W16499 MACPHIE & COMPANY: THE GROWTH IMPERATIVE Karin Schnarr and David Kunsch wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) firstname.lastname@example.org; www.iveycases.com. Copyright © 2016, Richard Ivey School of Business Foundation Version: 2016-08-24 In March 2015, Hugh MacPhie, the founder and principal of MacPhie & Company (MacPhie) knew that his company was at a crossroads. Founded in 2004 in Toronto, Ontario, Canada, the company offered consulting services related to strategy development, marketing and communications, reputation management, and branding, primarily to Ontario-based firms in the public, non-profit, and private sectors. Hugh worked hard to ensure that his company maintained an entrepreneurial culture that fostered innovation and continual learning while ensuring that all client projects followed “the MacPhie Way.” Although MacPhie had been financially successful over the years, it had struggled with growth. Hugh had set a goal of growing MacPhie to at least 20 consultants by 2020. He knew that in order to do that, he would need to figure out how to appropriately scale the business. This would include considering all facets of the business: revenue generation to support a larger model; ensuring consistent profit margins; an appropriate client mix; services offered; teachable methodologies and consulting processes; most effective organizational structure and human resources; geographic locations; and awareness-building efforts. Hugh was confident that there was a larger market for his company’s services; historical data demonstrated that once organizations hired MacPhie, they kept coming back. It had been over a decade since MacPhie had been established. Hugh felt that it was time to be bold. He commented, “I want to push MacPhie to the next level.” The challenge was how to get to that level and sustain it. THE CONSULTING INDUSTRY MacPhie provided consulting services related to management, strategic planning, communications, and market research. Given the volatility of the consulting sector, companies had to balance doing work out of scope that would bring in guaranteed revenue with staying true to the vision for the company and hoping that business in that area would come through the door. This document is authorized for use only in James Anderson's BUSS6000 Sem 1 2020 at University of Sydney from Mar 2020 to Jun 2020. Page 2 9B16M133 Management Consulting According to Statistics Canada, management consulting firms in Canada were defined as follows: Establishments primarily engaged in providing advice and assistance to other organizations on management issues, such as strategic and organizational planning; financial planning and budgeting; marketing objectives and policies; human resource policies, practices and planning; and production scheduling and control planning.1 In 2014, the Canadian management consulting industry had revenues of approximately CA$8 billion,2 employing 65,970 people in 44,271 businesses. Given the service nature of the industry, it had suffered a negative impact from the 2008 financial crisis, which created stagnant demand from the business community. From 2009 to 2014, there had been only a 0.9 per cent annual growth rate. However, over the next five years, revenues were expected to grow faster “as a result of rising corporate profit, an increasing number of businesses, and growing demand from the financial services sector.”3 The industry was fragmented: 87.4 per cent of companies in this sector were micro firms (one to four employees), and 12.5 per cent companies were small firms (five to 99 employees).4 The market leaders were companies with national and international scope, including Accenture PLC, Deloitte, and McKinsey & Company; however, there were many unincorporated firms where the owner would draw earnings from the firm’s profits rather than from a salary. The largest expenses of firms in this sector were wages and commissions, as well as rent. Geographically, firms were generally situated in Canada’s urban centres, with the majority in Ontario (44.3 per cent), Quebec (18.8 per cent), Alberta (15.7 per cent), and British Columbia (15.3 per cent).5 Strategic Planning and Communications Planning The boundaries of the strategy and communications industries in Canada were not fixed; they often overlapped, depending on the needs of clients. Strategic planning included leading mission/vision/values definition programs for clients and developing focused plans to help clients prioritize and achieve their strategic aims. Further, strategic planning could be more broadly interpreted to include issue management activities, or simply providing guidance and counsel to clients (often around the clock) to assist with organizational and personal goal achievement. The communications industry included disparate activities like public relations, advertising, public affairs, corporate communications, brand management, and marketing activities. Due to the significant overlap in the services offered, it was difficult to determine the market size of the segments in the communications sector. In 2014, Statistics Canada reported that there were 17,441 advertising and related communications (e.g., public relations) firms and sole practitioners in Canada. Similar to management consulting, firms in this sector were concentrated in urban centres to be close to businesses, primarily in Ontario (44.8 per cent), Quebec (25.4 per cent), British Columbia (13.5 per cent), and Alberta (9.4 per cent). The vast majority of firms were micro (61.9 per cent) and small businesses (36.8 per cent).6 1 “Management Consulting Services (NAICS 54161): Definition,” Government of Canada, accessed May 16, 2016, https://strategis.ic.gc.ca/app/scr/sbms/sbb/cis/definition.html?code=54161&lang=eng. 2 All figures are in CAD unless otherwise specified; CA$1 = US$0.78 on March 1, 2015. 