional might undertake is to create a risk and dependency model for existing compliance activities. The compliance requirements for the business are ranked, ordered from most significant (usually in financial terms) to least significant. For each compliance activity, key dependencies for compliance are identified, i.e. database, application, infrastructure, business process, data processing procedures and reporting requirements. This framework could be used to prioritize cloud computing models as well as used to assess potential cloud computing vendors.

    As cloud computing models become more pervasive and complex, compliance activities will become increasingly challenging. Compliance professionals should be on the forefront of understanding the implications of new cloud computing models and services. ]

    As featured in Oil & Gas Monitor magazine:

    Operational Excellence: A Key to Prosperity in Disruptive Markets

    Crude oil and natural gas are predicted to remain the principle sources of energy worldwide through 2030 and developing country demand is likely to drive consumption up 50% by then (Daniel Yergin et al).

    New technology applied to production of "tight" oil has reversed the decades-long decline in US oil output and may limit the upside in prices, thanks to a boom in places such as the Bakken shale in North Dakota and the Eagle Ford shale in Texas. The possibility of price reversion to the mean, triggered by potentially vast new sources of supply, suggests that firms in the upstream segment of the oil industry should structure their business to be able to operate profitably at a price below $32.50/bbl (the median inflation-adjusted price since 1970).

    Natural Gas accounts for almost a quarter of US energy consumption. Currently, the monthly average price of gas for delivery at the Henry Hub is below $2.30 (its lowest inflation-adjusted price in 16 years). Some producers are truncating or postponing drilling programs in cases where the plummeting price of natural gas has driven projected ROI below target.

    Yet the discovery of enormous new gas supplies, which may drive prices even lower, could precipitate a great change in the global economy, opening enormous opportunities to domestic producers who can rise to the challenge. The US, the "Saudi Arabia" of natural gas, can flip from a large energy importer to a large exporter.

    Royal Dutch Shell's chief executive, Peter Voser, told the Financial Times that Shell has more than 40,000Bn cubic feet of gas reserves in the US and Canada already and it was "now time to deliver that". He added that "Shell's priorities were bringing down production costs and maximizing revenue for the gas...we have enough on our plates concentrating on those issues."

    From integrated majors like Shell to energy producers of all sizes, the factor that will most likely differentiate the victors from the victims of such turbulent and disruptive markets will be operational excellence.

    Operational excellence involves identifying and removing root causes of any effort that does not add value to the end-to-end business process. Removing activity that slows down the outlay-to-cash cycle or which creates avoidable waste and rework enables the enterprise to:

  • extract more volume of salable products at lower cost
  • acquire the agility to rapidly adjust product mix, turning price volatility into opportunity
  • accelerate revenue and profit by bringing new developments, techniques and practices to market much more rapidly
  • The leading consultants at Greater Yield bring years of experience in analyzing and identifying areas where the highest positive impact can be made in an organization through application of relevant tools and methodologies that transform mundane systems into synchronized, streamlined end-to-end business processes that consistently and punctually deliver value to the enterprise and its customers.

    Typical areas in which operational excellence can shorten cycle time, reduce errors and add value:

  • Faster permitting for land use e.g. geophysical exploration, drilling, production facilities and pipelines
  • Faster cycle times and fewer errors with synchronized inputs, streamlined hand- offs and clearly defined decision filters through appraisal, drilling, production, development, transportation, rehabilitation and decommissioning etc.
  • Bridging communication gaps between strategic planners and personnel executing tactics to reduce cycle time and rework in the Spud to Rig Release cycle
  • Applying Lean principles to reduce Rig Move to Spud cycle time
  • Reduced rig cost and accelerated readiness for POP through use of KPI, COL & BRT tools to ramp up multi-well drilling programs
  • Faster commissioning of production facilities with Lean, SMED, standardization, Poka-Yoke and 3PC collaboration
  • Improved maintenance planning including more effective leverage of existing Computerized Maintenance Management Systems for radically higher availability of production plant and equipment and faster "Formula 1" shut-downs
  • Significantly improved equipment uptime and production output while reducing lost time injury incidents through formal assessment and skill gap training for all levels of Lease Maintenance personnel (high proportion of new hires in areas of labor shortage)
  • Additional improvements in safety, cost reduction and equipment availability through Route Optimization enabling more effective deployment of Lease Maintenance personnel in areas containing multiple wells and/or wide geographical dispersion
  • Cost reduction through superior Supply Chain Management and Demand Management
  • Shorter time-to-market with accelerated revenue streams due to elimination of indeterminism from the R&D process
  • Process Value Management

    Greater Yield's skilled and seasoned consultants have helped employees at all levels in hundreds of companies worldwide adopt and internalize a view of business as a series of interconnected processes. Our consultants mentor and convey a disciplined yet flexible methodology to streamline the business by ensuring that each and every step in a critical process adds value, can be executed to specification within the shortest possible cycle time and with the highest possible yield.

    The outcome is a seamless end-to-end business process with minimized waste, generating faster and better results, using fewer resources. ]