When accountant-turned-CEO Serhat Oguz was appointed to the top job at OHS services company Konekt in June he found a company in a mess, with a share price languishing at just 3c and losses running at $7 million a year. Today, things are looking up. The company turned its maiden profit in 2008-09 and recently upgraded its earnings outlook for 2009-10, with a forecast of EBIT of $2.4-2.6 million. Revenue for the first six months of the year was $18.1 million.
Today Serhat talks about how he turned the company around by building a sales culture first and cutting costs second, why Australia’s OHS laws are too complex and how his company is riding the outsourcing boom.
Can you tell us a bit about what Konekt actually does.
Look we’re very broad I guess. We’re basically an end-to-end injury management solutions company as well as a risk management company when it comes to injuries. So injury and risk management services.
And I know running off that there’s risk management solutions, software and also consultancy, services where you’re going out and helping people actually getting back to work.
The first part of our offering is really about preventative safety solutions, so how do we make the workplace sort of injury safe or safe from anything happening? So we may do OHS consulting, we may do ergonomic services, just going and simply making sure that people are sitting right and positioned correctly, their posture’s right and things like that. We may do manual handling training, we also do pre-employment screenings. I guess there’s a profile in terms of what that a role requires and we will screen people to make sure that they functionally have got capacity to do those job related tasks. A lot of that comes under what we call our safety services, so that’s pre-injury.
Then we have another area which is our call centre. Early intervention is very important in getting people back to work as quick as possible, so we have an early intervention offering so when an employee is injured at a workplace the employer notifies us through our call centre and we log the accident in what we call the accident book so that we’ve got a full record of what’s been happening in that workplace in terms of very small things to major things. What we do then based on certain parameters that we set with the company is that we will go out and do an initial workplace conference with that injured employee and employer, normally within 24 to 48 hours to make sure to make sure that we understand exactly the injury and we understand how we can get this person back to full functioning capacity.
The next part of the wheel really is the rehabilitation process. So assuming somebody has been injured and they need to be off work for some lengthy period, we will do the case management of that injured employee so that we can get them back to work as soon as possible. So case management is really hand holding the whole process of rehabilitation to make sure the person gets back to work as soon as possible and that could be to the same employer and in some cases it’s to a different employer because the person can’t do those duties anymore because they’re not capable from a functional capacity. I some cases we have to then provide some skill sets for the employee to find a new employer. And so what we have is the last part of our practice which is employment connections whereby we assist employees with resume writing skills, interview skills, we may do a vocational assessment to work out what would be the best sort of vocation for them and we hand hold them I guess to help them find another employer.
The last part of our offering is our consulting arm which is much more geared for reduction in worker’s compensation costs. And that’s really a service where typically large corporates who have escalating worker’s comp costs would come to us and we would go in and do a bit of an audit to understand what’s going on, what the history of those higher premiums have been, what the history of injuries have been, what’s been causing those higher premiums and then we work with the employer to see how we can reduce those.
You’ve described an extremely holistic set of services and products, is this a reaction or an opportunity created by the fact that companies are outsourcing more in general, or is it specific to the OHS area because it has become so complex?
I’d probably say a combination of those. I think that there’s a lack of awareness out there in terms of amount of employers can do in terms of reducing the worker’s comp costs so I think as organisations look more and more to their safety records and obviously and as companies look towards their profitability, they start focusing more around the worker’s comp area. I think as a result our sort of offerings have become much more attractive to organisations.
Is money the best way to get the message through to companies on safety? If worker’s comp costs are too high, it that when they finally get their act together?
Not always, there’re a couple of other areas that are integral in what we do. We do a fair bit around director obligations and director duties around safety and under the Corporations Act there are sort of very significant penalties for directors if they are not OHS compliant. So that’s becoming more and more embedded in the director’s psyche.
Do we have an OHS regime in Australia that’s too complex?
Absolutely, absolutely, it is very complex and I guess hence the lack of understanding amongst most employers. I mean the reality is that for most companies is that it’s all too hard and where do you start from. They’re just not sure and they in many cases, totally miss it.
You were fairly recently appointed as CEO?
Yes it was June 2008.
And you walked into a company that lost a bit over $7 million in 2007-08. Were things pretty messy when you arrived?
I started as the chief operating officer in July 2007. So Konekt had been going since about 2003 whereby it had the vision of basically putting together a one stop shop, and it raised a fair bit of money from some significant investors and effectively did a backdoor listing by acquiring a dormant delisted company. And then with that money it raised it went and acquired about four companies and tried to put that together and move forward.
