There comes a time when it becomes necessary for a business to re-invent itself. The reasons for this can be many; some are complicated, some not so much. Notwithstanding, it is not enough for an organization to recognize and accurately define the root cause of this change requirement. The organization must act upon its recognition with a strategically devised plan. The failure of an organization to do so can have devastating consequences.
Situation and Complication
A public company (the “Parent”), serving travelers and guests around the world, identified a segment of its industry not well represented within its customer portfolio. Rather than developing this line of business organically, the Parent opted to do so via acquisition. A target company was identified and acquired (the “Subsidiary”).
Post-acquisition, the business model of the Subsidiary was no longer sustainable. Increasing overhead and declining margins rendered the Subsidiary non-viable long-term. Faced with the reality of a failing business model, and the risk of losing the benefits of the acquisition, the Parent reached out for help assembling a team to find a solution.
The Assessment: Identifying the Issue
Led by a Navigare Principal, each member of the team was directed to study, on their own, the basic operating principals and strategy of the Subsidiary, and subsequently gathered as a group to discuss their findings. Upon doing so, a realization struck them.
The Subsidiary managed all markets in which it operated. The risk associated with these operations fell squarely upon it. Furthermore, it was a low overhead, lean operation keenly focused on effective fiscal management to maintain its otherwise precarious margins. The Parent, on the other hand, was a well-oiled, international enterprise, with significant resources and multiple business units. Its other subsidiaries were franchisors and management companies, capable of absorbing costs allocated to them by the Parent, or passing them through to their clients, The Subsidiary now found itself a recipient of these allocations from the Parents, further reducing the already slim margins.
The Solution: An Industry First
The following months were spent interviewing Parent and Subsidiary management, operations, sales, and finance staff. Deliberation, modeling and strategic thought lead to the final solution. The Subsidiary could no longer operate markets within which it operated. Rather, it was necessary to find third parties to do so and with that, an industry first franchise model concept was born.
The plan was put in place. The team would split into multiple groups. One was focused on proving the acceptance of the concept by potential purchasers of the franchises, and another was assigned the task of designing the franchise model itself, yet another was charged with drafting all federal and other related documents necessary for the approval of a franchise system, while another team was assembled to develop the sales strategy needed to support the system. And lastly, a team was charged with developing a sales and marketing platform for the sale of the franchises themselves.
After several months, the system was developed and the implementation plan put in place. The entire business model of the Subsidiary was transformed. The Subsidiary would now provide the same service it did before the acquisition, albeit it as a management company and franchisor.
The creation of an industry first franchise system was an overwhelming success. Franchise opportunities sold-out in half of the budgeted timeframe, the Subsidiary expanded to 45 markets across the country, and a revenue stream of more than $50MM was created for the Parent.
The acute assessment of the underlying issue, the creation of a solution to solve the underlying problem, and the effective implementation of the plan lead to the creation of sustainable business for both the Parent and Subsidiary.