Janet Munger

Week 7 Assignment 1
May 4, 2014

NORTON LILLY INTERNATIONAL: IMPLEMENTING TRANSFORMATIONAL
CHANGE IN THE SHIPPING INDUSTRY
Objectives

The development of a sustainable business platform that would be capable of doubling the company's size while
generating an attractive return on investment.
Forming an executive committee of nine was to begin decentralizing the decision-making process away from
the two owners for the gradual handoff of the business to a new generation of family members.
Long-term success would best be achieved through logical, step-change fundamentals wherein results could be
both visible and tangible
The overall improvement in Norton Lilly's financial performance could largely be traced to the foundation that
was begun in 2007, consisting of the following:

1. Continuous improvement had become an accepted discipline throughout the company.
2. Accountability for achieving KPIs assigned to a unit had become main stream.
3. Dashboards were included in the monthly financial summary package, which was distributed to each
executive committee member.
4. Value creation and use of a 12-month rolling forecast had also become main stream. The budget process
had been eliminated, and decision making had been decentralized to business unit leaders, with full
decision authority but also with accountability for achieving margin and growth targets.
5. The use of management development based on the proper matching of people to jobs.
6. Policies had been clarified and/or created that ensured decision-making rigor. In addition, resources
allocation policies helped ensure that resources would be committed to opportunities that were best in line
with the company's strategic priorities.

International strategy

Norton operates three business units; liner, ship services and overseas. Liner and ship services offers similar services
such as fueling vessels, crew transport, medical services, restocking, handling cargo and tows. The primary
difference between the two is that the liner focused on cargo whereas ship services focused on the vessels. The
overseas business unit handles liner and ship services outside of the United States.

Generic Competitive Strategy

Norton Lilly uses a focused differentiation strategy and really narrow in on a concentrated buyer segment. With
Norton Lillys limited services, they need to focus in on their market.

SWOT Analysis

Strengths
Strong Management
Innovative Culture
Asset Leverage to improve their market share
Customer Loyalty
Supply Chain
Brand Name
Technology

Weaknesses
Work Inefficiencies
Bad Acquisitions

Opportunities
Innovation
New Technology
New Services
Acquisition Synergies
Emerging Markets
International Expansion
New Markets

Threats
Bad Economy
Intense Competition
International Competition
Substitute Products
Volatile Costs

Identifying and Understanding Value-Creating Processes
Introducing process mapping to help everyone understand exactly how we delivered our services. This change
in mind-set would act as the foundation for a culture of operational discipline and continuous improvement.
The old delivery model was end-to-end servicefrom bill of lading preparation, cargo release, to freight
collectionswas not coordinated and consisted of nonstandard processes, leading to rework and, more
important, financial penalties within the context of existing contracts.
Closing performance gaps helped management and key employees understand the underlying causes of service
failures.
Improved process standardization to end administrative procedures that duplicated work, improved customer
satisfaction, and reduced fines and penalties from $325,000 to $283,000, by December 2007. (Fines and
penalties had been reduced to $28,000 by 2010.)
Clarifying accountability by using the results from process mapping to identify operating-level objectives for
each process; those objectives are called key performance indicators (KPIs).
Implementing a Balanced Scorecard Performance Measurement System
Balanced scorecard focused attention on the performance of value-creating processes. Metrics included in the
balanced scorecard system used at Norton Lilly included process KPIs, customer satisfaction, and financial
performance.
Dashboard of performance indicators - provides a quick overview of operational and financial performance at
the business unit level. Mapping better enables each business unit leader to understand cause-and-effect
relationships between day-to-day activities and operating and financial performance.
Resource Allocation Policies
Establishing a capital outlay policy that requires all projects or investments be considered only after satisfactory
due diligence had been performed and proposals evaluated by the executive committee. All project or
investment funding is granted only if solid evidence had been presented demonstrating the projected financial
value.
For non-project-related expenditures, an authorization for expenditure (AFE) system was implemented to
ensure that each business unit leader saw and signed off all capital expenditure requests and understood the
impact of the expenditure on the KPI targets.
Implementing the capital outlay policy created a formal process for evaluating proposed projects or investments
greater than $10,000. The policy called for a nine-step due diligence process, thereby ensuring consistency in
proposals coming before the executive committee. The nine steps were as follows:
1. Description of the opportunity.
2. Description of how the opportunity fit with Norton Lilly International's objectives.
3. Assessment of the competitive threats.
4. Assessment of the competitive landscape.
5. How success would be ensured.
6. Proposed exit strategy.
7. Business case.
8. Financial pro forma.
9. List of major assumptions and risks.
Building Managerial Talent
A leadership development program based on the fundamental premise that managerial employees could be classified
into one of four basic profiles: strategist, project director, networker (i.e., account manager), or external qualifier
(i.e., salesperson). An individual's profile was determined by how the person responded on a survey containing items
related to dominance (the need to be in charge); influencing (introvert versus extrovert); steadiness (ability to
multitask versus working in linear fashion); compliance (ability to comply with rules versus being a rebel);
motivators (e.g., knowledge, status, or money); and cognitive style.
Improving Information Used for Decision Making
Gathering information from process mapping to help determine break-even pricing and proper staffing levels
for various-sized cargo ships.
Creating dashboards of financial measures such as cash flow and accounts receivable KPIs. The inclusion of
financial KPIs on management dashboards helped the percentage of accounts more than 60 days past due in the
Liner business unit decline from 7 percent in December 2008 to less than 1 percent in June 2010.
Examination of the disbursement accounts (essentially customer billings for services rendered) and collection
processes and established a service-based cash conversion cycle KPI.
Improving cash and liquidity positions by reducing the baseline cash conversion cycle from 24 days in late
2008to 16 days by May 2010 and tracking toward a stated goal of 15 days. The company's current ratio
improved from 0.88:1 to 1.51:1 over the same period.
Changing Financial Performance Expectations
The concept of value creation was by using internal cost of capital; the proxy for value creation was established.
The concept of earning a fair rate of return based on assumed risk by giving each business unit leader a margin
target.


