Lessons from Private Equity Any Company Can Use by Hugh Macarthur & Hugh Macarthur

Author:Hugh Macarthur & Hugh Macarthur [Macarthur, Hugh]
Language: eng
Format: epub
ISBN: 9781422124956
Publisher: Perseus Books Group

Getting the Metrics Right

Let’s look at a case in point that hinges on the challenge of defining the right metrics. As you’ll see, choosing what to monitor is highly dependent on the specifics of the situation at hand.

Settling on the right numbers to pursue was a cornerstone of the strategy developed by CVC Asia Pacific and CCMP Capital Asia (formerly JPMorgan Partners Asia) to turn around Singapore Yellow Pages (SYP). The two firms led a consortium that purchased the telephone directory publisher from SingTel, the local telecommunications company, in June 2003.

The first order of business for the new owners: creating a sense of urgency in an organization that had grown complacent and stale. Despite an 87 percent market share and no serious rival to challenge its dominance, SYP saw its revenues slide by 40 percent between 1999 and 2003, while profit margins deteriorated. Advertisers were defecting—and so, too, was SYP’s sales force, with the annual turnover rate among the demoralized sales reps topping 50 percent.

The new owners and SYP management developed an initiative that called for a major overhaul of advertising sales. The blueprint set concrete revenue and profit growth targets for each of a dozen clusters of high-priority customers, ranked by potential value. It revamped the sales prospecting process, replacing the overlapping, uncoordinated efforts of telephone customer service reps and individual account managers with a process in which sales teams set priorities by determining advertisers’ current and potential value to the company. To keep the sales team focused, management ratcheted up the number of accounts each sales rep served, and established guidelines for the number of calls or visits needed to close a sale. They benchmarked the company’s sales and marketing performance against the industry’s best practices, and established a new incentive-heavy compensation scheme that delivered significant rewards to top performers.

The specific metrics used were tailored to customer segments: retention rates and the amount of up-selling of ads to “platinum” customers, cross-selling of multiple products to “gold” customers, and the number of new account sign-ups and penetration by industry vertical in the “bronze” customer category. Additionally, the measurement of performance via quantitative metrics (such as return on investment, or ROI) gave the sales force a new communication tool with their clients. The sales force found that renewal rates were higher in categories where they could articulate a high ROI from the client’s ad expenditure.

The new performance metrics also provided a regular report card on whether the SYP turnaround was on track. They made transparent for the first time how much revenue per customer each dollar invested in the sales effort yielded. The clear metrics helped give a powerful signal to other potential investors that the new sales force strategy was working.

A little more than a year after making the acquisition, the private equity partners floated an initial public offering of SYP shares, locking in a gain of 2.6 times their original investment while still retaining a 20 percent stake in the company.

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