Leading Sustainable Growth at EXSA Solutions - Peru

Speaker A Tommy Mulvick is going to talk to us this after afternoon. Tommy just got this assignment to show up at this conference on Friday. He tells me because his CEO got distracted into something else. But he says he's all ready to give us the story. Anyway, thank you for having me here.

Speaker B As Lon explained, I received a call from my boss on Friday. I came to his office, he was like, here what happened to you? I have problem with my ear. It's an affection oh my. Oh, by the way, I just sent your wife some beautiful flowers. Oh, nice. What's that? Because you need to travel on Saturday night to New York.

Speaker C Why?

Speaker B You remember our presentation? Yeah, I remember that. Okay, you are going to make it. Thank you. So that's why I'm here. I will do my best. My English is not very good. It's two years that I don't make any presentation in English. It's too bad for me, but this is a good opportunity. But my Spanish is very much better than my English.

Speaker C So.

Speaker B Thank you in advance for your patience. I will try to explain as well as I can do with my English. Okay, we start with exa. Exa is a blasting company based in Peru. It's a producer and supplier of blasting products and services from around 60 years. We have 800 employees and around 300 million in revenues. We serve in the main Latin American mining projects and construction projects in five countries. The first flag is from Peru, Brazil, Panama, Colombia and Chile. We are going to start a big operation in Chile in the coming months. This company, Exa, is fully owned by a 5 billion group named Breca. It's the biggest group entrepreneurial group in Peru, which we face a lot of changes in our market. We just heard about how it's going on in the mining sector, but I'm going to go a little deep in the changes that we are facing in this sector. We are increasing the competitors consolidation and on the other hand, the mining sector are exposed to a difficult situation with metal price that are affecting several mining projects in South America. Every two months we are dealing or facing a new project that is going down or is in halt or stand up. So the focus is in profitability. The focus is in the supplier price reduction. So there is where we are and at the same time there is some opportunities because they are outsourcing non core activities and I will talk about that in a couple of minutes. After doing a very deep analysis of the situation, we go for a clear growth objective in mind that was going from 30 million EBIT nowadays to 90 million in six, seven years. So in 2020, we are going to reach this 90 million based in two pillars. The first one, and this is where we are going to put all the effort in this presentation is increase the market differentiation and in the other hand, very aggressive growth in joint ventures. The market is small, there is around only ten companies around the world that are around 250,000,000 in revenues in the blasting sector. So every year you are talking with a competitor to a joint venture or probably a merger or an acquisition. So we need to be very dynamic in that challenging environment. And also we are looking for Brownfields and Greenfield projects all the time. So going to this challenging differentiation strategy, we are creating an innovative market value proposition to increase differentiation. I am going deep in this point, but at the same time we are increasing the organizational capability to assure the value creation and the most difficult part the delivery, because the plans, the theory are very good, very solid. But now we are facing the delivery part. So that's where we are having a couple of troubles. But this strategy is not usually a straight line, it's like valleys and peaks. So we are every month reviewing all this. So to approach or to explain the complexity of Exaproject, we work with this transformation approach. First we define what is our value strategy. After that we define which is the required organizational design, what are the required capabilities that we need, then how should we implement a customer centered culture that we need to do this? And the final, how will we deliver the new value proposition? These four questions you need to have a complete approach, an integrated approach. If you leave one of these questions without an answer, you are not going to be very successful in the implementation. So to explain how was this new value proposition, that was our strategic cornerstone. We go from a company level four, providing from around 60 years of blasting and products services, a product focused company that we are very very careful about the technical characteristics of our products, looking all the time inside the company and make a big step for us and going to a level five, providing an integrated solution. And that means that this rock fragmentation world we would like to catch all the steps that allow us bring the customer more efficiency, to be more productive and contribute with the bottom line in the financial results. So it's a challenge that implies a shift. As I explained from level four to level five, the complexity was completely different. I'm part of this Aero program, I joined Exa three months ago. I came from a French company named Sodexo that used to be in the same situation change from food service company to an integrated service solution company. So all this transformation goes through change. We are going to see that in detail the capabilities of the team players to go with this new level of complexity. We go from the characteristics of this change is go for a partial knowledge of the customer on some work teams, for example commercial and marketing, to a total customer knowledge distributed through the company. You ask the financial guy how is going on with the client? Six months ago he didn't have a clue. We go from a culture of technicians focused on the processes to a culture of customer focus, services and innovation. And finally from providing services according to our possibilities to provide solutions according to the customer needs, it's not an easy way. So for example, what kind of services? First in the last 60 