The environmental industry encompasses a broad range of activities, from post-treatment of pollutants to proactive environmental protection, efficient resource utilization, recycling of waste resources, and the development of alternative energy. This sector generally includes the manufacturing and operation of pollution prevention facilities, maintenance of equipment to minimize environmental impact, and the provision of goods and services related to infrastructure construction and operations. Given its nature, demand in this industry is typically driven by government policies and international regulations. With facilities that often serve as public infrastructure, the industry has historically developed in advanced economies such as the United States, the European Union, and Japan, which continue to dominate over 80% of the global market.
In South Korea, the industry has grown into an annual market of approximately 100 trillion KRW, supported by government-driven initiatives since the mid-2000s. Recently, the domestic market has seen increased M&A activity, particularly among mid-sized companies specializing in wastewater treatment, waste incineration, and food waste management. Private equity funds (PEFs) are highly interested in these firms due to their stable revenues and cash flows, which are largely unaffected by economic fluctuations.
However, several challenges emerge post-acquisition that impact corporate value enhancement:
- The reliance on local governments for facility operations and contract renewals creates high competition among operators.
- Long-standing regional networks favor established operators, making it difficult for new entrants.
- The high proportion of labor costs in service-oriented operations limits cost-reduction opportunities and complicates efficiency improvements, as service levels are tightly regulated by contracting authorities.
Looxent’s Value-Up project for a wastewater treatment company faced these hurdles early on. Many internal stakeholders were initially skeptical, citing the industry's reliance on B2G operations and the inherent challenges of cost optimization in service businesses. However, the project ultimately demonstrated that, even within these constraints, the fundamental principles of Value-Up remain universally applicable.
Applying Proven Procurement Optimization Approaches in Service Industries
The client operated over 130 wastewater treatment facilities across 80 locations nationwide. Procurement was largely decentralized, with individual sites managing purchasing activities. The central procurement team only oversaw critical items like water treatment chemicals or purchases exceeding 10 million KRW, which accounted for just 40% of total procurement spend. This fragmented approach limited the team's strategic impact and confined its role to basic administrative functions, including the direct purchase of office supplies like copier paper.
The underlying issue was an undervaluation of procurement savings potential. With labor costs comprising 40% of total expenses and water treatment chemicals as the primary expenditure, procurement optimization was deprioritized. Additionally, there was a widespread perception that cost-saving efforts would not translate into company profits, as the client’s primary contracts involved post-expense reimbursements from government agencies.
To address these challenges, Looxent evaluated procurement optimization opportunities from two key perspectives:
Achieving Scale through Consolidation
By aggregating purchases below 10 million KRW across all sites and categorizing them into distinct groups, centralized procurement could be implemented. Looxent classified detailed expense accounts into specific item groups, calculating potential savings through standardization. For instance, maintenance materials such as filters were consolidated, revealing significant price disparities between sites and identifying opportunities for cost reductions.
Leveraging Reimbursed Expenses for Negotiation
While reimbursed expenses do not directly contribute to the client’s profits, consolidating these purchases with other procurement categories increases total volume and strengthens the client’s negotiating position with suppliers. This approach reduces unit costs across both reimbursed and non-reimbursed expenses, providing indirect benefits by demonstrating cost efficiency to contracting authorities and enhancing competitiveness in future bids.
These efforts expanded the scope of procurement spend eligible for cost reductions from 40% to 70%. By employing strategies such as supplier diversification, outsourced procurement, and nationwide contracts, the project achieved a 13% cost reduction in targeted categories. While initial resistance and local contractor obligations posed challenges, these were mitigated through transparent communication with stakeholders and proactive risk management planning.
Operational Improvement and Knowledge Sharing Across Sites
Another key lever for performance enhancement was operational improvement. This involved optimizing conditions at wastewater treatment facilities to reduce chemical, energy, and maintenance costs. Additionally, revenue opportunities were identified by maintaining workforce levels while expanding operational scopes or securing adjacent contracts.