3 “Management Consulting in Canada: Market Research Report,” IBISWorld, accessed February 27, 2015, www.ibisworld.ca/industry/default.aspx?indid=1421. 4 “Administrative Management and General Management Consulting Services (NAICS 541611): Establishments,” Government of Canada, accessed February 28, 2015, www.ic.gc.ca/app/scr/sbms/sbb/cis/establishments.html?code=541611&lang=eng. 5 “Advertising and Related Services (NAICS 5418): Establishments,” Government of Canada, accessed February 28, 2015, https://strategis.ic.gc.ca/app/scr/sbms/sbb/cis/establishments.html?code=5418&lang=eng. 6 “Administrative Management and General Management Consulting Services (NAICS 541611): Establishments,” op. cit. This document is authorized for use only in James Anderson's BUSS6000 Sem 1 2020 at University of Sydney from Mar 2020 to Jun 2020. Page 3 9B16M133 Strategy and communications consulting firms were hired by companies to augment in-house resources, or because they had subject-matter expertise or specific skill sets (e.g., speech writing). The lack of industry specificity made it challenging to determine core competitors because firms competed on multiple elements based on particular staff abilities, experience, and relationships. In addition, many firms offered related services. For example, in the past, MacPhie had offered clients corporate communications, speech writing, communications content development, project management, and issues management services. MacPhie had also been involved in joint client projects with advertising, public relations, and public affairs firms to develop communications programs and hone communications messages on behalf of clients. Market Research The market research industry in Canada accounted for approximately $0.75 billion in market research activity annually. Traditionally, this industry included all aspects of market intelligence and survey research, including social research, competitive intelligence, data mining, insight, and knowledge management.7 The industry had large, national companies (e.g., Pollara Strategic Insights, Environics Analytics, and Harris/Decima), smaller niche firms specializing in specific content areas (e.g., health care or agriculture), and individual practitioners. Customers of market research services included financial institutions, major retailers, insurance companies, telecommunications firms, and manufacturers. MacPhie was a member of the Market Research and Intelligence Association of Canada. As a member of this industry association, the company was bound by a code of conduct and best practices guidelines. The code covered issues related to the ethical treatment of research participants, complying with privacy requirements, and appropriate management of client information.8 COMPETITIVE LANDSCAPE It was difficult to define MacPhie’s competitive environment given the diversity of engagements and the multi-dimensional skill set that the MacPhie team possessed. Firms included as its competitors fell into three categories: Larger firms who had a national or international scope and a broad spectrum of services (e.g., public affairs/public relations agencies, and consulting firms) Industry-focused providers (e.g., hospital strategic planning firms) Individuals with industry, agency, or government expertise working as sole proprietors or working loosely with others who had completely different skill sets (e.g., media training or public relations firms) As the founder of a small firm that employed both creative and analytical approaches, Hugh had a good idea of the companies against which MacPhie competed for business. Principals at these firms were in his personal network, and he considered many of them friends. However, it was unclear to him which one posed the strongest threat, at that time and in the future. Hugh stated, “Moving forward, I want my company to be more focused, so we have a more definitive competitive positioning. That focus includes truly being a boutique consultancy that specializes in articulating organizations’ identities and helping to shape their future direction.” 