years you are talking with the client about the explosive, the dynamite, the different explosives that we have in our portfolio and then you are talking with this guy about how we can bring you more value to your chain, the complete chain of value. And at that point we talk about construct. We make a lot of construction in the last months. Very funny. If one year ago that was like Chinese for a Latin American guy that you are going to make me the construction project of the powder cake where the mining companies put all the explosives. I have three or four plants that are state of the art plants in South America. I am the more capable to bring you the best state of the art place where you can put your explosives. Okay, that sounds very good for me. And we get from there about 10% of our margin in the last six months. And then okay, we are going to go with you in the team, in the field and understand your secondary perforation. That means that these big mines in the open pit use huge machines to make the perforations but at the same time they use another small machines that we can manage perfectly. Didn't mean that you are going to put 50 million in the investment. You are going to only outsource that part and take this business in your house. So it's a big difference between be a product and service supplier to an integrated solution strategic partner. So this means that we go from production and basic services in the level four to value creation through solutions. In the level five we have one year ago mixed organization level three and four reporting to five. We have over concentrating of mixed accountabilities in few roles and also disintegrated value chain, lack of accountability, clarity, that's for sure. Now we are in the process of one CEO operated at level five with a level four already in place strengthened organizational level three. We are working very hard in level three. That's where the huge problem is because this team needs to be more capable. We're going to see that in the next slide. We now have less redundant operational levels and we have new roles like sustainability to understand very good how we are dealing with innovation, client needs and all the trends in the market. Working very close with marketing. Marketing it's now at the site of the client. One of the transformation that impact very hard in exa is that a few years ago we are working inside our sites or plants. And now we have more of the 50% of our teams working in the client sites, in the mines, in open pit. So in underground operations, they are working there and they feel very close to the client. And we are building these torch points to catch all this information and convert this in value for our company to take quicker or faster decisions and more tailor made for every client. Okay, all this work. I met Azusena in this trip. I used to talk always by conference call with AMG. That is the team who worked with us. This transformation, they start about two years ago. I wasn't in the loop at that moment. I started three months ago, working very close with Suzena and his team and her team. Sorry. And there are a lot of things that probably I can't explain to you because I'm quite new in the neighborhood of Exa, but I invest a lot of time understanding before I join Exa the level of the challenge. So I spend like three weeks analyzing how complex is the project. And at the end of the day, I love the challenge. So I bring in going inside the boat and we are going very fast now Asusena please interrupt me if I am going in another way. That after that we start the assessment and relocation of company's capabilities, the role complexity and the individual capability. Assessing talent's fits to role complexity. We found that we need to reinforce the commercial team to transform this team to a consulting team instead of a delivery team. Because Exa was like a monopoly for Peru and several countries. There are only two dynamite plants in South America and we own one of them. So it's a business that looks very easy, but in the last two years, there are a lot of products that are replacing the dynamite. So the problem is difficult because the speed of the change that we need to improve to the company now it's very difficult to manage with people that are working for 1520 years in average in the plant or in different areas. This is a company that belongs to the baby boomers generation. So now we are recruiting millennials. That's a challenge too. And we are showing this team how we are going to build this complex future. I hear the the presentation before of Torx. The engagement part is very important, that's for sure. We work with these three questions that you explain. We add a fourth question that is for the company, it's not for the employee. The fourth question is how will you contribute with this new future or with this transformation or with this challenge? And if the company is capable to answer this fourth question, the people are going to be more accountable because they are going to be very sharp in what are we expecting from them. The first part, it's a must. They need to understand the individual needs are very important but then the collective needs or the next step is okay, now we are a team so I expect a lot of you how you feel about contribute with that. I don't want to go in another direction implement the strategic talent, planning new positions, new talent and the top down alignment and training to managers to implement organizational changes and it's very difficult because the people feel uncomfortable they are holding the chair I will continue here or I will finally of this day working for another company. So we deal with this step very carefully working with every one of the managers, explaining to them in making a lot of top down training to transmit serenity serenity it's correct to have a company that is not nervous, that is not thinking that what is going on with all of this. We are trying to all the days explain that the future is very challenging and we need the 100% of each one. We are not looking to reduce people, we are looking to increase their capabilities through training, through coaching and all the techniques that nowadays you have at your okay, then