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What does Institutionalization really mean?

A Paper presented at the Nextzon Stanbic Ibtc SME Breakfast Seminar By Augustine Edet Co-Founder & ED/COO, NEXTZON
June 2013

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Outline
Background and overview of SMEs Issues Facing SMEs

Institutionalization and its many benefits


Roadmap to Institutionalization Characteristics of great companies and institutions - A framework for institutionalization How can Nextzon help? Need help? Next steps

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An Overview of the SME Sector


Anywhere in the world SMEs constitute a significant part of the economy. From underdeveloped to developing countries to developed countries, SMEs contributes 65% of GDP and 77% of total employment Who are the SMEs: Any business with the following features in Nigeria is grouped as SMEs
Based On Number of Employees Micro 1 to 9 Asset Value Below 5m N5 to N50m N50m to N500m

Small 10 to 49 Medium 50 to 199

There are 17.284m of such business in Nigeria. 17.261m (99.87%) of these are Micro business, 21.264k (0.12%) are Small businesses and 1.654k (0.01%) are medium SME is a critical sector of the economy. However the problem in Nigeria is that there is a dearth of information about this vital sector 3 of the economy

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Our SME Sector is significant and important


A 10% increase (effort) in SME by stakeholders will translate into 9.5% increase in GDP
% New GDP Increase GDP SME 650 10% 715 Corporate 350 350 1000 1065 % Increase in GDP 6.5% % New GDP Increase GDP SME 650 650 Corporate 350 10% 385 1000 1035 % Increase in GDP 3.5%

A Similar 10% increase (effort) in Corporates will only generate a 3.5% benefit to the GDP The SME Sector employs a total of 32 million Nigerians and contributes 46% to GDP 42% of the entrepreneurs in the Micro businesses are women 86% of entrepreneurs in the small and medium enterprises are men
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Lack of Operating Business and strategic Plan Most lack strategy, business plan, marketing strategy, proper accounting systems and some do not run their transactions through the banking system especially those in retail sector Lack of Corporate Governance Require change in mindset; they have refused to separate ownership from management Below optimal Capacity Utilization Most are operating below capacity Human Capital Capacity SMEs are not able to access enough qualified personnel enough to satisfy their human capital requirements Need to position to attract qualified personnel and to manage businesses in a professional manner Structure and Processes Most SMEs do not have their process documented and structures clearly defined and communicated
*See Recent Survey Report by National Bureau of Statistics (NBS) and SMEDAN 5

However there are serious issues facing SMEs

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Most of the Weaknesses can be fixed by


Institution of strategic management & planning Proper corporate governance Professional management separated from ownership Right People & winning culture Sound business management structures, processes, systems Accurate Business Records and transparent financial reporting Management Information Systems

These are the ingredients of institutionalization. They make a business built-to-last, they make your business an institution

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Institutionalization: What and Why


What is Institutionalization?
Various definitions; originates from the word Institution or institutionalize: to make into an institution.

Why Institutionalization?
To leave a legacy for the next generation and ensuring succession To unleash the full potential of the business To professionalise the business To be ready for intensified regulation To be ready for opportunities and growth in the capital market To be well positioned to attract good people as talent becomes more scarce To be positioned for better competitiveness To become more attractive to investors, fund providers and lenders. To guarantee sustainable growth

An institution is defined as any familiar, long established person, thing, practice .an established or organized society or corporation.
Institutionalization is a process of transforming a business into a company that emphasizes best practice; a company that will survive generations and increase shareholder value; a company where management, systems, procedures and culture can be sustained with little or no intervention from the founders".

7/6/2013

Road Map to Institutionalization

June 2013

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Growth & sustainability through Institutionalization : Path to long term success

A Process of Evolution

Getting from an unstructured business to an institutionalized business usually happens in phases

Where is your company here?

By Ngozi Edozien Chief Executive West Africa at Actis

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Specific Steps for To Institutionalization


Corporate Governance Framework :
Develop code of governance for board of directors (BOD) and Management Constitute a competent BOD/Advisory Board Have Regular board meeting to review performance

Strategic Management Framework:


Develop a strategic planning and management process Establish performance management system/process (Corporate and Human Resources)

People, Continuity and Succession Framework


Develop an efficient organisational structure (for now and for future) that puts right people in right roles, helps identify talent gaps & fosters succession planning

Develop and document policies, processes and procedures that ensures transparency in financial transactions, human resource management and operations 10

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Specific Steps for To Institutionalization


Business Processes and Record Keeping
Document Processes, policies and procedure Keep adequate record of business transactions, Prepare Financials to present true position of the business. IFRS compliance : This is compulsory for all businesses 2014 Design IT plan and strategy for automation of business processes Develop a Business Continuity Plan including a Disaster Recovery Process

Branding & Communications and Customers acquisition


Develop and document a branding and communications strategy for the business Articulate strategy for improvement in customer service and customer satisfaction

Performance management
Develop performance indicators framework (both financial and non-financial) Set up a reporting system that ensures results can be monitored against target
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Characteristics of Great Institutions


