Does organic business growth depend on the amoeba model?

For some time I have been working on my book. It began with an idea formed with a colleague I worked with at Mayne Nickless Corporation. The  plan was to collaborative on a lampoon style story about things we experienced using an ambiguous title “Where Corporate Lies”.  In the meantime I had already started writing about the Amoeba principle used by that organisation, so I figure I may as well publish it anyway as something my great grandchildren may like to read.

This autobiographical account follows key events at Mayne Nickless in the mid 1980’s. I joined there initially as a Finance executive and later took to the Business itself getting involved in its reshaping and worldwide transformation.

clip_image002 As I look at this photograph I am reminded of a great transport company where I had a career working with a simple amoeba model.

I had joined the transport world in 1981 after a wonderful 10 year career culminating as Chief Financial Officer at Vickers Ruwolt  in Melbourne, Australia. where I  counted the beans and took care of things commercial.

That was 6 years after I started work in a Chartered Accounting practice in 1966 immediately after Australia converted to decimal currency. That first job saw me assigned to convert clients cash books from pound shilling and pence to Dollars an cents. We did not have calculators so I  had to do it by hand.

In that job I also learned a great lesson about making assumptions. Inquisitive by nature a question I pondered was why a client called a Kalamazoo cash book their “Front” book. imageMy boss answered knowingly with, “Because it was kept at the front desk with the cashier”. Later I took great delight in discovering the truth from the cashier who later told me she had stuck a imageDymo label with the word “Front” on it years ago as both the back and front on the Kalamazoo cover looked the same.

In 1968 I moved to a plastic goods and toy manufacturing firm for what seemed to me like a real job Here I got to keep the books myself as an accountant. There I saw the Barbie Doll born in a mass market industry that also made garbage bins and plastic bottles. Three years later I got married went to the UK to cut my teeth on an engineering business where I made many lifelong friends I am still in touch with today.

Those unforgettable;e formative years were my grounding but Vickers without doubt brought it together where as worldwide diverse engineering group I had enormous scope to grow and learn. Their growth came from their base of established heavy engineering capability in aerospace defense, mining and heaving industry and thru strategic acquisitions such as Rolls Royce. Basically as countries and industry grew so did Vickers.

Moving to Mayne Nickless was very different where I found a colony growing rapidly  in much the same way as an amoeba community.Hence here is the point of my story about the amoeba model.

The amoeba reproduction process is  simplicity itself. When amoebas grow to a certain size they organically divide to double in number to then grow again. This was the transport model  that not only applied to operations but also to acquisitions. In the later case the mindset was “Watch them grow to a certain size then target them and their customers to join your amoeba family”.

Just before the economic downturn of the mid 1980’s, after I had joined Mayne Nickless, in 1981, my job in the express transport division of Mayne Nickless was to oversee a portfolio of 15 transport businesses. This was a corporate role to ensure they were cash profitable and to assist them to grow that way. Our amoeba rule in that business was set at $40 Million, a level we saw as manageable as one cell, without losing focus.

Mayne Nickless Group was listed in Australia as 3rd in size in its industry, being international transport and securities services operators. As part of my job I was involved in an acquisition of a sizable and profitable national air freight competitor based in Adelaide. They had become vulnerable when they ventured into an unprofitable road service.

When a downturn came in 1983 and I learned about holding the fort. With a colleague, we were given the onerous operational task of keeping alive a below par road transport business, hit hard by market downturn. I had clear instructions from our Board. “Protect the business capacity and stop the bleeding.”

Oddly the airfreight component was called SKYROAD EXPRESS, a clever misnomer. They had achieved, by stealth, a sizable market share of about $40 million in about 4 years, without even having a sign on a truck. Their strategy was simple: Hide and pick off the competition.

As far as we could ever discover, the three guys who ran it were from Sydney and it seemed that somehow they had walked out of one of our largest divisions, with our national client list. They then systematically and unsuspectingly picked them off from the out of sight haven of Adelaide, where they had re-based.

It was not until we lost a lucrative Darwin run deal they tendered on with fuel burn only rating, which brought them to our notice as a newbie we should watch. Even then we had no idea about their size, until the day we met them at a Saturday morning meeting at Melbourne airport, when they approached us with an offer to buy them out.

Our express transport group Managing Director then, was John Price with whom, without doubt, I enjoyed some of my best years. And I still draw on his mentoring when I lose my way. As a transport leader he was an astute and strategically tactical operator. He never forgot the principles of knowing his numbers and the difference between carrying bricks and feathers.