the third question how should we implement the customer central culture? And this is very hard all around the challenge is not to reduce the intrinsic complexity of the new system is to create organizations capable of managing it this point we realized that the change the company culture is a huge challenge. It will take a couple of years. It's not a thing that the people don't change in a couple of weeks. The mindset the mindset is the most difficult part. So first we start defining what is this new culture, how this culture is inspirational to the team it's very important that they bought this idea, they feel part of that idea and comfortable with that, aligned with the values, aligned with the motivation that belong this. So I will explain this the cross functional coordination of the whole value chain towards differentiation in the customer was very difficult to explain this and top down this new way of approach and we work very hard that the belief restrictions are demolished and leaders learn to mold customer centered culture. So we work here, there is a program CCC what's the number? The name is CCC is culture center culture and we develop a lot of, how you say tayeres workshops, a lot of workshops with first with the leaders and then with the second line that they are level three and then with the level two we go down to level two with a lot of workshops. We involved 60 or 65 people of our team and they start doing the cascading all this information and how every team contribute to value creation process each area have their value proposition, that's very important. Each one of these value proposition from HR, from financial, from operations, from marketing need to be linked with the company value proposition. And we spent a lot of weeks trying to be very careful that there is no value proposition in one area that are not in the line with the base value proposition of the company. And we finally go to the fourth question and here to guarantee the value delivery at all levels of the client interaction. Interaction, the cross functional coordination of the whole value chain toward differentiation in the client was one of the challenges. Commercial team acquires consular salesperson ability client relationship model aligned to the client's decision restructuring the internal value chain relations one thing that is not working completely good is when you arrive to the delivery part and you start to validate all the process. From this last stop, you have the opportunity to check again and see which part are not working according to expectations. We find that, for example, strategic planning was under the CFO, the chief financial officer. That was a very big mistake. Not in all the companies, but in this transformation process. This guy is looking for the number at the end of the year and he is measured and the KPAs of his performance are based in twelve months, not in 48 or whatever. It's not five years. So we changed that and now it's under the marketing responsibility. The strategic planning needs to be under an area that it's looking in a five years perspective and who is every day looking from the client perspective, from the market perspective. And what's tough because after I explained 60 years that we are looking from inside, start looking from what is our client expectation. The financial guy wasn't so clear about that. So that's one of the changes. The internal communication sounds like internal communication, it's in HR, but these guys are thinking in the information of, for example, the trainings for the promotions, for the pays, but they are not talking about the strategy and they are in charge of internal communication. So we need to change this. We develop a team, a mixed team between marketing, strategic planning and HR to be capable to cascading this important information and involved all of the levels of the company in these matters. And after the 800 employee understand that where are we going? They feel much more comfortable. And at the same time you show a very interesting chart here to understand the complexity. You feel confused at the beginning. Now they are feeling confused about okay, this is a very huge challenge, I'm capable to do this. Yes, we are going to help you every step of the way to develop these capabilities. Okay? In the process we achieve a cohesive management team with a clear vision, leading a distinctive value proposition, a customer centered and innovation driven culture, a new core strategic commercial capability. And this is very important, the lessons we learned, some good lessons. Will leading a culture change focus on the customer? That involves changing behavior, ingrained in the organization for many years without neglecting operational excellence. So it's a huge challenge and we are putting a lot of energy in the culture question of our diagram. The transition process is complex to measure in terms of time, resources. So you will learn on the way to identify what is the most appropriate. There is no guide that solve all your questions. Always external factors are forcing reprioritize and affect deadlines put you out of focus. For example, we now are facing a price war in Peruvian market. The competitors are killing the margins. New competitors enter the market. There are mergers and acquisitions every two months. So all these things are external factors that you need to reprioritize because you have a team with a fire extinguisher in the day by day trying to control the situation in the company and you have at the same time a team that are looking in the next five years and don't changing the core things. And finally we are dealing now with the innovation focus but we don't want to run after we learn to walk very secure. So culture is the only and lasting condition that can maintain and reinforce a required organization. And the last lesson is this transformation. Start always with the CEO. He's not right now but he will be. He's starting to delegate, he's starting to make me more accountable for the company. So that's a good sign that we are in the correct way. And thank you very much for your patience and to try to understand my spanglish. And if you have any questions please ready to answer.

