Create, Measure & Share Gain – Unlocking Value with ‘no-cost’ Projects

By Dawid Krynauw, OIM International Associate

Executive Summary

Gain Share Projects (GSPs) make use of mutually beneficial structures to run successful improvement projects, that will increase the overall performance of a business.  These projects work on the principle of only paying out project fees that are based on real rand value, measurable gains that are created through various operational initiatives.  A GSP structure ensures that companies only pay consultants when there is measurable value created and not just fees for projects with very often uncertain outcomes.  Ultimately this means that a company engages on a ‘no-cost’ project structure basis.

The obvious benefits are:

• GSPs drastically reduces the risk of spending unnecessary high fees on projects.
• You know exactly what benefits are created and what you are paying for it.
• You also naturally embark on a very focussed project with the full commitment of all the stakeholders, that are incentivised to continuously contribute positively to the business.

The GSP structure is applicable to all industries and businesses where you can improve the profit by focussing on certain key value drivers, especially in businesses where there is a great dependency on people that must take operational responsibility.  Gains can generally be established through focussing on people, the management of the business and or by the use of improved technology.

Management teams are generally very focussed on their business strategies and the day-to-day management of the businesses, allowing very little, if any time to focus on the ‘smaller parts’ of the business.  It is a lot of these ‘smaller parts’, when added together, that are very often the foundation of a sizable value-based operational improvement project. 

A GSP and its value-based principles, is the perfect structure to pull all the parts together to create measured value, that can then be shared between various stakeholders.  Value created is also shared between the business and the GSP partner, based on a certain agreed upon percentage. This consulting agreement minimises business risk and it incentivises accelerated, business performance.

Starting a Gain Share Project

A typical GSP starts with an initial commitment to an opportunity analysis to investigate areas in a business that might create some good measurable gains.  A key part of the process is to determine and agree on the historical key value driver baselines and also possible adjustment factors that goes with it.

All undertakings and improvements are listed as part of the GSP and project actions are aligned to ‘needles’ that are moving on the company’s management accounts.  This makes it fairly easy and objective to measure real gains on key value drivers. 

The investigation can either start with a clean sheet (broad based) or with a specific management need and knowledge of an area that needs improvement.  It is always a good practise to start with the so-called ‘low hanging fruit’ areas to ensure some traction and creditability early on in the project.  The Gain Share Partner (consultant) becomes an extension of the management team’s resources, by facilitating the strategies to unlock value.

It is also wise to sometimes, before the start of a formal opportunity analysis, to get an indication of possible business improvement focus areas by having a quick, no obligation, introductory discussion with management.  The decision to embark on a complete opportunity analysis is then based on the introductory discussion insights. If approved, such an investigation and proposal generally take a month or two, depending on the availability of people in key positions and the availability of operational data.  

Engagement

An integral part of the success of a Gain Share Project is the ability to unlock the knowledge that is already in the Management Team and on the Factory Floor, and to transform it into practical actions that influence key value drivers.  We typically follow a structured approach of communication and involvement to achieve this.

The basis of this methodology, apart from individual discussions, is team-based performance communications forums (INVOCOMs^®) or Improvement Task Teams (ITTs).  In the case of large groups of workers, we also very often create operational specific workshops (Climate Creation Workshops) to create a better understanding and commitment from the workforce to ultimately improve the competitive elements of the business. 

Opportunity Analysis, Baselines and Adjustment Factors

The opportunity analysis projects the possible value that can be unlocked in the business or part of a business that is under examination.  During this analysis the possible improvement areas are investigated and potential to improve on baselines quantified.  At the end of the opportunity analysis phase findings and possible solutions are shared with management.

Improvement levers will be measured preferably against numbers on the management accounts (as agreed before the time) on a monthly basis for a typical period of 12 months into the future. The historic baseline numbers would generally be based on the previous 12 months performance for the key value drivers that are focussed on.  All performance baselines normally also have adjustment factors to incorporate factors outside of the Client and Gain Share Partner’s control which impacts on the baseline cost.  Adjustment factors might be things like annual price increases, inflation, composition of goods, average weights, average volumes, statutory charges etc.

Value Sharing – Terms and Gain Share Pay-out Guidelines

Projects terms are negotiated differently depending on the circumstances, but mostly there will be a small ‘commitment fee’ associated with an opportunity analysis. This phase would involve interactions with key people in the business and the gathering of data to support the business improvement case.

The outcome of the opportunity analysis can be three folded:

1. 1. 1. There is a case for an improvement project, but it makes sense for the business to facilitate the improvement suggestions, guidelines and principles internally,
      2. There is a case for an improvement project and because of a lack of resources or the scale of the project, it makes economic sense to involve a GSP partner to assist with the facilitation of it,
      3. The economies of scale of the project is too small to immediately commence with a formal gain share project.

In the case of (1) or (3) above, the marginal ‘commitment fee’ will be used as payment to cover some of the consultant’s initial expenses and time. Typically, in the case of (2), a gain share project might commence where all commitment fee payments (and possibly travelling expenses) will be deducted from any gain share payments that are being made. This will ultimately make it a ‘no-cost’ project.  

As an alternative to a gain share project, a fixed budget project might be decided on because of un-usual economic circumstance or because the suggested gain share measurements might be very complex and time consuming (it does not make sense to work harder on the mechanism than on the actual project).  Some clients also are more used to and more comfortable with just paying a fee for time spent (or sometimes a combination of a base fee with an incentive).  This is especially true for the ‘after covid-19’ economy, where baselines for the last 12 months were mostly exceptionally low and where ‘anything you do’ will look better than previous performances.  The flip-side of the coin is that you can fast track your performance recovery with the use of a highly incentivised GSP.  The GSP principles of measurement, however remains very important even with a normal fixed contract project.

Each individual GSP will have its own set of guidelines and principles, but the following diagram can be a useful tool to start a pay-out structure discussion:

People, Handover and Internalisation

At the appropriate time, a complete handover phase will be incorporated into the project to make a GSP sustainable into the future and to further capitalise on the gains already created.  INVOCOMs^® and ITTs are typically the supporting pillars to create a long-term culture of performance in the business.  Line Managers and Supervisors are coached to facilitate the team meetings effectively and to measure gains on a continuous basis. It is also important for them to always create and share the ‘excitement factor’ as the GSP progresses.  

Management communication or even a small ‘launch event’ to introduce the project can be part of the process design. It is of utmost importance that leaders at all times create an environment where the ‘excitement factor’ exists and where there is a continuous conversation about gains.  Victories, even small ones, must be ‘celebrated’ on an ongoing basis to maintain buy-in and commitment.

Take the gain.