Category Archives: Business Strategy

Strategic Business Analysis

“Raise your head above the parapet, take yourself off somewhere for a couple of days, leave the mobile device and clear your head”.

Brilliant advice received from the founder of a major international company dealing in high tech components for mobile devices. He admitted this was something he failed to do while his business was growing, then suddenly the growth stalled, a quick analysis highlighted that the company did not have clear strategic objectives and was consequently dissipating huge amounts of energy and resources on unproductive activity, which included him travelling over a hundred days a year.

Business People often get so wrapped up in the day to day business of running a business that working up a strategic plan is one those jobs that is always relegated to next week. It is not earning cash, its not looking after customers, its not dealing with the supply chain, logistics, sickness issues, staff motivation, cash flow or how your brain hurts. But, and it’s a big but, spending time out will help all these issues, including the pain in your brain.

It helps to have an experienced unrelated, (to your organisation) individual to mentor your thoughts. Being an outsider, they’re more removed and can help with your global vision and perhaps add a perspective which you might not have considered. It doesn’t matter what stage of development you are at, starting, early days, growing, mature, it’s a fundamental basic to have this in place and to review it regularly

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Why Chief Executives fail……….

  • ARROGANCE: you are right everyone else is wrong. 
  • MELODRAMA: you want to be the centre of attention.
  • VOLATILITY: your mood swings create business swings. 
  • EXCESSIVE CAUTION: the next decision may be your first.
  • HABITUAL DISTRUST: you focus on the negatives in others.
  • ALOOFNESS: you disengage and disconnect.
  • MISCHIEVOUSNESS: rules are made to be broken.
  • ECCENTRICITY: its fun to be different just for the sake of it.
  • PASSIVE RESISTANCE: allowing your silence to be interpreted as agreement.
  • PERFECTIONISM: get the little things right even if the big things go wrong.
  • EAGERNESS TO PLEASE: being popular matters most.  

If the cap fits……………………….?

Pointless Stress Creation

Analyse your day. 

How many productive decisions have you made? 

How much time have you spent dealing with complaints, sorting out administrative mistakes, dealing with employee problems, production problems, customer/client issues, etc. 

How much time have you spent procrastinating about important task, avoiding it completely perhaps?

Why?  What delayed you?  Was it because you were nervous or lacking confidence?  Were you worried about new challenges.  Or perhaps you feel you have inadequate skills to complete the task to the required standard.  

Thinking we can do it all is where most of us cause our own problems  –  both in life and in running our businesses. 

The short answer, if we are honest enough, is that we know we can’t do it all.

Support is critical, and when we recognise this, the benefits are substantial – less stress and much greater productivity. 

Little Data : Big Data

Companies are investing heavily in data warehouses and data analytics software.  But many of them don’t have much to show for their efforts and sometimes customer service is actually worse.

 

What’s the problem?  To begin with, big data has been hyped so heavily that companies are expecting it to deliver more value than they are actually able.

 

The primary reason that investments in big data fail to pay off, though, is that most companies don’t do a good job with the information they already have.  They don’t know how to manage it, analyse it in ways that enhance their understanding, and then make changes in response to new insights.  Companies don’t magically develop those competencies just because they’ve invested in high-end analytics tools.  They first need to learn how to use the data already embedded in their core operating systems, in much the same way people must master arithmetic before they tackle algebra.  Until a company learns how to use data and analysis to support its operations, it will not be in a position to benefit from big data.

The digital economy is all about capturing, analysing, and using information to serve customers.  Most companies can significantly improve their business performance simply by focusing on how operating data can inform day-to-day decision making.  So why don’t more companies make better use of data and analysis?  One reason may be that their management practices haven’t caught up with their technology platforms. Companies that installed digital platforms — ERP and CRM systems, real-time data warehouses, and home-grown core information systems — over the past 10 to 15 years have not yet cashed in on the information those platforms make available.  In addition, adopting evidence-based decision making is a difficult cultural shift:  work processes must be redefined, data must be cleansed, and business rules must be established to guide people in their work.  The good news is that once companies have made the cultural change, they usually don’t go back, and their operating improvements are not easily replicated by competitors.