7 Market Research and Intelligence Association of Canada, MRIA 2013 Annual Report, accessed March 1, 2015, http://mriaarim.ca/sites/default/uploads/files/MRIA-Annual-Report-ENG-2014-final.pdf. 8 Information related to the code of conduct can be found on the MRIA website at http://mria-arim.ca/aboutmria/standards/code-of-conduct-for-members. This document is authorized for use only in James Anderson's BUSS6000 Sem 1 2020 at University of Sydney from Mar 2020 to Jun 2020. Page 4 9B16M133 MACPHIE & COMPANY Hugh MacPhie founded his company with the intent of being the McKinsey & Company of marketing and communications. Hugh saw a gap in the marketing and communications field to provide high-end, sophisticated strategic counsel, more along the lines of a management consulting model than the approach of a public relations agency, advertising firm, or research house. Within the context of that initial idea, Hugh set out to build his practice. Early on, that focus produced four kinds of engagements: qualitative research work; speech writing and developing communications content; planning communications; and provision of strategic counsel. In its first year, MacPhie achieved gross revenues of over $382,000—nearly double Hugh’s mid-range projection. The company quickly grew to five employees but was reduced to a single employee working with Hugh after the impact of the global recession in 2008. Revenue numbers had grown marginally over time. Paul Tambeau, a former MacPhie senior associate noted, “When I worked there, the company struggled to get beyond the adolescence phase. It was bigger than a single consultant who has hung out his or her shingle, but not a full-fledged consulting firm.” Organizational Structure MacPhie started out as a virtual organization in 2004, with all employees working from their homes. After 2009, MacPhie moved in and out of various physical office spaces in downtown Toronto, eventually sharing such an office with a larger public relations agency. In March 2015, MacPhie consisted of four employees: Hugh, two associates, and one analyst (see Exhibit 1). An associate was technically a more senior position than an analyst. In practice, however, MacPhie was a flat organization where all staff worked collaboratively on engagements. Typically, Hugh was the client-facing lead on projects. In the past, senior associates had also served as client-facing leads for accounts, and were responsible for assisting with business development. No longer having senior associates meant that the company lacked the leadership it needed to replicate offices in different markets. It also meant that Hugh spent a great deal of time with existing clients, which limited his time for developing new business. Hugh had experimented with various organizational structures. Over the years, Hugh had worked with a number of external consultants to satisfy workflow requirements and specific client needs. None of these consultants had become full-time employees of MacPhie. In early 2014, Peter Nelson, a senior-level executive with marketing and advertising expertise, joined MacPhie as an equity partner. Over the course of that year, Nelson and Hugh determined that they did not have the same vision of where the firm should be focused, so Nelson left the company. Human Resources MacPhie never had more than five employees, and no employee (other than Hugh) had been with the company longer than five years. Some employees were not a good fit with the company, so they did not stay long. Others were smart and successful but were mainly interested in building their resumes with entrylevel consulting work experience before moving into sectors that truly interested them—like financial services—or moving to larger, more global consultancies. MacPhie hired well-rounded junior employees who were able to facilitate focus groups, conduct market research, write well, and demonstrate strong social skills. The company had created a detailed process This document is authorized for use only in James Anderson's BUSS6000 Sem 1 2020 at University of Sydney from Mar 2020 to Jun 2020. Page 5 9B16M133 through which new employees were hired to ensure a strong cultural fit, as well as a formal on-boarding process for these new employees; while they were working as junior analysts, they were taught the company’s approaches, methodologies, and the subtleties of engaging clients once they were on board. With MacPhie’s diverse range of clients and projects, it took staff several years to develop the varied skills required. Once fully trained, a junior employee became an analyst. MacPhie’s compensation policy had always been informal. There was no clear explanation of how one could receive a raise or promotion; these were typically awarded at Hugh’s discretion. The company’s guidelines stated that analysts started at a salary of $50,000, and could receive bonuses of 10 to 15 per cent of their salary for meeting expectations set by Hugh. These bonuses were awarded during the performance appraisals that were held twice a year. Associates (one level above analysts) received a salary of $70,000 to $80,000 with a similar bonus structure. Principals received $150,000 plus an undetermined semi-annual bonus, largely based on the company’s current cash flow and the robustness of the existing business pipeline. Salaries varied over the years depending on the experience and skill set of the hired individuals. All employees received formal health benefits and three weeks of paid vacation, but there was no employee pension plan. The company was generous with additional days or half-days (it had no set number of sick days, for example), and the office typically closed for at least a week over the Christmas holidays. Staff tracked their time using standard, web-based consultant time-tracking software. The use of the timetracking software allowed Hugh to tell at a glance whether projects were on budget, the number of hours staff were spending on billable versus non-billable time, and how efficiently each project was running. Employee reviews were formally held twice a year, but informal feedback was an ongoing process, given Hugh’s