A New Approach to Forecasting Financial Performance
In 2006 Norton Lilly lost $2.6 million
Norton Lilly missed its budgeted performance in 2007 and 2008 by 90 percent and 63 percent, respectively.
The company adopted a 12-month rolling forecast. This would (1) provide continual refreshing of the
assumptions underlying the forecast and (2) provide the company a continual look at its next 12 months,
regardless of how many months were left in the calendar year. The move to rolling forecasts helped managers
improve forecasting accuracy to the extent that the company missed its financial projections by only 9 percent
in 2009 and was on track to achieve 94 percent of projected financial performance in 2010.
The company was on track in 2010 to generate revenues of about $45.7 million (up 4 percent over 2006) and
net income of $3.3 million (up 251 percent over 2007).

Analysis

Summary of Financial Ratios
*(Martin,2013)
Comparison of Performance
*(Martin,2013)




Summary

After five years of steady growth, Norton Lilly had a number of problems. A series of acquisitions, joint ventures,
and internal expansion led to their problems. A failure to effectively integrate acquired shipping agencies,
inadequate attention to operational performance, and too little focus on bottom-line performance put the company in
a tough situation.

An emphasis on continuous improvement, value creation, using a 12 month rolling forecast, and accountability for
achieving KPIs assigned to a unit has become their business model. They have also initiated the use of management
development based on the proper matching of people to jobs. I believe that Norton Lilly has built a good strategy
execution as they have seen results with the changes they made so everyone in the company is really buying into
their strategies. The use of a balanced scorecard has kept employees attention on the performance of value creating
processes. Some of their metrics include KPIs, customer satisfaction, and financial performance. These systems
provide a quick overview of operational and financial performance.

Between 2006-2009 Norton Lillys revenues ranged between $43 and $55 million. During this time span, Norton
Lillys bottom line fluctuated $5.5 million, an 11% increase in terms of revenue to profit.
Norton Lilly needs to continue to improve balance sheet and to continue to improve upon their development
program.

Shaping the Future:
There is very good opportunity here for Norton Lilly. They should capitalize on their strengths to make the most of
them. Norton Lillys business segments should set themselves to be in a leadership role and hence lead the industry.
This may mean creative management ahead of anticipated demand.

Adapting to the Future:
Norton Lilly needs to use good judgment in acquisitions, joint ventures, and internal expansion looking at changing
market dynamics. Where the level of uncertainty is very high, Norton Lilly needs to focus on their core business
dynamics. Norton Lilly should not commit significant investments or undertake focused projects that are above their
business potential.


References:

Martin, A., Norton Lilly International, Retrieved May 3, 2014 from http://prezi.com/hzvcozt3ebdx/norton-lilly-
international/

SWOT Analysis. Retrieved May 2, 2014 from http://www.wikiwealth.com/swot-threat:norton-lilly-international