Research suggests that companies with a culture of evidence-based decision making ensure that all decision makers have performance data at their fingertips every day.  They also follow four practices:  they establish one undisputed source of performance data;  they give decision makers at all levels near-real-time feedback;  they consciously articulate their business rules and regularly update them in response to facts;  and they provide high-quality coaching to employees who make decisions on a regular basis.

Our own research indicates ‘little data’, readily and relatively cheaply available, often doesn’t figure at all with an organisations management team.  Knowing how to access and use this data can transform performance.

 

*This article uses references from the following sources : –

    • MIT Sloan School of Management
    • University of Texas at Austin
    • CISR
    • Interactive Business Dynamics Limited

Communication – the panacea of good, evil or misunderstanding! Part 2

With the advent of the internet, “communication” has become much faster and far reaching as a result, the prospect of misinterpretation becomes that much greater.

The time for thinking something through has disappeared because of the intrusive nature of the email or social networking, people feel the need to respond instantly, thus time for considered thought about what is being said or written and how it should be said or written is lost.

Sending an email or a response is often a knee jerk reaction.

Email and social media are as a result inhibiting the art of communication through speech or the written word.

Many would argue the Internet and Broadband have improved communication and yes, they have with unprecedented access to information and no they haven’t by providing an easy distraction from the job in hand.

By adding to the myriad of “time thieves” that disrupt the executive’s day, concentration and focus can be lost from the immediate task.

The question then becomes are emails and social media the servant (tool) or the master of the executive.

Using any kind of tool requires a discipline, it is now all too easy to stop what you are in the middle of something to answer the dong from the PC or the flag flashing in the top right hand corner telling you an email has landed or you have been endorsed by a colleague in LinkedIn.

Your train of thought has been broken and therefore when you get back to the issue you have to spend a little time to regroup your thoughts .

It could be likened to climbing a greasy pole, up 4 feet down 3 and start again!

Whilst time management has always been an important part of an executives day, never has it become more important now with the increased number of time thieves clamouring for this limited resource.

How often does this happen, you send an email to a colleague asking a question or clarification about some point.

They send back an answer and copy a colleague – protection, no blame here or CYA?

The answer they have sent is not quite what you expected and prompts another question and you feel that perhaps another colleague should also be involved.

Now 4 people are on the circulation list and so on!

But each time, you and they have had to stop, read the email, key a response and so on.

In the days before the Internet, you would have walked over to your colleague or telephoned them and initially had a one to one dialogue without the time consuming to and fro which could involve more people.

The initial disruption would probably have been once only at atime convenient to you both.

Lets not lose sight of the basics and kid ourselves about “improved communication” coming from the internet!

Everything has a cost of some sort, there is a cost associated with the use of the Internet – EXECUTIVE TIME and DISTRACTION

Why is a business plan necessary…?

Everyone who is in business (and most of those who aren’t) have heard of Business Plans.

To some people they are a mythical work of art, produced by the “elite” amongst businesses – a document they may aspire to have… but only if their business reaches the heady heights of “big” business.

Others may consider them an unnecessary exercise – produced only by people who “don’t really know their own business”.

To others they are an essential tool in the life and growth of their business.

And to most business people who don’t have one they are something they have thought about, considered completing, but never got round to doing.

A viable and current Business Plan is the most important document on which your company will spend time preparing.

Planning is key to a growing business – but a plan must not be set in stone, it must grow and develop with the business.

What is it that makes the Business Plan so important?

  • It helps you to keep focused
  • It focuses on your objectives
  • You can see when you’re going off track
  • You’ll need it if and when you need to arrange funding

So, what is a Business Plan?

A business plan is a written statement of your business. It is a plan of what you want to achieve and how you plan to go about doing it.

It should outline the structure of your business, the product or service, the customer, the growth potential, potential barriers to achieving your goals and how you will overcome them, and the financials.