desire for continual improvement in every facet of the business. This review process applied to Hugh to a lesser degree. He was open to feedback from staff, and accountability on this front was more evident with a second partner. However, without any direct mentor for Hugh, there was a limit to his potential for skill development through internal means. Corporate Governance MacPhie was a privately held business with ownership retained by Hugh and members of his family. The company had a voluntary advisory board that consisted of members of Hugh’s professional network and former clients; they were often senior leaders with significant business expertise. The board met annually, but Hugh sought advice from individual board members as needed and consulted with them often to gain their advice on how to grow the company. Hugh was completely transparent with them in terms of MacPhie’s financial and management performance. Organizational Culture Over the years, Hugh had created and honed MacPhie’s philosophy so that it reflected the culture he wanted to foster in his company (see Exhibit 2). Hugh commented, “We preach the importance of culture as a source of sustainable competitive advantage for our clients, so we take our own culture seriously as well.” Given the service-based nature of his business, he felt that the existing, positive corporate culture was critical to the current and future success of his company. Hugh stated, “I work hard to ensure open communication and a positive working relationship between all employees. I am completely open with all the staff about the financial performance of the company. This has to continue as we grow larger.” There was a strong management preference for low risk, both financially (e.g., low levels of debt) and in terms of corporate reputation. This document is authorized for use only in James Anderson's BUSS6000 Sem 1 2020 at University of Sydney from Mar 2020 to Jun 2020. Page 6 9B16M133 The MacPhie Way: Plan, Learn, Think, Talk, and Celebrate. Hugh strongly believed that there needed to be consistency in terms of the company’s approach to client engagements, an approach that he called “the MacPhie Way.” He felt that this served as a differentiator from other smaller companies. MacPhie was able to demonstrate to prospective and current clients that there was a methodological rigour to its approach to client projects. The MacPhie Way also offered a template for staff to follow when managing projects. The MacPhie Way consisted of five phases: Plan, Learn, Think, Talk, and Celebrate. Plan: The Plan phase was the first part of any engagement where Hugh and assigned members of the team sat down with the client to discuss in more detail both the objectives of the project and the process that would be used. This allowed MacPhie to ensure alignment across the entire team. Generally, the Plan phase involved one or two meetings to clarify the objectives and, in order for the company to report back with a more detailed project plan, each project was separately scoped and budgeted. Clients signed a letter of agreement at the beginning of the project that outlined the parameters of the project, the deliverables, a project timeline, and a budget. Expenses were usually outside the original budget but had to be approved by the client prior to booking. Administrative costs to run each project were usually built into program budgets, rather than appearing as a separate line item. Learn: The Learn phase occurred once the client signed off on the Plan phase. MacPhie gathered information from both the client and external sources in order to gain a broader understanding and awareness of the client’s environment from an objective point of view. This stage could include data gathering from facilitated focus groups and from interviews with employees, partners, and key stakeholders, as well as from data analysis. The process sometimes uncovered issues that had not been originally presented (or contemplated) by the client, which were then incorporated into the plan. Think: The Think phase involved MacPhie team members taking the information gathered through the Learn phase and thinking, as a team, about the best possible solution(s) to achieve the objectives as set out in the Plan phase. This phase included analyzing potential alternative strategies to develop solutions that were creative but realistic. The Think stage was iterative, often involving significant back-and-forth interaction with the client. Talk: The Talk phase occurred when the company presented its findings to the client. This phase often included a written report that was customized to the needs of each specific client. Celebrate: The Celebrate phase allowed MacPhie to go back to the client at the end of (or a short time after) the project to measure the impact and effectiveness of the work that had been completed. This phase was important because it provided an opportunity for MacPhie to maintain client relationships and for future business, based on recommended next steps. The company had often struggled to conduct the measurement aspect of this phase, given the subjective nature of deliverables. The MacPhie Way had proven to be a useful template for the company from a project planning perspective, both internally and as a method for describing the engagement process to clients. It was unclear how many competitor