Activism Investment: Four strategic levers of value
An activist investor is an individual or group that purchases a significant portion of a company’s shares and tries to obtain seats on the company’s board with the goal of effecting or enabling a major transformation in the company. A company can become a target for activist investors if it is mismanaged, has excessive costs, can be run more profitably or has another problem that the activist investor believes can be fixed to make the company more valuable. More here.
Businesses require a bespoke strategy to raise capital in order to strategically expand operations and improve efficiencies. Research and experience suggest four strategic levers that are driving success in growth companies. These levers provide a framework for companies to redefine value for customers innovating in their respective markets. Secondly, they serve as a guide to building powerful, cohesive business systems that will deliver more value than competitors will. Finally, they provide a roadmap for raising customers’ expectations beyond the competition’s reach. Market leaders of the past decade have cemented their dominance by focusing on delivering value for their customers in line with three principles and perfecting them beyond the reach of their competitors. They include focusing on operational excellence, product and service innovation and customer intimacy. The levers discussed here are therefore a prescription for applying the above principles using four emerging strategic levers of value – value chain and operational efficiency, automation, crowdfunding and data analytics.
1. Value chain and operational efficiency
In an ever volatile and disruptive business environment where companies face competition from traditional and non-traditional players, activist investors need a well-defined and agile framework for assessing an organisation’s value chain and operational efficiency. Increasingly, management teams face three key challenges around value chains and operational management. These include cost containment, increasing operations visibility and risk management. Depending on how a management team approaches the coordination of these three factors, they can either have a positive or negative impact on a company’s bottomline results.
2. Automation of processes and functions
Investors need to be on the lookout for high growth companies that are automating others or instituting automation internally. Automation of processes and systems leads to innovation and costs savings by improving efficiency and promoting connectivity, which in turns deepens the activist investor’s understanding of events and sharpens decision-making. The proliferation of smarter end-points, scalable computing, mobility and visualization are reshaping the future of industrial and service automation. Around the world, forward-thinking investors are insisting on the adoption of leading-edge automation technologies and practices by their portfolio companies. This is because automation enables company to deliver superior customer value in line with operational excellence, customer intimacy, or product leadership.
Crowdfunding is the practice of funding a project or venture by raising monetary contributions from a large number of people though an electronic platform e.g. the internet or mobile applications. Three types of actors anchor the crowdfunding business model: the project initiator who proposes the idea or project to be funded; individuals or groups who support the idea; and a moderating organization that brings the parties together to launch the idea. Crowdfunding can be either reward-based, equity-based or debt-based. The popularity of crowdfunding has grown at a phenomenal rate in the last few years and is now an industry that is worth in excess of $5 billion worldwide.
4. Data analytics
Data analytics can be an effective communication tool for management teams and prospective investors by allowing for increased collaboration as each group taps into the vast amounts of data available for analysis. For management teams in data-rich industries, the insights gleaned from the vast amounts of available data allows a more complete picture of customers’ preferences and demands. Through this deeper understanding, organizations of all types are finding new ways to engage with existing and potential customers.
In addition to customer-centric objectives, other functional objectives that management teams are addressing through the application of data analytics include operational optimization, risk management, financial management, employee collaboration and enabling new business models. According to research by MIT, companies that inject data analytics into their operations show productivity rates and profitability that are 5% to 6% higher than those of their peers are. This statistic presents an interesting opportunity for an activist investor encumbered with an underperforming portfolio company in a high growth, data-rich industry such as fast moving consumer goods (FMCGs), technology, telecommunications, media, healthcare, energy and finance.
The above is an excerpt from the thought leadership authored by Bill Allela (Activism investment as the key to unlocking value in regional firms). Bill Allela is a Strategy and Operations consultant in KPMG Advisory’s Management Consulting practice in Nairobi, Kenya. He is a CFA candidate and has extensive experience in entrepreneurship and research having worked with Fin-tech start-ups and an industrial research organisation. Please feel free to download the Thought Leadership HERE