The three drivers of an effective business improvement project 

The three drivers of an effective business improvement project 

Sep 26, 2017 | Governance, Management, Strategy

 

For the last 22 years since leaving corporate life, I have worked at the intersection of Revenue generation, Operations and Performance improvement of medium sized manufacturing businesses.

My entry point is almost always sales and marketing. Businesses are struggling, and see the solution as more sales, so they look for someone who can wave a magic sales wand, and generate more revenue out of the ether.

Almost never happens that way.

Originally I studied to become an accountant. I got a piece of paper, but that did not make me an accountant. Luckily, I realised my mistake before it was too late, and moved across into marketing, in the days before anyone had really heard of it. Mostly they still do not know what it is, but these days, at least they have heard of it.

I found it was easy, and I was very  good at it, so had a corporate career starting in marketing and sales that covered all functional roles, except accounting, including general management with bottom line accountability for a substantial divisional business, reporting to the group MD .

However, I was a lousy employee, because while I got stuff done, made lots of money, I was a pest who would not play the corporate game of bullshit to the left, arse cover to the right, and never admit it when you  may be wrong.

So, 22 years ago I hung my shingle as a contractor, intellectual capital for hire, wisdom on 2 feet, and promised myself, ‘no more corporate bullshit’.

I believe that unless we actually make stuff, physically produce the products others want to buy, because it adds value to their lives in some way, generally by solving a problem of some sort, we will be stuffed in the long term.

After all, how many baristas do we really need?

My corporate and subsequent experience in revenue generation, which is what I choose to call Sales and marketing, operations, numbers, logistics, and general management of manufacturing businesses gives me a platform of experience that small and medium manufacturers in this country are sorely lacking, for a range of reasons.

I look for 3 things when I go into a business as an advisor, contractor, saviour, and occasionally ‘head-kicker’.

When you go to the doctor for a check-up, feeling a bit off, he checks your blood pressure, temperature, looks in your eyes and down your throat, anything not within the normal range, he digs one level deeper.

That is what I do when assessing a business.

I look for three things:

  • Business Architecture.
  • Rhythm & Flow
  • Culture

Get these three things right, and aligned, and there will  be superior performance.

A StrategyAudit business improvement project is all about these three things, and the manner in which they can be defined, analysed and brought together to deliver the improved performance required.

So, let me explain them, or at least my view of them.

 

Business Architecture.

This is where most people and advisors spend most of their time, where all the things you can get data on reside, so to some extent they are predictable, and as improvement is made, you can see it in the numbers.

It is relatively simple, but I see it as a pyramid, which I will explain.

Architecture is how the business is built, and managed. A business is like a building, it needs  foundations, upon which the infrastructure of  the business is built.

This pyramid broken up into the four segments reflects the sequence I follow to drive improvement programs.

Foundations.

This is the stuff that no matter what else you do, the foundations must be in place for success.

A lot of it is ‘underground’ as most foundations are, nevertheless, without a solid foundation, whatever else you build, it will  not last.

Operational accounts: cash flow, P&L, Break even calculations, your ‘Why’, regulatory requirements, Business Model, Resource availability and capability, and CASH,

Different businesses require different foundation structures.

If you are going into child care, the regulatory stuff is very challenging, not so challenging if you want to be a business coach.

However, one is absolutely essential, the number one in every foundation, one word: Cash.

It is also true that the foundations wear out, become depreciated, and without renewal, which is a continuous process, you will still fail.

The advent of digital has changed forever a number of these elements and I would contend is continuing to change them. However, the reality is that the principals remain the same, it is just that the speed at which everything happens has accelerated at unprecedented rates, and continues to do so.

Revenue generation.

Marketing & sales by another name, which brushes off the silo mentality prevalent to date, and highlights the importance.

Everybody knows that no business survives without sales, but the key is to be able to generate revenue by creating value for someone else, at a cost that for them is less than the value they receive, but for you is greater than the cost to provide it.

You would be astonished to see how many businesses did not know their cost of sales, or used some ancient absorption costing method pushed by accountants that became redundant as Jesus moved to the Bethlehem first grade side.

Customer profiling, lead generation and conversion, NPD & C, customer service, Key account management, value proposition, advertising, market research,  and the many other outward facing activities fall into this bucket.

Leverage & scalability

This is where the fun really starts.

Once the foundation is in place, and the revenue generation machine is humming along, you can realistically start to think about leveraging and scaling the successful operations you already have.

Leveraging and scaling existing operational and process capabilities into new markets, addressing the needs of new customers, and perhaps launching genuinely new products will deliver great rewards when done well. It is where mergers, acquisitions, and joint ventures become contributors to business value rather than consumers of value. There is still risk involved, but from a solid base, growth can be substantial delivering great rewards.

Sustainability.

Sustainability occurs when the supporting three levels are working well, and working together. Most owners of medium sized businesses look forward to the day when they can take 6 months off, and come back to the business still humming along, not missing them at all.

The much touted ‘laptop lifestyle’ touted by get rich quick internet salesmen always allude to the day when you can be anywhere in the world with the laptop, and just check in, perhaps do a bit between sips of Pimms beside the tropical pool. This may be the objective, but it is rarely attained without the grind of building the business architecture.

 

Rhythm & Flow.