firms used a similar approach. This document is authorized for use only in James Anderson's BUSS6000 Sem 1 2020 at University of Sydney from Mar 2020 to Jun 2020. Page 7 9B16M133 THE MACPHIE BUSINESS MODEL Core Activities MacPhie’s core activities had evolved significantly from 2004 to 2015. At the onset, the company offered speech writing, corporate communications, and market research, which reflected Hugh’s personal skill strengths and experiences. As MacPhie became more mature, it expanded its offering based on the skill sets of its employees. New services included report writing, business planning, training programs (in areas including customer service, persuasive communications, and change management), grant writing, group facilitation, and brand definition. If clients approached MacPhie with service requests, the company tried to accommodate them, even if they were not part of the traditional offering. Although this brought in additional revenue, it sometimes resulted in narrow profit margins, given the time required by the employee to master the delivery of services that might be tangential to existing offerings. By 2015, MacPhie focused on four main areas, as described by Hugh: First, we offer strategic planning. Our process helps organizations to articulate their mission, vision, and values, and establish clear priorities and strategic directions. Second, we offer market research. Our focus groups, stakeholder audits, and online research methodologies seek deeper insight by asking better questions, and capture the thoughts, feelings, values, and personal identity of target audiences. Third, we offer brand and culture definition. Our most successful engagements have involved helping organizations, products, or people to determine how they want to live in the minds of their target audiences. We also help organizations achieve competitive advantages by articulating their aspirational cultures—and bringing that culture alive. MacPhie also concentrated on communications counsel, planning, and execution due to Hugh’s background in communications and speech writing. This offering formed a major portion of revenues. The company’s small staff and minimal administrative overhead allowed MacPhie to be competitive in its pricing, but it did not attempt to be the lowest-cost provider. Hugh stated, “I feel that our offering is unique through an ability to deeply understand the client’s needs and the MacPhie Way.” Although there was some opportunity for economies of scale in multiple engagements from a single client, or in similar projects, MacPhie delivered customized approaches for each client, rather than offering a one-size-fits-all solution. Clients In considering MacPhie’s list of clients, Hugh noted, “Our approach works anywhere with any sector, although the majority of our work has been in the health care and financial services sectors.” While MacPhie did most of its business within the public and non-profit sectors, its client list had included major retailers, post-secondary institutions, telecommunication firms, health care organizations, technology companies, financial service providers (including banks and insurance companies), industry associations, and large national charities. Typically, the direct clients who engaged MacPhie comprised senior executives or heads of divisions within their organizations. Prior to 2015, MacPhie had focused on strategic planning and communications, with a growing emphasis on strategy engagements (see Exhibit 3). Project budgets ranged from under $10,000 to over $100,000. Hugh tried not to accept new client projects below $5,000, given the amount of time required to become familiar with the file, although the company would often conduct several projects in this budget range every year. This document is authorized for use only in James Anderson's BUSS6000 Sem 1 2020 at University of Sydney from Mar 2020 to Jun 2020. Page 8 9B16M133 Business Development Although business development was largely driven by Hugh, employees at all levels of MacPhie received 10 per cent of the profits of any business they brought in to the company. MacPhie largely sourced its business through two major channels: Hugh’s network and word of mouth. Having worked at Procter & Gamble Co. and in government agencies, as well as having been an active member of a number of professional networks, Hugh had an extensive list of contacts, many of whom were senior leaders in the public and non-profit sectors. These contacts were either approached by Hugh directly with project suggestions, or contacted Hugh themselves for help with their organizational challenges. When companies sourced MacPhie through these channels, they were really hiring Hugh. As such, clients expected significant face time with Hugh. During the first engagement, clients gained exposure to the associates, who then took over the client relationship for subsequent projects. Once MacPhie completed a project for an organization, the company was often hired back. The second channel was through word of mouth or client referrals. These referrals tended to lead to “warm requests for proposals,” where a member of the proposal award committee invited MacPhie to bid, as well as sole-source lower-budget work, such as one-off facilitated retreats. Word-of-mouth referrals drove some traffic to MacPhie’s website (www.macphie.ca), where potential