An analysis revealed significant untapped potential in the client’s internal improvement initiatives. Although a system for recognizing and rewarding site-level improvements existed, these efforts lacked structured follow-up or broader dissemination. Looxent consolidated these improvement initiatives into a centralized database and assessed their applicability across other sites based on facility type, processes, and equipment. This exercise highlighted a major gap: many operators were unaware of successful practices implemented at other facilities.
A similar issue was identified in revenue enhancement initiatives. While site managers regularly renegotiated contracts to secure additional revenues, there was no formal mechanism for sharing best practices. Looxent facilitated workshops to bridge these gaps, fostering collaboration among managers and operational teams. This resulted in actionable ideas that could generate additional profits equivalent to 20% of the client’s baseline operating income. Additionally, the project established a database of contractual terms to guide future negotiations and secure more favorable conditions.
Enhancing Workforce Productivity and Strategic Sales Management
Given the high proportion of labor costs in service industries, productivity gains are crucial. Looxent developed a performance evaluation framework that classified facilities based on objective criteria such as plant size, complexity, and workload. This enabled a detailed analysis of staffing efficiency, leading to the reallocation of high-skilled personnel and the redeployment of excess resources.
In sales, Looxent introduced a pipeline management system to prioritize opportunities aligned with the client’s strategic objectives. By consolidating databases and standardizing evaluation criteria, the project clarified sales targets and streamlined activities across regional offices and headquarters, establishing a transparent and scalable approach to business development.
Sustaining Change and Maximizing Value
The Value-Up project for the environmental services company delivered measurable results across procurement, operations, and sales, leveraging cross-functional collaboration and stakeholder engagement. Through structured workshops and continuous communication, the project fostered alignment and ownership among key personnel, ensuring that identified improvements were actionable and sustainable.
Looxent concluded the project by recommending three strategic initiatives: establishing a collaborative operating model, forming an innovation task force, and institutionalizing change management practices. The client has since continued to monitor individual initiatives and drive ongoing performance gains through these frameworks.
The project underscores a fundamental truth: while industry nuances shape execution, the core principles of Value-Up remain universal and transformative.
The environmental industry encompasses a broad range of activities, from post-treatment of pollutants to proactive environmental protection, efficient resource utilization, recycling of waste resources, and the development of alternative energy. This sector generally includes the manufacturing and operation of pollution prevention facilities, maintenance of equipment to minimize environmental impact, and the provision of goods and services related to infrastructure construction and operations. Given its nature, demand in this industry is typically driven by government policies and international regulations. With facilities that often serve as public infrastructure, the industry has historically developed in advanced economies such as the United States, the European Union, and Japan, which continue to dominate over 80% of the global market.
In South Korea, the industry has grown into an annual market of approximately 100 trillion KRW, supported by government-driven initiatives since the mid-2000s. Recently, the domestic market has seen increased M&A activity, particularly among mid-sized companies specializing in wastewater treatment, waste incineration, and food waste management. Private equity funds (PEFs) are highly interested in these firms due to their stable revenues and cash flows, which are largely unaffected by economic fluctuations.
However, several challenges emerge post-acquisition that impact corporate value enhancement:
Looxent’s Value-Up project for a wastewater treatment company faced these hurdles early on. Many internal stakeholders were initially skeptical, citing the industry's reliance on B2G operations and the inherent challenges of cost optimization in service businesses. However, the project ultimately demonstrated that, even within these constraints, the fundamental principles of Value-Up remain universally applicable.
Applying Proven Procurement Optimization Approaches in Service Industries
The client operated over 130 wastewater treatment facilities across 80 locations nationwide. Procurement was largely decentralized, with individual sites managing purchasing activities. The central procurement team only oversaw critical items like water treatment chemicals or purchases exceeding 10 million KRW, which accounted for just 40% of total procurement spend. This fragmented approach limited the team's strategic impact and confined its role to basic administrative functions, including the direct purchase of office supplies like copier paper.