However a good business plan is more than just information about your business…  It should inspire you, as the manager, and everyone else involved in the business.  This inspiration will form the foundation to the blueprint for your future.  It will give you, and everyone else in involved with your business, a clear understanding of how you intend to get there.

However, It is very important to remember that the world does not stand still and neither does business.  Business Plans must be “organic” and evolve over time.  You can’t control the future, and the outside circumstances, for example the economy or strikes, will have an effect on the shape and direction of your business. But a good business plan will give you a clear direction to aim for, and help you to plan for the unexpected..

Every business should have a plan whether it is to open a second shop or float on the stock exchange.

It is why you are in business. It helps you to define strategy and, if properly used, will help you involve and motivate key members of staff.

It allows you to work out how to make your business a success and can help you avoid failure by plotting the pitfalls along the way.  It should outline a realistic target for how that can happen while remaining flexible enough to make changes along the way. By setting out a plan and some targets, you can also monitor your progress and get the business back on track fairly quickly if anything goes wrong.

What is Profit?

Most owners of small businesses are not accountants, and, they do not need to be as it is more cost effective for them to employ a professional whilst they concentrate on what they are most skilled at – their every day work.

The accountant will, if required, carry out the entire accounting function – producing the maintaining the cash book, producing VAT and tax returns and producing management accounting figures, as well as producing the annual financial statements (the Trading, Profit and Loss Account and the Balance Sheet). Obviously it is cheaper for the business if they carry out the basic day to day book keeping themselves.

All too often the reader of the statement can be easily mistaken into thinking that if the figure at the end of the accounts is positive (a profit), it is “money in the bank”. This is not necessarily the case. It is possible to show a profit in a set of accounts whilst the amount of money in the bank has declined during the accounting period in question. Therefore, although, as I have said it is not necessary for the business owner to undertake these functions for themselves, it IS essential that the owner understands the information that is within these statements.

What are the main statements that the small business owner will encounter? They are the Profit and Loss Account and the Balance Sheet.

As an effective manager one must be able to utilize the information that these documents contain.

The balance sheet is essentially a snapshot of a business at a precise moment in time, showing the business’ actual value at that time. It lists the total value of the business’ assets against the total value of the business’ liabilities. To the business owner the most important part of the balance sheet is the figure at the bottom which shows the net assets of the business… or, to the business owner, the value of the business if it is sold at that moment in time – essentially this is the amount of cash that would belong to the owners of the business if all of the business’ liabilities were cleared. If the total liabilities exceeds the total value of the assets the business clearly owes more money than the whole business is worth if it were to be sold. At this time the business is insolvent and should not be trading.

When the Profit and Loss Account is considered, a business owner will easily recognise that if the expenditure of a business exceeds the income, then that business has made a loss, and visa versa. But, remember that this is not the actual amount of cash received by the business – this figure will be based on the value of sales and purchases made and will not take account of any monies owed either to the business or by the business (by debtors and to creditors). To get a true picture of the monies that the business has in the bank then the business owner must look at the cash flow (which we discussed a couple of issues ago).

Neither the Profit and Loss account or the Balance sheet are highly detailed documents. However, it is possible to extract useful information from them which will help the business owner to determine how well the business really is doing. For example, we can extract sufficient information from them to allow us to compare the performance of the monies invested in the business against investing the same amount of monies elsewhere, for example, in the bank. This is called the Return on capital employed and is calculated as follows:-

(Profit before tax and interest / Capital Employed)x 100 = Return on Capital Employed

This is a useful and quick way of determining the effectiveness of an investment in a business.

Useful definitions

Assets – The elements of the business which are owned by the business and worth money. For example Land, machinery, cash in the bank, debtors and goodwill.

Liabilities – What the business owes. For example mortgages, loans, and creditors.

What type of Business do You Run?