clients familiarized themselves with the company’s offerings and then contacted MacPhie via the general email address provided on the website. Recently, the company had received a number of unsolicited calls from potential new clients who had heard about MacPhie and were interested in retaining the firm for projects across the spectrum of MacPhie’s offerings. These new clients were comfortable working with associate members of the MacPhie team; they were not specifically looking for Hugh to lead the project. In addition, analysts at MacPhie were responsible for monitoring websites like MERX and Biddingo, where organizations posted official requests for proposals (RFPs). Given the highly competitive process, it was very rare for MacPhie to win business through this channel, particularly when it did not have a previous relationship with the company or a warm contact. In fact, MacPhie had not won a single project through a formal RFP process in the past three years, unless there had been a direct invitation to bid. The company had been told that the value it brought to clients was not as evident in its written proposals as it was in person. Responses to RFPs also took a significant amount of staff time to prepare, given the extremely exacting requirements that were often stipulated by the company for the proposal. Marketing MacPhie used no paid advertising to promote the company. The company’s website had been optimized for computer searches, but MacPhie did not advertise online. Its main promotional activity was an annual party held at Hugh’s home, to which past clients were invited. It was well attended (and appreciated) by the company’s clients. MacPhie also sent holiday baskets at Christmas to existing clients and selected former clients. Uniquely designed, thematic holiday cards were sent to a much broader list of contacts. The cards were signed by all of the consultants and were not personalized for each recipient. In late 2009, Hugh self-published a book titled Don’t Forget Your Cape! What Preschoolers Teach Us About Leadership & Life.9 The book generated additional publicity for the company and provided a platform for Hugh’s keynote speaking work, both for individual clients and through the National Speakers’ Bureau, where Hugh was on the speakers’ roster. Hugh commented, “I think publishing the book really helped build 9 Hugh D. MacPhie, Don’t Forget Your Cape! What Preschoolers Teach Us About Leadership & Life (Bloomington, IN: Authorhouse, 2009). This document is authorized for use only in James Anderson's BUSS6000 Sem 1 2020 at University of Sydney from Mar 2020 to Jun 2020. Page 9 9B16M133 my reputation as a thought leader. It was also something that really stimulated me intellectually. I want to publish more books, but am so busy with client work right now that it is hard to find the time.” In addition to the book, all staff at MacPhie wrote articles and thought pieces related to communications, marketing, and brand issues, which were posted on the MacPhie website. All individuals on the company’s email list were notified when a new article was posted, to help MacPhie remain fresh in the minds of current and former clients. Hugh stated, “Whenever we post a new article and let our e-mail list know, I get a handful of emails letting me know how much they enjoy them. I don’t think it drives a lot of new business, but it is a cheap and easy way for us to remind people about MacPhie.” Financial Performance MacPhie had been profitable every year of its history. In 2014, revenues were close to $1 million, with a net income of $278,000; this was a significant improvement in terms of financial performance over 2013, as reflected in MacPhie’s balance sheets, income statements, and cash flow statements for 2013 and 2014 (see Exhibits 4, 5, and 6). THE PATH FORWARD After leading MacPhie for 10 years, Hugh said: Clients are pleased with the work we do and we are making a good margin on that work. But I am frustrated with our apparent inability to grow, given that success. We haven’t been able to consistently break through the annual $1 million revenue barrier. What we need is an aggressive plan that will grow the business. My vision is a company with at least 20 consultants by 2020. The challenge is to come up with a plan that we can follow to achieve that target. If we can’t plan our own growth, we shouldn’t be advising clients on how they can do it. The plan will need to consider all aspects of growth: strategic, organizational, and financial. Once we have that plan, we will need to figure out how to implement it in order to achieve my vision. This document is authorized for use only in James Anderson's BUSS6000 Sem 1 2020 at University of Sydney from Mar 2020 to Jun 2020. Page 10 9B16M133 EXHIBIT 1: MACPHIE & COMPANY ORGANIZATIONAL ROLES AND RESPONSIBILITIES AT DIFFERENT LEVELS OF SENIORITY Level Principals Senior Associates (Strategic Practice Leads) Associates (Insight Developers) Analysts (Critical Thinkers) Description of Primary Responsibilities Elected to this level by the existing principals Have equity in the firm Provide senior counsel to clients Play a major role in business development Act as a mentor to others in the organization Ensure the brand and reputation are being managed according to plan Act as principals-in-training Manage their own client accounts Play a large role in