Great idea, good offerings, all that kind of stuff. Unfortunately that strategy wasn’t able to be executed and the company failed to realise any sort of benefits from doing that. Therefore it never made any profits in its history and there had been some significant writeoffs. In 2007-08, as you alluded to, again there were some write offs that the company made, they were both goodwill and for an investment it had done in the UK. And that was really just to clean up the history and move forward.
I came in during the back half of 2007 and saw that there were lots that needed to be addressed and I guess I started putting together a framework for the company or a blueprint for the company to move forward on.
I know you’re a registered accountant, so was the first thought to cut costs or was it a bit more complex than that to get this ship righted?
Look, I guess the glaringly obvious were a couple of things. One was a lack of sales structure and sales capability. Two, no sort of marketing capability at all and three the costs were out of alignment with the revenue. So the total misalignment of costs, way too high for the size of the company.
So the product was pretty good but you just weren’t flogging it properly.
Exactly, so I suppose what I did which is probably different to your normal way of moving forward, I felt that the first thing we needed to do is get the sales capability and the marketing capability helping us with the lead generation sort of working. So I focused for the first several months in restructuring sales, putting in a marketing department, becoming more focused on pushing leads and becoming much more web optimised Let’s just get the sales engine to sort of start working. I pushed out to the branches a responsibility of selling rather than just having a centralised responsibility and we’ve got about 40 branches. And a few months later I could actually see that sales had begun to grow. Our sales were continually reducing and then it came a time where it started turning and it started actually moving in the right direction. At that time I thought it was the right time to go in and cut costs. So we cut about $1.5 million off on an annualised basis and that was a combination of redundancies, renegotiating some supply contracts and just cutting some various contracted services that we had. And that sort of happened by the end of the 2007-08 financial year and that put us in great stead for the new 2008-09 financial year.
All our readers struggle to find ways to fill the sales pipeline and generate leads. What worked for you guys from a lead generation point of view? Was it referrals, selling to existing customers and selling them more, or was it the web?
I think what’s very important when it comes to selling is that you need to have a very broad view of it and a very broad perspective of it and I think it’s very important to spread your opportunities over several areas rather than just having one concentrated direct sales team for example. So what I did I was one, we had some email campaigns and sort of lead generation campaigns coming out a marketing guy. Two, we had much more emphasis on web optimisation which was non-existent. Three, we had a huge customer base that was not being worked on, so it was about introducing the focus around the existing customer base and we have a lot of those because of the referrals that we get from worker’s comp cases. Four, pushing out some sales expectations to our branches and I guess lastly just refocussing guys on a new sales strategy and getting our dedicated business development people much more focused on certain offerings that we had, rather than having a focus around everything.
So you can’t just look at one of them and say look we’ll just do this. I think that really made a difference for us, it was having this very broad focus on it and if one of those doesn’t work well for us, well there’s another three or four that hopefully will.
The point you make about the sales culture is a good one, particularly around getting the idea through that everybody has some role in selling. Was that a hard message to get through?
Yes it was. This organisation is predominantly made up of allied health professionals and sales is not something that normally comes into their roles. So the approach was a slow and patient approach. So it was introducing the idea, it was initially getting them focused around the customer base and the dedicated business development people would help our business managers more with sort of new sales and new clients, so it would be a bit of a support role for the BD guys but also they would have their dedicated targets as well. So it was a bit of a collaborative approach, but what we found was that once the guys started going in and making some of those calls, their confidence levels increased very quickly and within a short period of time they become much more attuned to the whole selling process. And in fact many of them quite like the interaction and the extra role in their job functions.
Are incentives important in that strategy as well?
Yes they are and again the organisation, because it hadn’t been performing, whilst there were some forms of incentive plans historically, nobody had really been achieving those. Again some of the change process was to get much more buy in from the targets from the branches so they get involved in the budgets and the incentives are aligned to the targets that they set and they are involved from day one in terms of setting the targets and achieving those are very much within their vision. And more and more as the company performs holistically, obviously more and more are doing very well with their incentives.
The good thing about a turnaround story like yours is that you’re at the start of it. Having had one ne year where you’ve turned a profit and I guess turned the corner probably gives you a pretty good platform that you can get the business cracking even better?
