Making an Impact - Series: Optimizing Organizational Operating Structures

This article is the first in a series of a Corporate Strategy Impact Studies that peers inside Mesh Digital’s novel management consulting approaches Showing Mesh's industry experience, and its ability to help its clients manage large-scale digitally led change that drives tangible business impacts. This sample report focuses on Optimizing Organizational Operating Structures, as Software as a Service (SaaS) firm (“HighTechCo”) moves from Pre-IPO to being a publicly traded company. Mesh’s unique ability to rapidly assess an organization’s current landscape, combined with the development of highly tailored approaches, recommendations, and delivery services means that our clients never receive cookie cutter strategies the MBB, and Big4 consultancies all too often provide. Instead our clients benefit from novel, yet pragmatic, sustainable strategies that that they can action against and produce business results.

Executive Summary

Mesh Digital, LLC (“Mesh”) was fortunate enough to provide a corporate strategic management report, as an independent 3rd party assessment covering a comprehensive set of findings and recommendations for a High Tech, Subscription Services business on behalf of its Board of Directors (BOD). With an initial public offering (IPO) and listing on the New York Stock Exchange (NYSE) looming the firm would like to continue to expand and globalize its business. This [sanitized] report is supportive of those efforts providing operating guidance towards these ends covering topics ranging from; a recommended global operating structure, organizing its operating environment, opportunities for strategic relationships, and providing insights into the global competitive environment HighTechCo is operating within.

Additionally, Mesh has evaluated opportunities and made recommendations towards strategic relationships, mergers, and acquisition target opportunities. Mesh’s recommendations are squarely centered on social and fiscal sustainability, while improving customer value propositions, market differentiation, operational agility, innovation velocity, transparency, and governance, while managing risks, and outcomes.

Company Background

As the world moves beyond economies based upon industrial consumption and product centric manufacturing. instead marching towards digital innovation and services as the global economic backbone. New firms are quickly stepping up to underpin this new paradigm. HighTechCo, Inc. is one of these firms. HighTechCo was an eleven (11) year old digital technology services emerging growth firm, that provides cloud-based software services, on a subscription service basis as the engine that any firm, in any industry can use to do the same.

HighTechCo coined the term “Subscription Economy” to represent this shift to reliable, recurring revenue models where any product, service, or good ranging from software services to vehicles can be provided via subscription sales models (NASDAQ, 2018). The firm is looking to disrupt the existing software market for ERP systems that provide order to cash management functions, which are predominantly based on legacy manufacturing and product sales models. HighTechCo believes that their competitive advantage lies in their purpose-built software platform “that automates and orchestrates the entire subscription order-to-cash process” (HighTechCo, Inc., 2018., “Free Writing Prospectus - Filing under Securities Act Rules 163/433”). This includes HighTechCo’s; customer base scale, its operational robustness, completeness of its capabilities, its software flexibility, adaptability, and its customer persistence. Meanwhile its pace of innovation, intellectual property ownership, depth of domain knowledge and growing partner ecosystem drive up barriers of entry for competitors in its markets.

Post IPO, HighTechCo will be challenged with reliably growing its revenues while maturing its operations. Looking forward, HighTechCo and its management team will be required by the public markets to seek out continued growth through; new customer acquisitions, expanded and deepening of existing customer relationships, new vertical market entries, expanding its global market, leveraging strategic partnerships with global systems integrators and the launch of new products and services, while also optimizing its pricing strategies.

HighTechCo is operating in an increasingly competitive global services market that creates risks to its long run success. Not only are incumbent ERP software providers a risk to its operations, but so too are custom internal enterprise software billing engines, startup technology firms and its own operational executional capabilities.

Recommended Operating Structure

In the early 2000s General Electric’s (GE) then CEO Jeff Immelt was steering the industrial conglomerate from that of a U.S. business focus to that of a global one. By 2016, GE was operating in 180 countries up from around 100 in 2010 with the majority of earnings from international operations (Immelt, Prokesch, & Gulati, 2017). This globalization effect wasn’t and isn’t limited to large global multinational enterprises (MNEs) such as GE, but rather quickly becoming the standard for firms all the way down to startups who are born global.