business development Act as a mentor to others in the organization Practice leads in sectors (health care, financial sector, etc.) and specialties (strategic planning, brand definition) Should achieve principal status within 3 to 5 years, depending on performance Continue corporate administrative responsibilities Expect to lead the thinking on key components of client engagements, especially research and analysis in the learning phase Bring advanced analytical and idea synthesis skills Manage client file management, especially on smaller engagements Have a strong ability to develop and edit exceptional client products Help identify and respond to requests for proposals for business opportunities Depending on performance, expect to be promoted to strategic practice lead in 18 months to 3 years Core operations and lead responsibilities Manage corporate administration—accounting, tax, supplier relationships Organize project logistics and project administration Manage client projects, including developing and managing critical paths and workbacks, contact reports after client meetings, proactive client interface, etc. Consulting responsibilities Be proficient in analysis, including hypothesis development Conduct secondary research and information gathering to identify key concepts and facts Organize data and information into logical categories Develop client-facing products, including reports and presentations Expect to be able to participate in client briefings and offer details and specifics that lead to broader conclusions Firm-building responsibilities Help identify and respond to requests for proposals for business opportunities Enhance and support the firm proactively to help deliver on overall goals Depending on performance, expect to be promoted to insight developer in 1 to 2 years Source: Company documents. This document is authorized for use only in James Anderson's BUSS6000 Sem 1 2020 at University of Sydney from Mar 2020 to Jun 2020. Page 11 9B16M133 EXHIBIT 2: MACPHIE & COMPANY PHILOSOPHY We believe in passion. All great artists pour their hearts and souls into their work. You can tell when a team has passion for their work because it shows. And the results are seen in the target audience’s response. We believe in science first, and art second. Gather information and plan first. Then creativity can take over. We believe that defining and shaping your brand is central to any great strategy. Everything—from people to products and services to trade associations—has a brand. If you don’t influence and shape the way your target audience perceives your brand, other people will. We believe in the power of insights into key audiences. A clear, detailed knowledge of your target audience can be a source of competitive advantage. Define your target clearly, knowing not only their demographics, but also their habits, beliefs, and aspirations. Think about them day and night. Watch them. And anticipate what they will do next. We believe in sweating the details. No creative detail should be left to chance or unplanned. Semiotics— which is a science of symbolism—tells us that there is meaning in everything. Every aspect of a work product—from colour, to font, to the placement of design elements—influences your audience’s net takeaway. Never let anyone tell you that a detail doesn’t matter. If they made it green, why green? Why not orange? If they can’t answer, they probably haven’t sweated the details properly. We believe in stories. For thousands of years, these are the tools people have used to communicate. Paint pictures in the mind. Use parables. Tell stories. They work. We believe that emotion trumps cognition. If you can get your audience to pay attention to you, and to like you, then it is much easier to get them to believe your facts. Put differently: lead with the heart, and the head will follow. Source: Company documents. EXHIBIT 3: MACPHIE & COMPANY 2014 PROJECTS BY SIZE, CLIENT, AND PROJECT TYPE Number of Projects Sectors Tier 1 ($100,000 +) 1 Tier 2 ($40,000–99,999) 10 Tier 3 ($10,000–39,000) 10 Tier 4 (< $10,000) 17 Health Technology Advertising; Mental Health; Health (Hospital); Post-Secondary Education; Retail; Health (Industry Association) Manufacturing; Mental Health; Government; Post-Secondary Education; Health (Hospital); International Non-Profit Health (Technology); Financial Services; Social Work; Beverages; Government; Food Processing; Health (Hospital); Law; PostSecondary Education; Industry Association; Environment Average Revenue (in CA$) $101,718 Tier Percentage of Income (%) 11 $53,751 57 $21,347 25 $4,282 7 Source: Company documents. This document is authorized for use only in James Anderson's BUSS6000 Sem 1 2020 at University of Sydney from Mar 2020 to Jun 2020. Page 12 9B16M133 EXHIBIT 4: MACPHIE & COMPANY 2013 AND 2014 BALANCE SHEETS (UNAUDITED) (IN CA$) 2014 ASSETS Current Assets Cash Accounts Receivable Deposits Paid Undeposited Funds Total Current Assets Fixed Assets Equipment—Accumulated Amortization Equipment—Cost Furniture and Fixtures Original Cost Furniture and Fixtures Accumulated Depreciation Computer Equipment Accumulated Amortization Computer Equipment Total Fixed Assets Other Assets Incorporation Accumulated Amortization Incorporation Costs Total Other Assets TOTAL ASSETS LIABILITIES and EQUITY Liabilities Current Liabilities Credit Cards 3100 ∑ Focus Group