Case 14 Norton Lilly International

8/10/2019 Case 14 Norton Lilly International

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Janet MungerWeek 7 Assignment 1May 4, 2014

NORTON LILLY INTERNATIONAL: IMPLEMENTING TRANSFORMATIONALCHANGE IN THE SHIPPING INDUSTRY

Objectives

The development of a sustainable business platform that would be capable of doubling the company's size while

generating an attractive return on investment.

Forming an executive committee of nine was to begin decentralizing the decision-making process away from

the two owners for the gradual handoff of the business to a new generation of family members.

Long-term success would best be achieved through logical, step-change fundamentals wherein results could be

both visible and tangible

The overall improvement in Norton Lilly's financial performance could largely be traced to the foundation that

was begun in 2007, consisting of the following:

1.

Continuous improvement had become an accepted discipline throughout the company.

2.

Accountability for achieving KPIs assigned to a unit had become main stream.

3. Dashboards were included in the monthly financial summary package, which was distributed to each

executive committee member.

4.

Value creation and use of a 12-month rolling forecast had also become main stream. The budget process

had been eliminated, and decision making had been decentralized to business unit leaders, with full

decision authority but also with accountability for achieving margin and growth targets.

5.

The use of management development based on the proper matching of people to jobs.

6. Policies had been clarified and/or created that ensured decision-making rigor. In addition, resources

allocation policies helped ensure that resources would be committed to opportunities that were best in line

with the company's strategic priorities.

International strategy

Norton operates three business units; liner, ship services and overseas. Liner and ship services offers similar servicessuch as fueling vessels, crew transport, medical services, restocking, handling cargo and tows. The primarydifference between the two is that the liner focused on cargo whereas ship services focused on the vessels. Theoverseas business unit handles liner and ship services outside of the United States.

Generic Competitive Strategy

Norton Lilly uses a focused differentiation strategy and really narrow in on a concentrated buyer segment. WithNorton Lillys limited services, they need to focus in on their market.

SWOT Analysis

Strengths Strong Management

Innovative Culture

Asset Leverage to improve their market share

Customer Loyalty

Supply Chain

Brand Name

Technology


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Weaknesses Work Inefficiencies

Bad Acquisitions

Opportunities

Innovation

New Technology

New Services

Acquisition Synergies

Emerging Markets

International Expansion

New Markets

Threats Bad Economy

Intense Competition

International Competition

Substitute Products Volatile Costs

Identifying and Understanding Value-Creating Processes

Introducing process mapping to help everyone understand exactly how we delivered our services. This change

in mind-set would act as the foundation for a culture of operational discipline and continuous improvement.

The old delivery model was end-to-end servicefrom bill of lading preparation, cargo release, to freight

collectionswas not coordinated and consisted of nonstandard processes, leading to rework and, more

important, financial penalties within the context of existing contracts.

Closing performance gaps helped management and key employees understand the underlying causes of service

failures.

Improved process standardization to end administrative procedures that duplicated work, improved customersatisfaction, and reduced fines and penalties from $325,000 to $283,000, by December 2007. (Fines and

penalties had been reduced to $28,000 by 2010.)

Clarifying accountability by using the results from process mapping to identify operating-level objectives for

each process; those objectives are called key performance indicators (KPIs).

Implementing a Balanced Scorecard Performance Measurement System

Balanced scorecard focused attention on the performance of value-creating processes. Metrics included in the

balanced scorecard system used at Norton Lilly included process KPIs, customer satisfaction, and financial

performance.

Dashboard of performance indicators - provides a quick overview of operational and financial performance at

the business unit level. Mapping better enables each business unit leader to understand cause-and-effect

relationships between day-to-day activities and operating and financial performance.

Resource Allocation Policies

Establishing a capital outlay policy that requires all projects or investments be considered only after satisfactory

due diligence had been performed and proposals evaluated by the executive committee. All project or


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investment funding is granted only if solid evidence had been presented demonstrating the projected financial

value.

For non-project-related expenditures, an authorization for expenditure (AFE) system was implemented to

ensure that each business unit leader saw and signed off all capital expenditure requests and understood the

impact of the expenditure on the KPI targets.

Implementing the capital outlay policy created a formal process for evaluating proposed projects or investments

greater than $10,000. The policy called for a nine-step due diligence process, thereby ensuring consistency inproposals coming before the executive committee. The nine steps were as follows:

1. Description of the opportunity.

2.

Description of how the opportunity fit with Norton Lilly International's objectives.

3. Assessment of the competitive threats.

4. Assessment of the competitive landscape.

5. How success would be ensured.

6. Proposed exit strategy.

7.

Business case.

8. Financial pro forma.

9. List of major assumptions and risks.

Building Managerial Talent

A leadership development program based on the fundamental premise that managerial employees could be classified

into one of four basic profiles: strategist, project director, networker (i.e., account manager), or external qualifier

(i.e., salesperson). An individual's profile was determined by how the person responded on a survey containing items

related to dominance (the need to be in charge); influencing (introvert versus extrovert); steadiness (ability to

multitask versus working in linear fashion); compliance (ability to comply with rules versus being a rebel);

motivators (e.g., knowledge, status, or money); and cognitive style.