How do great businesses look? Demonstrate continual, observable progress and growth

Every step adds value Little or no wasted motion plan the work and work the plan Reviews/approvals are not gateposts, but critical enablers that accelerate progress
Unflappable Anticipates most obstacles Deals gracefully with the unforeseen Achieve targeted results, on time, on budget no excuses Appear effortless even when they are not
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Characteristics of Great Institutions: Institutionalization Framework


From various studies, we have identified 4 key areas any company that wants to outlast its competition MUST have in order for it to build to last. These 4 areas are
How do we Execute within budget? ---- Cost effective Execution
Processes and Record Keeping

Strategy

Governance & structure

What principles will guide our approach? --Professionalism

How do we position? ----- Direction

Human Resource Management

Who would drive our Processes? ----Sustainability

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Characteristics of Great Institutions: 1. Corporate Governance and Structure


Corporate governance is a term that refers broadly to the rules, processes, or laws by which businesses are operated, regulated, and controlled.

It is a frame work of rules and practices by which a board or director ensures accountability, transparency in a company

What you get: Reputation and Recognition The practice of good corporate governance followed by firms will allow them to gain the trust of the investors, bankers, the customers and the community at large This image will help the company prosper in the long run and achieve its goals more quickly The company can attract strategic partners that can be leverage on to grow the business IAS/TNT Due to instituted corporate governance system F.G.N Okoye and Sons was able to acquire 40% stake in IAS (a UK-based Cargo Airline). The company continued to improve its level of transparency and was able to attract world top courier companies as partners. It was at one time A partner for FedEx, and now partner to TNT

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Characteristics of Great Institutions: 1. Corporate Governance and Structure


Key Features They have governance structure is centered around clearly defined roles and jobs (corporate governance) The roles and responsibilities of the board of directors are clearly stated and communicated. And separated from that of the management Remuneration basis is also clear and documented for directors and for management They instill their beliefs into a palpable culture- that forms part of the core of their organisationscultures that are so tangible outsiders dont need to be told what they are- they can sense them intuitively. They build customer centered processes They develop clear consistent processes that enhance decision making and also enhance their ability to create value ; and they constantly renew these processes so that they are always serving the 15 right purpose, and always creating value Examples

Punch News Paper: Built a culture of commitment through governance. By showing transparency in career path. Employees know they can become CEO. This commitment manifested when the company was shut down by the military for over 18 months, 80% of the staff resumed after it was opened They believed in the vision, they could see through the vision

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Characteristics of Great Institutions: 2. Strategy

Environmental Industry, Market & Internal Assessment/Analysis

Generation of Strategic Issues/Alternatives

Documentation of New Plan/Strategy

Execution of New Plan/Strategy

Institutionalized Processes Intelligence Data Information

Strategy

You must have adequate intelligence about your business in order to create good strategy. You must know your numbers, competition, industry, employees etc.

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Characteristics of Great Institutions: 2. Strategy


Key Features They have a clearly articulated strategyexplaining who they are and where they are going? how they are going to get there what they will do , what they will not do They know their industry, They have a clear understanding of their competitors and what it takes to beat them They understand who their customers are and what VALUE means to these customers They take steps to know their own internal competencies and refine/rebuild them so as to enhance their ability to execute their strategy and beat their competition They encapsulate their strategies, and 17 communicate it in such a way that it is understood and owned by their people Examples

GEs strategy to be No1 or No2 in their chosen markets, and to fix close or sell any business that did not fit into this strategy;

Coca-Cola considers its competitors to include water- forcing it to come up with strategies to help it effectively compete

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Characteristics of Great Institutions: 4. People, Continuity, Succession


Key Features They take pains to hire the right people; and try to ensure that they put the right people in the right jobs They build highly motivated, highly effective teams and spend time and effort helping these people and teams develop Their performance management systems reward what they consider to be fundamental to their company- whether it is entrepreneurship, team spirit, innovation, customer service They build LEADERS at every level; and they constantly ensure that they have a pipeline of leaders so that they can manage succession. Their people 18 decisions are empowered to take Examples Chellarams founder built 11 international branches including Nigeria without travelling out of India for more than twice. He engage right people, empowered them, even gave them stakes in the businesses. Jack Welch of GE spent a lot of time on hiring the right people for the right job- he knew that doing this would make the work ahead possible

Jack Welch spent time building his team leadership capacity through GEs Crotonville Academy.
GE built its rewards around a mixture of team and individual performance; took time to understand its peoples abilities so it could match its star players with areas where there were the biggest opportunities

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Succession is a Key Pillar of Institutionalization

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The real key in succession management is to create a match between the organization's future needs and the aspirations of individuals. The only way to keep talented people is to provide them with growth opportunities that keep them stretching and finding more promising opportunities they might find elsewhere.

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Key Issues in managing People


Recruitment; Organizational structure; Culture / shared values:
Trust; Integrity; Innovation; Action- driven; Commitment.

Performance driven system; Rewards; Succession planning.