HighTechCo is one such firm. Although already operating by the time of its IPO in 30 global markets, the expansion into new and emerging markets will pave the way for the earnings growth that Wall Street will inevitably be looking for now that it's publicly traded. HighTechCo’s operations will need to be able to balance the use of scarce resources of time and capital, conserving enough of these precious resources to execute against its growth plans.

As many MNEs before it, HighTechCo will need to drive down its operating costs and to do so Mesh recommends the use of a global shared services operating model with a modern twist. As a U.S. based firm with the majority of its business and revenue derived from its domestic market, a lightweight, but high quality centralized global shared services team should strategize, plan and execute against a shared services model that is both centralized and leverages global sourcing. Core processes that should be considered for this are commoditized functions of IT, finance, HR, sales (inside sales), marketing, customer support and legal, while retaining responsibility, accountability, innovation, and continuous improvement in house. To be clear, Mesh is not just recommending a simple human resourcing outsourcing model. Rather for HighTechCo to take advantage of the latest opportunities to use highly automated and orchestrated core back-office processes through the use of machine learning, artificial intelligence, cloud computing, robotics / robotic process automation (RPA), service mesh architectures and mobile computing. The intended outcome of these shared services is to as inexpensively as possible empower the front office teams to spend more time driving customer value, developing innovations, performing R&D and experimentation, shifting investments closer to the customer (Weiss & Thorogood, 2011). HighTechCo should leverage its opportunity to go straight to these highly automated processes while still relatively small. Strategically decreasing its future costs and hurdles to rapidly scale. Eventually the goal of HighTechCo’s operations should be to analyze opportunities to move any task into global shared services that isn’t part of the organization that is delivering the customer experience and differentiating in the market. This can extend as far as insights and analytics, management reporting, even strategic analysis (EY, Inc., 2014) to gain the most value from shared service opportunities.

Core business processes are not static, over time they will change and there may be new opportunities to ingest functions into the global shared services organization that didn’t exist prior. HighTechCo will need to develop a pacing schedule (e.g. quarterly, via agile corporate QBRs) to analyze these opportunities and execute plans to automate, enhance and migrate functions to shared services. Similarly, as the pace of innovation is rapidly increasing, especially in the technology sector where the macro trend is to continually automate previously manual, burdensome functions thus commoditizing them, HighTechCo should routinely look for these opportunities. HighTechCo should build a digital factory model (Khan, Lunawat & Rahul, 2017), that creates an institutional muscle memory for the firm on how to commoditize these functions efficiently and inexpensively.

With respect to the front office functions, HighTechCo should take advantage of the opportunity to differentiate in its markets afforded by the shift of capital from the back office to the front. It should do so by building cross functional teams that are in market, that have deep industry knowledge, leverage flat organizational hierarchies that are made up of highly educated, empowered, engaged, incentivized employees. These employees should be given significant flexibility on how to achieve clearly defined business outcomes while operating within a strategic management and governance framework that is supportive, rather than restrictive, providing a sort of guide rails while not being stifling (Ahlbäck, Fahrbach, Murarka & Salo, 2017).

To avoid any doubt of which teams should be included in this flexible, agile operating model, the R&D, Innovation, Sales, Marketing, and portions of legal and IT, should be developed into cross functional product ownership teams within local markets that work within a matrixed environment as team pods. These teams need clear common missions, well defined goals, key performance indicators (KPIs), while being held responsible and accountable for achieving business outcomes. These teams should be supported by the shared services organization while afforded the ability to go beyond the use of those services for non-commodity functions. They should be doing so while being informed using data and analytics in real or near time on how they’re measuring against KPIs and expected outcomes (Daub, et. al., 2017)….

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--Mike Kleinberg, CEO & Managing Partner

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