Improving Information Used for Decision Making

Gathering information from process mapping to help determine break-even pricing and proper staffing levels

for various-sized cargo ships.

Creating dashboards of financial measures such as cash flow and accounts receivable KPIs. The inclusion of

financial KPIs on management dashboards helped the percentage of accounts more than 60 days past due in the

Liner business unit decline from 7 percent in December 2008 to less than 1 percent in June 2010.

Examination of the disbursement accounts (essentially customer billings for services rendered) and collection

processes and established a service-based cash conversion cycle KPI.

Improving cash and liquidity positions by reducing the baseline cash conversion cycle from 24 days in late

2008to 16 days by May 2010 and tracking toward a stated goal of 15 days. The company's current ratio

improved from 0.88:1 to 1.51:1 over the same period.

Changing Financial Performance Expectations

The concept of value creation was by using internal cost of capital; the proxy for value creation was established.

The concept of earning a fair rate of return based on assumed risk by giving each business unit leader a margin

target.


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A New Approach to Forecasting Financial Performance

In 2006 Norton Lilly lost $2.6 million

Norton Lilly missed its budgeted performance in 2007 and 2008 by 90 percent and 63 percent, respectively.

The company adopted a 12-month rolling forecast. This would (1) provide continual refreshing of the

assumptions underlying the forecast and (2) provide the company a continual look at its next 12 months,

regardless of how many months were left in the calendar year. The move to rolling forecasts helped managers

improve forecasting accuracy to the extent that the company missed its financial projections by only 9 percent

in 2009 and was on track to achieve 94 percent of projected financial performance in 2010.

The company was on track in 2010 to generate revenues of about $45.7 million (up 4 percent over 2006) andnet income of $3.3 million (up 251 percent over 2007).

Analysis

Summary of Financial Ratios

*(Martin,2013)

Comparison of Performance

*(Martin,2013)


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Summary

After five years of steady growth, Norton Lilly had a number of problems. A series of acquisitions, joint ventures,and internal expansion led to their problems. A failure to effectively integrate acquired shipping agencies,inadequate attention to operational performance, and too little focus on bottom-line performance put the company ina tough situation.

An emphasis on continuous improvement, value creation, using a 12 month rolling forecast, and accountability forachieving KPIs assigned to a unit has become their business model. They have also initiated the use of managementdevelopment based on the proper matching of people to jobs. I believe that Norton Lilly has built a good strategyexecution as they have seen results with the changes they made so everyone in the company is really buying intotheir strategies. The use of a balanced scorecard has kept employees attention on the performance of value creatingprocesses. Some of their metrics include KPIs, customer satisfaction, and financial performance. These systemsprovide a quick overview of operational and financial performance.

Between 2006-2009Norton Lillysrevenues ranged between $43 and $55 million. During this time span,NortonLillysbottom line fluctuated $5.5 million, an 11% increase in terms of revenue to profit.Norton Lillyneeds to continue to improve balance sheet and to continue to improve upon their developmentprogram.

Shaping the Future:There is very good opportunity here for Norton Lilly. They should capitalize on their strengths to make the most ofthem.Norton Lillysbusiness segments should set themselves to be in a leadership role and hence lead the industry.This may mean creative management ahead of anticipated demand.

Adapting to the Future:Norton Lilly needs to use good judgment in acquisitions, joint ventures, and internal expansion looking at changingmarket dynamics. Where the level of uncertainty is very high, Norton Lilly needs to focus on their core businessdynamics. Norton Lilly should not commit significant investments or undertake focused projects that are above theirbusiness potential.

References:

Martin, A., Norton Lilly International, Retrieved May 3, 2014 fromhttp://prezi.com/hzvcozt3ebdx/norton-lilly-international/

SWOT Analysis. Retrieved May 2, 2014 fromhttp://www.wikiwealth.com/swot-threat:norton-lilly-international
http://prezi.com/hzvcozt3ebdx/norton-lilly-international/http://prezi.com/hzvcozt3ebdx/norton-lilly-international/http://prezi.com/hzvcozt3ebdx/norton-lilly-international/http://prezi.com/hzvcozt3ebdx/norton-lilly-international/http://www.wikiwealth.com/swot-threat:norton-lilly-internationalhttp://www.wikiwealth.com/swot-threat:norton-lilly-internationalhttp://www.wikiwealth.com/swot-threat:norton-lilly-internationalhttp://www.wikiwealth.com/swot-threat:norton-lilly-internationalhttp://prezi.com/hzvcozt3ebdx/norton-lilly-international/http://prezi.com/hzvcozt3ebdx/norton-lilly-international/

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Case 14 Norton Lilly International