The question that must be asked of every business owner and manager is… What type of business do you run? Most of business people reading this will probably swiftly reply that they are in a specific industry or sector. Essentially you are right, that is the industry/sector that you operate in, but in more simple terms businesses (ALL businesses) can be split into four broad types: growing businesses, cash cow businesses, lifestyle businesses and failing or declining businesses. This can be applied to any business from a shoeshine business on the street corner to a software company.

A discussion that I have had on many occasions with business owners follows the basic pattern of… “it is a way of life not a business…” Whilst in many ways that is true, and can be for many businesses, to view your business as a way of life is potentially a huge barrier to progress and success.

A business can be a way of life, but turn this idea around and consider it from a different viewpoint – without the business there is no way of life!

The closest that you can get to my farmer clients’ view of a business being a way of life without running a very real risk of the business failing is to be a lifestyle business.

At this point some readers may be thinking that I have just contradicted myself but I have not. A lifestyle business is one where the owner/s consciously decide that they will run a business that can give them a desired standard of living and also be a business that they enjoy. This could be a business in almost any industry sector. Many people run “successful” life style businesses. But it should be remembered that often these “lifestylers” have had successful careers before entering the lifestyle business arena and are often financially secure before they start – a major benefit if they are competing against others who have not got that fortunate head
start.

If you are reading this, then it is likely that your business either is, or you should be aiming to be, in one of two categories – either a growing business or a cash cow business.

What, I can hear some of you saying, is a cash cow business? It is essentially a business which has an established product or service which it is selling into an established market with the minimum of effort. Coca Cola and Pepsi Cola could be considered to be this type of product.

Businesses that are in the position of having a cash cow are fortunate. Time will tell if your business will get to the same position.

Businesses in growth are often obvious, both to the owner/manager and also to the onlooker. The business is seen to be seeking out new work and/or continually busy. Often it will be employing additional staff – either on a permanent or temporary basis. The main problems that these businesses have is that of too rapid expansion or competition. In the case of competition, this can mainly be of three types – the well established, the business in growth stage or the business that is coasting (or in decline). A well-established competition can spell the end to a smaller business’ expansion plans unless the market place is also growing (look at the mobile phone market… still experiencing rapid growth with lots of businesses entering the market).

If the market is not growing and you want to grow your business you need to have a unique selling point (usp) – particularly if there is an established player in the market. More so if that player has a cash cow. At this point the manager of the growing business must ask themselves two very searching and serious questions – do they have that usp and can they afford the cost (both financial and emotional) of what may turn out to be a full blown battle with the established player? It is often the latter question which many over look – all too often to their detriment!

If the owner/manager doubts either that they have a usp or that they can afford the cost, then they should seriously look at their motives for entering the market and, most likely, look elsewhere to expand the business. A large and established competitor can and will eat them up and spit them out.

Rapid expansion can be good for the growing business, but only if it is strictly controlled and planned. Those businesses that grow fast and in an unplanned way are often inherently unstable at their core – they have an unsustainable level of business. Often in service orientated businesses (contracting for example) the initial level of business that is encountered is high and the manager wrongly over estimates the level of sustainable demand having wrongly interpreted the initial interest from customers and grown the business rapidly to match.

Care must be taken when you are interpreting the initial level of demand. Consider whether it is sustainable, and why it is at the level it is when you start your growth drive. Always look at the potential for growth conservatively. However, that does not mean that the level of demand that you encounter at first will always be inflated; sometimes it is the reverse – effective market will show where the trend is likely to be.

The final category is that of the failing or declining business. The two are similar, but not the same. However, both will result in the business closing.

A declining business is often one where the owner/manager is reaching the end of their working life or have lost interest in the business and are just letting it come naturally to an end; slowly, without deliberately shutting it down over night.

The failing business however is the on where the owner/manager has lost direction by taking their eye off the ball. This could be for a number of reasons, for example they may have little or no knowledge of the current changing market place. Alternatively they may have failed to react appropriately to changes in the market place and have therefore been overtaken by competitors.