Speaker A So what I was seeing here is a strategic upshift. This is going to a Stratum Five company but the leading function that's been raised here is your function. The marketing function.

Speaker B The marketing and the sustainability function.

Speaker C Yeah.

Speaker A So then you're trying to pull the whole sales function up with you. Then. I'm thinking about Fred's diagram here. There's got to be a whole lot of these former salesmen at stratum One and Two that are suddenly have to be performing at Stratum three. And I imagine some of them maybe are in denial here. Are they? So I'm posing Fred's question to you. How are you getting them out of denial into confusion so you can work with them? Now I'm going to give you this mic here because you guys maybe want to have a little dialogue about this for a minute.

Speaker D I think we helped the whole organization going from denial to confusion by trying to help them understand what was the shift, where they were standing and what they were going. So every time we worked first top down and then we work in each area, in each direction, helping them to understand the new goals, the new strategy and the desired culture and how they had to shift their behaviors. So that helped them go from the first denial to the confusion phase.

Speaker C Very good.

Speaker D I think most of them are still.

Speaker C Confused, but they are cycles.

Speaker A But some of them can't probably make the jump. Tony, Tommy, isn't that the case?

Speaker B Yeah. When we work in identify which are the roles and the profile of the people that we need to get involved, we are now hiring a couple of professionals that are very tailor made for this transformation. The fit is perfect. So we need to be the fast as we can to identify these profiles because you are not going to find all these people inside the company. It's a huge transformation.

Speaker A Yeah, right. So what I'd like to do is take a few questions from the audience for both of these guys before 330. Yes.

Speaker E Can I work with the microphone? So I actually have two questions, one for each. I'll try to be brief on them. The first one, some of my background is actually in compensation. So I find it very interesting. Some of the comments that you have. I'm very much in agreement that particularly in the US and the industry that I'm in, which is financial services, there's a lot of emphasis in creating toll packages for the executive suite that perhaps are excessive and really relate nothing at all to whether they really need them for the job. They need that differentiation. So I'm kind of curious. You said you have some pushback from executives on that. I don't know how much you have a need to hire more and more executives into Torx or not, but if you do, how do you go about convincing them that that's not necessary, that that portion of compensation, that's not only not something that happens there, but how do you go about acquiring the talent that you might need?

Speaker C So I'd answer that in a couple of ways. One is our compensation is pretty much market determined. Okay? It's all of the other little perks and benefits that people like to have a parking spot, this, that, the little things that people think they should have a car. Okay. We don't provide a car. Okay. I take the transit just like everybody else does. So, for the most part, an opportunity to work in a culture that produces those sorts of results and is geared to people willingly giving their best. It's a pretty exciting environment to work in. And I don't think we've had any trouble. We just hired a new CFO and we had over 50 applicants. So even without those things, compensation set by the market, be it excessive or whatever it is, it is just set by the market. And all the other perks and benefits and differentiations that we don't do, I think, are overruled by the culture where you have clarity on what's expected of you. You have authority to do what's expected of you. You're measured against that. There's a strategy that you can align with. It's an exciting world to work in, and we have had no trouble recruiting at all.

Speaker E And then my second question is actually around it seems like I'm really about strategy, but it relates also to ORC design. If you are expanding in terms of now delivering more of the chain value, how are you ensuring that you don't start losing focus and maybe start trying to deliver too much? Because I assume that the needs of each of your customers might be different.