The underlying issue was an undervaluation of procurement savings potential. With labor costs comprising 40% of total expenses and water treatment chemicals as the primary expenditure, procurement optimization was deprioritized. Additionally, there was a widespread perception that cost-saving efforts would not translate into company profits, as the client’s primary contracts involved post-expense reimbursements from government agencies.
To address these challenges, Looxent evaluated procurement optimization opportunities from two key perspectives:
Achieving Scale through Consolidation
By aggregating purchases below 10 million KRW across all sites and categorizing them into distinct groups, centralized procurement could be implemented. Looxent classified detailed expense accounts into specific item groups, calculating potential savings through standardization. For instance, maintenance materials such as filters were consolidated, revealing significant price disparities between sites and identifying opportunities for cost reductions.
Leveraging Reimbursed Expenses for Negotiation
While reimbursed expenses do not directly contribute to the client’s profits, consolidating these purchases with other procurement categories increases total volume and strengthens the client’s negotiating position with suppliers. This approach reduces unit costs across both reimbursed and non-reimbursed expenses, providing indirect benefits by demonstrating cost efficiency to contracting authorities and enhancing competitiveness in future bids.
These efforts expanded the scope of procurement spend eligible for cost reductions from 40% to 70%. By employing strategies such as supplier diversification, outsourced procurement, and nationwide contracts, the project achieved a 13% cost reduction in targeted categories. While initial resistance and local contractor obligations posed challenges, these were mitigated through transparent communication with stakeholders and proactive risk management planning.
Operational Improvement and Knowledge Sharing Across Sites
Another key lever for performance enhancement was operational improvement. This involved optimizing conditions at wastewater treatment facilities to reduce chemical, energy, and maintenance costs. Additionally, revenue opportunities were identified by maintaining workforce levels while expanding operational scopes or securing adjacent contracts.
An analysis revealed significant untapped potential in the client’s internal improvement initiatives. Although a system for recognizing and rewarding site-level improvements existed, these efforts lacked structured follow-up or broader dissemination. Looxent consolidated these improvement initiatives into a centralized database and assessed their applicability across other sites based on facility type, processes, and equipment. This exercise highlighted a major gap: many operators were unaware of successful practices implemented at other facilities.
A similar issue was identified in revenue enhancement initiatives. While site managers regularly renegotiated contracts to secure additional revenues, there was no formal mechanism for sharing best practices. Looxent facilitated workshops to bridge these gaps, fostering collaboration among managers and operational teams. This resulted in actionable ideas that could generate additional profits equivalent to 20% of the client’s baseline operating income. Additionally, the project established a database of contractual terms to guide future negotiations and secure more favorable conditions.
Enhancing Workforce Productivity and Strategic Sales Management
Given the high proportion of labor costs in service industries, productivity gains are crucial. Looxent developed a performance evaluation framework that classified facilities based on objective criteria such as plant size, complexity, and workload. This enabled a detailed analysis of staffing efficiency, leading to the reallocation of high-skilled personnel and the redeployment of excess resources.
In sales, Looxent introduced a pipeline management system to prioritize opportunities aligned with the client’s strategic objectives. By consolidating databases and standardizing evaluation criteria, the project clarified sales targets and streamlined activities across regional offices and headquarters, establishing a transparent and scalable approach to business development.
Sustaining Change and Maximizing Value
The Value-Up project for the environmental services company delivered measurable results across procurement, operations, and sales, leveraging cross-functional collaboration and stakeholder engagement. Through structured workshops and continuous communication, the project fostered alignment and ownership among key personnel, ensuring that identified improvements were actionable and sustainable.
Looxent concluded the project by recommending three strategic initiatives: establishing a collaborative operating model, forming an innovation task force, and institutionalizing change management practices. The client has since continued to monitor individual initiatives and drive ongoing performance gains through these frameworks.
The project underscores a fundamental truth: while industry nuances shape execution, the core principles of Value-Up remain universal and transformative.