People who consider their business to be “a way of life” often do not react to change. I have seen too many of these businesses who tell me that the way they do business is right “cos my grandfather did it this way and ‘is father afore ‘im” fail. Our forefathers wore skins and hunted with spears… but they evolved and welcomed change – if they hadn’t we would not be where we are today.

A successful business can become a way of life, but a way of life does not become a successful business.

Who needs a strategy?

“Strategies? Who needs ‘em?! When I started my business I didn’t need a strategy, I just did what I’m good at. I knew it would work! I’m a businessman, I don’t have time to write a strategy.”

All to often I hear retorts of this type. But can a business really survive without a strategy? Without a strategy where will your business go? Wouldn’t it bump from one idea to another, never achieving it’s full potential?

As I sit here typing, dog beside me, I am recovering from a week working with two very different organisations, neither of whom have effective strategies in place. One is a relatively small company of under 20 people, the other employs over 700. Neither really knows where to turn next. One knows what they want to achieve, but not how to get there efficiently. The other doesn’t even know where it is going!

The smaller of the organisations is typical of so many small and medium sized organisations. It was established by someone who has a passion for the area of business he is in. He truly sees it as his opportunity not just to make a living for himself, but also to make a positive contribution to his staff and, through his ethical beliefs, the community. However, the business does not know how achieve these aims and is in danger of going under if it does not change. This organisation has no strategy, but it’s leader has vision…

The larger organisation does not know what it wants to achieve, and, obviously has no idea how to get there (where ever there may be!). It does not have the benefit of a leader who has a vision.

What could a strategy add to either of these organisations?

Simple!  It would give them clear direction.  It would put down, on paper, the route that the organisation will tread and how it will get there. “What good is that”, I hear you say. I agree that most businesses (those that will survive) know what they want to achieve as an ultimate goal. But many do not know which path to take through the jungle of today’s world. It is all very well knowing that you want to be the best tree surgeon or the best widget manufacturer, but unless you know how you are going to achieve that goal you will flounder – and you will flounder fast.

Strategies do not have to be long tedious affairs. They must suit the organisation they are for. They need to be functional documents which you can pick up and refer to easily and quickly. They must be precise, setting out the aims and objectives of the organisation, and how these will be achieved. Clearly the more complex the organisation the more complex the strategy may be, but it should not be complex for the sake of being complex.

The problems that the small of the two organisation I referred to earlier would have been eased if it had had a strategy earlier in life.

This organisation is not currently making a profit. Why? In part this is due to the lack of pricing strategy (no price rises in over three years even though raw materials and fuel have increased considerable) – incredibly the lack of price change is partly due to the fact that a vast quantity of leaflets, with prices, were printed and “had” to be used up! Another reason that it has not made a profit in over three years is the unplanned, ad-hoc expansion – during which little or know thought has been given to the effect of such expansion on the rest of the organisation.

This is all due to the business bouncing from one point to another, following a no defiant route. Making decisions “on the hoof”. Changing direction to match today’s trend rather than following a long-term goal. A strategy would of helped the business stay on track. If the business had kept on one track and adjusted its prices to match the true cost of commodities and fuel, it may have been in profit. Having a strategy to refer to would of helped to ensure that they stayed on track.

The large organisation has money. It spends. It has goals. However it changes direction regularly. It is driven by a continual change in policy. It is reactive not proactive.

Organisations are driven forward and prosper under a good leader. Would you travel the length of Great Britain without a map? No. You may not get the map out of the glove compartment, but it is there for reference in case you come to a junction in the road. A strategy forms that map.

It makes the leaders of the organisation think about where they are going and how. Then, whilst on the journey it will identify the direction to turn at junctions in the road.

What are the two organisations mentioned? The smaller one is a land-based business founded on strong moralistic and ethical beliefs. With a strategy for development it is now looking at regulated expansion as and when it can afford to. It is looking at its product range and pricing. It will grow.

The large organisation? A public body. Where will it go? Where ever policy changes take it.

Get a strategy… Everyone needs a strategy. It is your map!