Incentive HOLDING Payroll Liabilities Federal Income Tax Payable Accrued Liabilities Due to Shareholder GST/HST Payable Income Tax Payable Total Current Liabilities Total Liabilities Equity Dividends Equity Share Capital Total Equity Retained Earnings Net Income Total Equity TOTAL LIABILITIES and EQUITY 2013 Change ($) Change (%) $58,372 331,465 4,092 678 $394,607 $133,492 168,073 4,092 0 $305,657 ($75,120) 163,392 0 678 $88,950 −56.30 97.20 0.00 100.00 29.10 (2,032) 2,340 9,668 (2,032) 2,341 8,085 0 0 1,583 0.00 0.00 19.60 (5,157) (5,157) 0 0.00 (16,042) (16,042) 0 0.00 19,760 8,537 17,705 4,900 2,055 3,638 11.60 74.30 (922) 1,142 220 $403,364 (922) 1,142 220 $310,777 0 0 0 $92,588 0.00 0.00 0.00 29.80 $9,347 8,700 15,143 0 2,250 10,697 40,647 (40,885) $45,899 $45,899 $8,607 8,700 9,045 37,246 2,250 20,761 28,110 $114,720 $114,720 $740 0 6,097 (37,246) 0 (10,064) 12,536 (40,885) ($68,822) ($68,822) 8.60 0.00 67.40 −100.00 0.00 −48.50 44.60 −100.00 -60.00 -60.00 ($116,701) ($120,000) $3,299 2.80 200 200 195,856 278,111 $357,465 $403,364 200 200 141,376 174,479 $196,057 $310,777 0 0 54,480 103,631 $161,410 $92,588 0.00 0.00 38.50 59.40 82.30 29.80 Note: GST/HST = Goods and Services Tax/Harmonized Sales Tax. Source: Company files. This document is authorized for use only in James Anderson's BUSS6000 Sem 1 2020 at University of Sydney from Mar 2020 to Jun 2020. Page 13 9B16M133 EXHIBIT 5: MACPHIE & COMPANY 2013 AND 2014 INCOME STATEMENTS (UNAUDITED) (IN CA$) 2014 INCOME Rebates, Refunds, or Credits Income (Operating) Speaking Fees Book Sales Consulting Fees Interest Income Income—Other Total Income EXPENSES Charitable Contributions Penalties and Interest Intangible Amortization Amortization Expenses (operating) Bank Charges Computer Expenses Donation Insurance Office Rent Office Expenses Postage and Courier Professional Services (legal, accountant, etc.) Software Telephone Meals and Entertainment Meals Non-Eligible HST Internal Strategy Sessions Membership Fees Printing Travel and Accommodation Business Development—Other Benefits—Premiums Associates Payroll Expenses Professional Development and Training Wages Marketing and Promotions Expenses—Other Expenses Total (Operating) Total Expenses Net Ordinary Income Income Tax Provision Net Income 2013 Change ($) Change (%) 0 1,250 (1,250) −100.00 3,000 0 911,382 0 350 $914,732 0 998 603,828 120 0 $606,195 3,000 (998) 307,555 (120) 350 $308,537 100.00 −100.00 50.90 −100.00 100.00 50.90 0 958 0 0 400 1,449 114 1,421 (400) (491) (114) (1,421) −100.00 −33.90 −100.00 −100.00 600 3,850 640 3,488 35,543 7,632 37 14,619 741 495 0 4,747 26,433 4,175 0 41,008 (141) 3,354 640 (1,259) 9,110 3,456 37 (26,389) −19.10 677.60 100.00 −26.50 34.50 82.80 100.00 −64.40 542 5,757 8,646 685 0 2,412 178 14,999 695 14,685 38,787 12,261 2,230 472,267 7,274 (12,159) 635,664 636,622 $278,111 0 $278,111 508 6,196 9,464 644 41 3,095 77 16,749 837 9,822 0 8,744 0 250,201 3,996 2,627 390,601 393,985 $212,211 37,731 $174,480 34 (439 (819 40 ( 41) (684) 101 (1,751) (142 4,863 38,787 3,517 2,230 222,066 3,279 (14,787 245,063 242,637 $65,900 −(37,731) $103,631 6.80 −7.10 −8.70 6.30 −100.00 −22.10 131.00 −10.50 −17.00 49.50 100.00 40.20 100.00 88.80 82.10 −562.80 62.70 61.60 31.10 −100.00 59.40 Note: HST = Harmonized Sales Tax. Source: Company documents. This document is authorized for use only in James Anderson's BUSS6000 Sem 1 2020 at University of Sydney from Mar 2020 to Jun 2020. Page 14 9B16M133 EXHIBIT 6: MACPHIE & COMPANY 2013 AND 2014 CASH FLOW STATEMENTS (UNAUDITED) (IN CA$) 2014 2013 Change ($) OPERATING ACTIVITIES Net Income $278,111 $174,480 $103,631.04 Adjustments to Reconcile Net Income to Net Cash Provided by Operations: Accounts Receivable ($163,392) $10,796 ($174,189) Deposits Paid 0 (1,138) 1,138 Accounts Payable 0 (27,221) 27,221 Credit Card 1 163 0 163 Credit Card 2 577 2,789 (2,212) Focus Group Incentive HOLDING 0 (700) 700 Payroll Liabilities 6,097 1,895 4,203 Federal Income Tax Payable (37,246) 8,662 (45,908) Accrued Liabilities 0 750 (750) Due to Shareholder (10,064) 12,557 (22,621) GST/HST Payable 12,536 32,281 (19,746) Income Tax Payable (40,885) 0 (40,885) Net Cash Provided by Operating $45,897 $215,151 ($169,254) Activities INVESTING ACTIVITIES Equipment—Accumulated Amortization Furniture and Fixtures Original Cost Furniture and Fixtures Accumulated Depreciation Computer Equipment Accumulated Amortization Computer Equipment Incorporation Accumulated Amortization Net Cash Provided by Investing Activities FINANCING ACTIVITIES Dividends Retained Earnings Net Cash Provided by Financing Activities Net Cash Increase for Period Cash at Beginning of Period Cash at End of Period Change (%) 59.40 −1,613.40 100.00 100.00 100.00 −79.30 100.00 221.80 −530.00 −100.00 −180.20 −61.20 −100.00 −78.70 $0 (1,583) $132 (1,469) ($132) (114) −100.00 −7.80 0 548 (548) −100.00 0 740 (740) −100.00 (2,055) 0 (1,851) 114 (205) (114) −11.10 −100.00 ($3,638) ($1,785) −$1,853 −103.80 $3,299 (120,000) $35,200 (142,840) ($31,901) 22,840 −90.60 16.00 ($116,701) ($107,640) ($9,061) −8.40 ($74,442) 133,492 59,050 $105,726 27,766 133,492 ($180,168) 105,726 (74,442) −170.40 380.80 −55.80 Note: GST/HST = Goods and Services Tax/Harmonized Sales Tax. Source: Company documents. This document is authorized for use only in James Anderson's BUSS6000 Sem 1 2020 at University of Sydney from Mar 2020 to Jun 2020.