Speaker B Okay, we are developing models, pilots. We are working in these solutions that we are offering our clients. We are making a package of one pilot, for example. We are going to offer these three services that we are very sure that we can deliver appropriate to the client and cover his expectations. And we are in a six months or nine months contract to make all the small wins that we can show the client. We need to be able to show the client that we can deliver exactly the KPA, the SLA, the service level agreements that we offer to the client and don't go because in the middle of this you feel, okay, I am going to bring him five more. Not the first year, the first year we are going to try in the modules of trial and error, trial error, but in a controlled environment. In this control environment, we are making more strong teams with strong leaders that they can be very convinced about. Okay, I can bring this, so let's go to the next step. When you arrive to this level of confidence of your team, okay, you make the next step and go to the level two. There is ten solutions package in the second pilot. It's a three years program.

Speaker D Fred, I just wanted to ask you.

Speaker E Chila Dean here, having implemented so far, what do you see as the key risks going forward?

Speaker C It's always the people. There's two things when you're building a mine and when you're a little startup, you don't have all those other systems, right? They don't have compensation systems and training systems and maintenance systems and safety systems, all that stuff that has to get built. So there's a lot of you can't just take it off the shelf and put it in. You're going to build it. So there's a lot of stuff that has to happen simultaneously, which can be when you're trying to build a mine and a mill at the same time. There's a competition for resources, which is tough. The biggest risk is that some of those HR systems gets pushed back. It just takes more time and it's hard like an ann butts up against it. When someone's trying to build a mine and there's a thousand things that are in the way to say you really have to take three days off and come in and learn about how we're going to do role descriptions, they're not always completely enthusiastic about that, but you have to do it. So the risk is that we push it off and the next most important thing is people don't just change their behaviors. When I'm talking behaviors, they're really those eight leadership behaviors, okay? To properly set context and purpose for your team members, just sit there and identify the critical issues that could cause us to fail, rather than just charging off on something to help the team and engage the team in solving those problems. And some won't even make a decision, okay? You think they would, but some of them think it's a consensus business. It's not. And signing tasks properly, those things are hard to teach, and it takes time. And as a number of people have said earlier today, you always wait too long, okay? And you always try and try and try and try and get them across the line, and sometimes they're not going to get there. And we always say the same thing, I should have moved earlier than I did, okay? But at the same time, you're trying to get on the left side of the values continue and to be loving and fair and honest and trying to get them there. So we have to be careful that we don't wait too long before the team members change.

Speaker A We got time for a couple more here.

Speaker E Fred, you passed a very quiet little comment about how when you dealt with the community and setting up the mine and bringing in your values into how you actually dealt with their concerns. And through listening carefully, you felt that one was fairness and you just solved that. But how do you just solve that.

Speaker C When we say values, the values continue is a beautiful tool because you use it every day, okay? Every time you're going to make a decision, you ask yourself, how will that land? With the affected stakeholders? How will it land? So it's not a values list that goes on the website and you go and look it up every day. If you have to put it in a presentation, sometimes you go on a website and you pick it off and you stick it in there. Every time you're going to make a decision, say, with this stakeholder group, will that land left or right? And if it's on the right side, you say, can we change the decision or change how we communicate it? What do we have to do? So with the community itself, we're exactly the same. Like, we're honest, okay? We're trustworthy. But when they're upset and angry and blockaded, if you listen carefully, nobody tells me I don't feel loved, okay? Nobody says that they bitch about money or something else, right? But if you ask the right questions, you can get back to which one it is. And in this case, there were three different communities, and two had one deal before we got there, and the third had a different deal. And when you listen to the upset and the anger, it really came down to the fact that they were different. It was. Unfair in their view that it was different. Okay? So once you heard that, you could figure out the fair, you could source back to the cause of the unfair, and it was just different. We made them all the same. Okay? And then we had a meeting where they tried to get back what they lost. That wasn't going to happen, okay? They're not going to reward bad behavior of a blockade. Okay? And then I call it the marriage counseling phase. But then they signed up, and then they took our geologist out in the field and they showed them where they thought he and she should look for new orange. But it was figuring out, I would say almost all human conflict is based on one of those. Okay, figure out which one it is, and then the answer is staring you in the face.

Speaker A I know there's some other questions, but we really don't have time for them, guys. We'll have to take these people and catch them in the corner and ask them directly. Thank you very much, Fred.

Speaker B Thanks, Don't.