In this rough and tumble industry of real people, tethered by a fair share of ‘also ran’ doubtful dealers, he, on this occasion, agreed on the spot to buy SKYROAD. He knew the next flight was to Sydney to visit TNT or Brambles, at the time the number 1 & 2 operators in the market.

After the due diligence, we found the company included a road operation that had dubious revenue of about $10 million. They also had many of our former customers which told us a story of how they got started.

They had about 140 people working in a central unmarked building in a suburb of Adelaide. Oddly they were right under the noses of IPEC, one of the slickest and most profitable businesses just down the road, and we hadn’t spotted them.

After settling down SKYROAD, our plan was to merge their mal-aligned road operation they called BUDGET ROAD EXPRESS with one of our own struggling amoebas we called FREIGHTLINES ROAD EXPRESS. This meant we could make one operation out of the two with viable economies of scale.

Our first hurdle was the significant brand presence of each which is very important in transport with fragile loyalty in a low entry barrier industry. Merging the names well was important to avoid attrition so we called it BUDGET-FREIGHTLINES.

It seemed to work and, supported by visits to the new customers, we suffered very little loss and claimed our first success.

In the interim, 1984, the economy had been short-circuited and we were caught out in the slide  Now we not only had our splitting and remerging work but our work was cut out to begin rationalizing bad business with reduced growth options to achieve replacement business and further economies of scale.

Unbundling products and raising prices on marginal business was a first option. This had the immediate impact of reducing the burden of customers unwilling to pay a fair price. Overall, about 50% of the acquired business left, which meant a very high revenue loss of about 35% overall.

But this single act of removing cross subsidies converted most branch bottom lines to profit and all products had gross profits in the black. This took about two weeks to execute as we went thru the rating book and then sent out apologetic pink slips to selected customers that began with “We regret to inform you of an up-rate for our service”. Surprisingly over time, many came back as they found the market was barren of sustainable cheap deals.

At the time I recall estimating that if the downturn stabilized we could also see our operation would be viable and sustainable. But that was not the end of it. As the market was still falling relentlessly and competitors started up wars we had to fight even harder to keep it afloat. Eye for an Eye tactics to stop the predators meant we needed very fast responsiveness to spot business changes.

In that climate of fast change, it could be quite subtle and easy to miss customers being poached if you weren’t alert and watching. So numbers and on the ground feedback were so important regardless of how we obtained it. In those days if someone mentioned business intelligence, we would have probably sent them to join ASIO the Aussie equivalent of the US CIA.

As life went on our relentless concurrent program of cost minimization and efficiency programs were aimed at more streamlined product delivery.  An improved customer service plan made a huge difference. New business efforts were also doubled to protect erosion of market share on our existing customer base. With better systems and focus on improvements, things like freight losses were reduced significantly.

We also uncovered quite a big scam by a well known national rag trade wholesaler. He was making fraudulent insurance claims for so called lost freight. In the end, after the game was up and our client refused to admit it, we exercised our options to excuse them. Ethics stopped us short of also quietly dropping them off at the door of competitors who needed a lesson in good manners. The truth is, being acquisitorial, we thought it might come back to bite us.

In the end our work saw us well placed for an upturn. Happy customers regularly saw our sales people motivated on achieving service and business retention targets. This encouraged sales people, who also had new business goals and were not dispirited to make more sales calls, even as they were often sparse on results.

For our planning and analysis needs, the mainframe services available at the time were too slow to set-up for what we needed and we knew proper analysis of our business information, albeit by hand, was the only way to make our decisions and avoid an otherwise certain failure.

Being accountable to our Public Company Board on this high profile effort also required decision transparency. Thankfully we also understood that using ‘seat of the pants’ management that could work in good times, would mean certain failure now. So we had a triple work load to first plan, execute and review.

Around that time we were fortunate that the personal computer had just became available; as did the spreadsheet. A quick one day lesson on how to use it, gave me the vital and timely end user power we needed. I even bought a computer home and hooked up a modem for my first on-line sortie into remote service to collect our bureau services information, to pull it all together for our regular 7-00 a.m. operational meetings at 620 Footscray Road in West Melbourne.

What followed over the next year was a tug of war on resources and priorities as we stuck with our plan. For control we were still in the dark ages on the Information Highway as it was not yet invented. But we still managed to set up an efficient and transparent reporting system with crude business intelligence for effective decision support and planning activity. We did this across the country using mostly decentralized paper based processes.

In the branches we had key performance data phoned through and compiled centrally each week with detail collated and analyzed on a daily basis and sent in via Telex and FAX. General ledgers and payrolls were run on bureau services, making possible only a few days after the month close to see a crucial confirmation that our weekly results and operating decisions were on track.