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Business Processes and Record Keeping


Business processes are a collection of the ways various units, departments or divisions of a business contribute to its overall capability to add value. Factors to Consider/Why Processes must be in place, documented, followed and reviewed regularly: Some Key Processes that must
Accuracy , Timeliness and Controls be Transparent HR Processes Efficiency and Effectiveness; Customer centric Admin & Procurement Reporting level and requirement Internal Audit Good use of Technology and Automation Governance Financial Processes

Keeping the Books

Keeping accurate records of is a critical and important part of a business process value chain It is the only way to communicate your business with stakeholders (Employees, Bankers, Investors, even customers) Recording keeping is not only important for its primary purpose also, it has become mandatory for all businesses to comply with IFRS starting from 2014 You have to start working on the Roadmap for the implementation of IFRS as early as possible

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A process driven business process Documented policies and processes for alldriven units

Workflow diagrams process manuals Management, Unit and departmental structured meetings Internal control mechanisms Websites and media for information sharing and gathering Customer feedback and Interviews Performance appraisals and benchmarks Use of proper/current software and hardware technologies Microsoft office Enhance communication via use of current tools - e.g. Outlook, internet etc. Data mining and security Note and minute taking at all meetings

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Considerations in Financial Management System


Funding

Internal Controls
Budgeting Cashflow management

Reporting (Adoption of
IFRS) Inventory management Etc.

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NEED HELP?

TALK TO NEXTZON WHY?

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We are Serial Entrepreneurs


We are not just an advisory firm, we are entrepreneurs like you Over the past 8 years we have incubated, built and invested in over 40 early stage businesses (from idea to growth stages).

Some have failed, some have succeeded, some are making progress
We have lost money, we have made money, we have learnt the ropes. We know what works and what does not work See a list of some of our current investments with stakes valued 7/6/2013 at over $20m: 25

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Some Businesses we Invested In

SEE MORE IN OUR CORPORATE PROFILE

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Milestones
Provided business incubation and SME advisory services to over 40 SMEs, directly contributing over N2billion ($13million) in technical assistance to the SMEs; A Franchisee of the IFC Business Edge & SME Tool Kit for capacity development of SMEs.

One of the Nominated Advisors to SMEs on the Nigerian Stock Exchange initiative for the re-launch of the Alternative Securities Market to enable SMEs access the Stock exchange for long term growth funds.

One of the Nominating Partners on the NIGERIA FAST GROWTH 50 which is an initiative to identify the 50 fastest growing companies in Nigeria promoted by ALL WORLD NETWORK (involves renowned strategies Michael Porter) and The Tony Elumelu Foundation.

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Milestones
Directly and indirectly attracted over N7billion ($49million) in cash and sweat investments into these enterprises and has facilitated the creation of over 390 jobs with about 363 sustained and a potential of about 7,000 additional jobs waiting to be created by these enterprises in the next few years Provided Recently commenced a strategic managemen alliance with one of the top ten t consulting global management consulting services to firms based in the United States over 400 of America with 30 offices around clients the world, with a view to collaborating on specific joint projects focused on providing services to organizations and governments Collaborated with other investors and fund providers to promote and Has become one of the very few nurture start up ventures venture companies in Nigeria valued at N337million with a focus on start-up and early ($2.5million) as at 2008, stage businesses. In this regard, which grew to N1.5billion it is noteworthy that based on the ($10.7million) in 2011, with Companys unique and current cumulative value pioneering business incubation of about N2.6billion concept, the World Bank under ($17million). the MSME project donated a takeoff grant in 2006 to support the take-off and capacity building for the Companys incubator.

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Service we can help with


Code of corporate governance Quarterly Business Review Organisational structure review, review and implementation Strategy development, documentation and implementation Business Plan Development and Feasibility studies Corporate Performance Management Employees Performance Management Employees Training and Development Succession Planning Process and Policies documentation and adoption Information Technology strategy and deployment Organisational risk management framework Customer experience strategy and improvement Branding and Brand Communication strategy and process development Regulatory Compliance assurance and Advisory
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Other Areas we can help with Expansion Services. This shall include:
Assistance in setting up new business lines Existing product enhancement Export development Regional & international expansion

Training & Capacity building/development


Such as the IFC Business Edge curriculum of which Nextzon is certified to run for growing businesses. These will cover diverse relevant business areas. Detailed curriculum provided.

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Need some support?

Next Step

Intention
Register Name, email, industry, revenue and headcount

Diagnostic
NEXTZON will help analyse the current business situation And provide a report on areas that need attention

Roadmap development
Nextzon and prospect to agree on urgent and immediate actions Roadmap and steps to be agreed

Contract Signing
Nextzon and prospect agree on service requirement and deliverables.
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For further Information


Contact Location

Nextzon Business Services


Wale Ogunsola 0813-573-9764
wale.ogunsola@nextzon.com

33a Bishop Aboyade Cole, Victoria Island, Lagos, Nigeria Tel: 01-279-8256, 0803-705-4504 www.nextzon.com

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