Well that’s important but I guess the discussion we went through in terms of getting the costs down and the sales up was probably still about the end of the June 08 year. And I guess after that we’ve done a lot of in terms of internal capability and getting people aligned. So what’s happened is I put a new mission statement in, I put a new strategy in and then we obviously cascaded that down. But what we also did was we implemented what we call a balanced scorecard approach across the business and each of the branches have their own balance scorecard where there’s actually four perspectives. So we have the staff and development perspective which is focused around the people or the staff, there’s another perspective which is internal which is more about processes, the next one is customers and the next one is financial. Each of those four perspectives has six key performance indicators. So what we do is look at our mission and strategy and we align that through the use of a balance scorecard. So in each of those key performance indicators we have certain indicators that will allow us to live our mission or achieve our mission. So each month each branch goes through their balance scorecard approach and looks at the targets they set versus the actual and see how they are going. And it’s all about continuous improvement.
And I guess you’re establishing a culture where one might not have been before.
That’s right and I guess that just brings out much more sort of discipline in the organisation, it means we’re much more aligned to same sort of strategy and that’s been very positive for the company and we’ve had significant improvement as a result of that. The other thing we’ve done is we’ve introduced an annualised staff engagement survey and we’ve just been through the second one of those. That’s been positive, we’ve obviously appreciated the feedback we’ve had from staff but we’ve scored quite well and that’s also on the improve. I also developed a leadership development program where we had sort of our management layers go through that. It was quite a detailed development program which we had a third party come in and run for us. And again that’s been very positive, so a lot of the success we’ve had has been because we’ve been much more structured and we’ve invested in our people and listened to our people and let them share with us where they think the organisation should be going.
I noticed in the annual report from last year you were talking about sort of growth around 10-15% over the next three years. Is that mainly from organic growth or is there mergers or acquisitions on the horizons? I guess given the company’s experience, perhaps the word merger is not allowed to be uttered around the halls?
Unfortunately, that’s what happens when acquisitions don’t go well, there’s this kind of fright that it’s going to happen again. Look, the 10 to 15% is purely organic, we would like to see some more significant growth coming and clearly that will need more than just organic growth. I mean you’re right, 2008-09 was the first year of profitability, we had a $1.2 million net profit. The six months ended December 09 we had more revenue in that six month period that we did for the full 2008-09 year and we’re looking this year to be $2.5 million EBITDA. Today our share price went to 18 cents which is fantastic for us given that I think that early last year it was about three cents. So we’ve got positive news that sort of keeps coming obviously on the back of strong performance.
Do you keep a watching brief on acquisition opportunities?
We haven’t formally gone down that track yet although it’s certainly something that’s been seriously considered and right now we don’t have any sort of targets that we could share with you.
In terms of the sector that you’re looking towards to secure that growth, we’re in the middle of a resources boom so is mining a key sector or are there others that you are looking at?
Look, I guess what’s a big target of ours is the infrastructure boom as a result of the stimulus package. So lot’s of construction happening, oil and gas pipelines, roads and infrastructure like that. So that’s a big target for us mainly around our pre-employment services and we also think the income protection market is a big one for us which is an area that we see some great opportunities from.
How does that work for you?
Well I guess that’s a different type of insurance, it’s when people have accident insurance effectively where they may get injured unrelated to work and they’re obviously off work for a lengthy period of time. Obviously those people need our services as well, it’s not an area that we’ve done much in the past.
One final question, the transition from an accountant to CEO, how has that been for you? Have you had to sort of add a lot of strings to the bow? Does an accountant think in a certain way even when they are in the CEO’s chair?
It depends who you talk to, I suppose. Look I mean you’ve got to adjust pretty quickly, I think you’ve got to be much more customer-focused and much more externally focused, very quickly. So I’ve been enjoying the transition, I think luckily for me this wasn’t really my first role in such a role. I had some other roles where I’d been MD of some IT companies and even prior to that I’d had some significant experience in supporting business units from a finance perspective but they’d been much more focused on the business rather than sort of the back-room financial accounting environment.
And I guess the big tip is to get out and understand the customer.
Absolutely. And I think with cost cutting, it’s important to look at the big picture. I think if you focus on trying to grow sales, that’s what you should do before you start cutting costs, otherwise you’re going to have a business where you’ve cut the costs out, there’s no growth and there could be further reduction in the business.
Well I think there will be lots of entrepreneurs reading this and telling their accountants to start thinking like you.