With everyone involved, we become highly motivated to get in early each day to fight the commercial realities of business. We had to suffer the deprivation of long hours for less reward, but with a plan and feedback systems getting better and better with practice, it made it so much easier.  At times, I admit, we did feel like it could have been easier to take the hit and close it down.  At least, then, everyone would have had a redundancy package to ride it all out. But looking back it did not seem that bad and was worth it.

The initial six month mandate and window for pending recovery by now was already gone. But it was extended by the Board, which we saw this as a milestone of faith. Recovery did not come for more than a year as we cycled our strategy again by merging business to and from other organic brands. In the end the strategy proved successful. And as the turnaround began and business growth returned, we had retained our capability and could to take up the slack with a highly efficient operation network and sales machine.

As an aside, as we moved things around to stay vital, we managed to retain most of our key resources. One notable exception was a great sales guy who left to become Captain and Coach of the Brisbane Lions Footy club. His name was Roger Merit.

The Transport business today is much more logistics driven with risk and core capacity of supply chains much flatter and customer centric. Non-core services are already cut to the bone and delivered using shared services or outsource models.  Labour markets and logistics management, too, are quite different from the 1980’s, with end to end supply being handled in an immense network of connected large and small players involved across the globe.

But regardless of how the business is organized and controlled, knowledge skills, relationships and well planned cultures that are measured to react quickly to markets and customer changes are still the imperatives.

This binds to create a business delivery capability, especially in transport where prices are market driven and profit is made only on getting volume through a highly efficient operation with a constant attention to cost reductions. Conversely, short sighted expediency will see difficulties in achieving any long term business goal, to be even being in business.

In over 30 years in business, with plenty of scars from downturns, I have noted that ‘when capacity goes out of the supply chain’, recovery gets harder’. While it’s tough, preserving capacity, if you can stay in the game for the duration you can bank truck loads of money you will get with it when it up-turns.

Mayne Nickless has long gone since it lost its way after the CEO Ian Webber left. Ian incidentally ran Mitsubishi in Adelaide before he took Mayne Nickless to its zenith.

As an engineer in a transport company, he somehow achieved amazing empathy with the rubber on the ground and kicking tyres. His success came for assembling a team talent many of whom who were to become icons; Notables like John Price, Peter Rosethorn, Peter Rocke, Pat Kearns and some others on his board with track records and a willingness to change allowed him to then set about completely revolutionizing the business that saw it grow.

With a business transformed to product and supply chain centric, from a geographic investment centric in 1986, he was way ahead of his time. He could only achieve this by setting up a performance management system. We called it Comshare System W (W being for Wizard). Ian and his team used this to watch about 6 key numbers to tell a weekly story for each of around 900 branches worldwide.

Using his amoeba model, this helped Ian and his team over the next few years to double the business world-wide to about $5 billion turnover. In time we also integrated W as it became known, with all the financials to enable the company to grow even more.

Having been hardened and alert to what matters, I was fortunate to be introduced to the information super highway and a go-get-it team, to go and get it for him. That was the beginning of what we now call Performance Management and the embedded business intelligence systems that you hear about and are all pervasive today.

So naturally when it comes to business, my view of transport and logistics is that it connects and moves everything together. Performance management then makes sure it stays connected and can keep it moving. Both are in my blood inter-twined as an irrational passion.

I also know full well that whether you are in transport or anything else, if you want to know what is going on and where it is heading, no matter what you use to get it, being able to see the real story in the numbers, is the key.

I left Mayne Nickless in 1988 to change direction after it had taken a turn to transform itself into hospital and pharmaceutical business. That change caused Mayne Nickless to lose the heart that made it such a great company. But in the end it was lack of integrity caused its eventual demise. Sadly some of my former colleagues made mistakes that put them in positions facing huge fines and even jail for breaches of restrictive trade practices laws.

Just preceding , the genesis of what is now the giant operator Toll, was formed. Peter Rosethorn, who left Mayne Nickless in 1986, acquired Toll as an amoeba with Paul Little and followed that model as Mayne Nickless began to die and was then reincarnated as Toll.

I worked briefly with “Rosy”, as we called him, when he was Managing Director of the Road Transport & Shipping Division and when he was on the Mayne Nickless Group Board.

The all round business experience  I got at Vickers and then Mayne Nickless was invaluable to make it simple for my transition to Colonial Mutual to spend the next six years in Collins Street in the financial services industry.

These days in my consulting business for the last 19 years that experience  it more about mentoring and helping others  to do the same So no matter where I am or what I do, I find I am never far from amoeba.