Rhythm & Flow is all about how  the management processes work to facilitate the delivery of value to customers in a commercially sustainable manner.

The development and deployment of strategy, the conversion of a lead to an order, the operational processes that manufacture products, the Customer facing processes, and so on, are all optimised when the flow is even and predictable.

Business might be organised vertically, but the processes that generate leads, service customers, and build products are all horizontal, cross functional. Your customers are not interested on your structure, unless they want to see the CEO to complain. They are more interested on getting the product they ordered on time, in spec, and at the price they expected, all horizontal processes.

At the intersection of the processes and organisational silo boundaries, you always get interruptions to the smooth flow of information and product, and a bit like rapids in a river, the intersection creates a little pool of chaos, too many of them and all you have is whitewater.

You would all have heard of Henry Winslow Taylor, and scientific management. While Taylors views of the people involved at an operational level are absolutely wrong, his ideas on the standardisation and optimisation of the flow through a factory are absolutely right. They formed the basis of the Toyota production System, which has led the transformation of manufacturing around the world over the last 35 years.

I seek to identify anything that interrupts the flow, creates a rapid, as in a river, which is just a small piece of chaos, and remove it, restoring a smooth flow.

 

Culture.

Culture is where it really gets interesting.

Culture is the way we do things around here, the mindset of the business, as reflected in the way people go about doing their jobs, setting their priorities, interacting with customers, suppliers, and their co-workers.

Culture trumps everything else, and is hard to define, almost impossible to predict, and minor irritations in one place can have major ramifications elsewhere.

The butterfly effect.

Measuring culture in any short term way is a waste of time, but over the long term, the value becomes obvious.

It is a bit like motherhood.

We all know we individually benefit, and society benefits when parenting is done well, but how do you measure it?

You cannot over the short term, but the impact is obvious over the long term.

The way I do it is to engage at all levels in as many ways as possible, finding my way into the nooks and crannies that exist in every business, to really understand how it all works, what people think, why they think and behave as they do, and evolve some strategies for improvement.

This is not meant to be a comprehensive review, it just represents the headlines from which a StrategyAudit investigation starts. Every assignment is different, every set of recommendations is tailored towards the solutions for  the specific problems and opportunities encountered during the investigation, and every change program tailored to the needs and capabilities of the organisation.

Cartoon credit: Hugh McLeod at Gapingvoid.com

Who do we sue?

Who do we sue?

Sep 15, 2017 | Governance, Management

I had never thought of the question ‘Who do we sue’ as being of strategic importance until a few weeks ago.

Having coffee with a friend who has worked for a long time for a US  multinational corporation that developed and commercialised a very useful chemical component technology, long since copied by low cost manufacturers  in China, he explained it.

While my friends employer retains a significant market share in the US, everywhere else it has almost disappeared, although perhaps ironically, pockets do remain in Asia.

His analysis was that the nature of US corporations is that they like to know who to sue should something go wrong. This was the one and only reason his employer retained their US market share. Their US customers knew their chances of success in suing a Chinese supplier in the event that something  went wrong were somewhere between none and a snowflakes chance.

Therefore they continued to pay double the component price to his US owned employer as a sort of unstated insurance.

They knew who to sue.

 

11 growth strategies for small businesses

11 growth strategies for small businesses

Aug 23, 2017 | Leadership, Management, Small business

The last 23 years of working with, reconstructing, and observing small businesses in all sorts of situations has resulted in a pile of insights on many areas of business. A common fact or is the desire to grow, even when in the darkest times, almost all businesses aspire to grow. This is not ego, or self-delusion, it is simply a general acknowledgement that to stand still is to be overtaken.

Grow or get trampled.

The common factor of those that have successfully grown is that they do not follow any recipe, there is no guaranteed growth map, but it is clear that they have all combined some common elements in different ways to succeed.

Be different.

Every successful business I have seen has done something different to those around them, with whom they compete on a day to day basis. Being part of the crowd results at best, at being on the top of the ‘average’ range. Differentiation in the manner that they deliver value to their customers is perhaps  the most common element of success I have seen. It need not be a major thing at first glance, but combined with some of the following elements, differentiation becomes a powerful driver of growth.

Great product.

As the old advertising  saying goes, ‘The customer is not stupid, she is your wife’ . There is no situation where an average product can sustain above average performance. All the clichés and PR gloss in the world will not do any more than get a first sale, after that the product has to deliver value greater than available alternatives. It is the form of that value that differs dramatically, and value does not always mean technical quality, it means fit for purpose.

Growth is a relentless master.

Growth never happens in isolation of focus, effort and commitment. Every sustainable growth business I have seen, or read about, has somewhere in its DNA, a focus on growth, in a way that seizes opportunity, makes it work, learns from what does not work, and goes again. It can apply this focus while ensuring that the every-day operations, the ones that pay the bills today, are well taken care of.

Marketing is shaped by the need.

Too often marketing is seen as a formulaic process that just requires the appropriate level of investment and capability to be successful. Wrong. Every situation requires a differing mix of marketing elements, and there are no two situations where the template will just ‘work’. Just ‘doing marketing’ will not lead to growth, the marketing has to be connected to the intended customers viscerally or it just becomes another of the millions of messages to which we are all subjected every day.

Find a niche and own it.

Whether you are the corner store of Apple, you cannot be all things to all people, in one way or another, you need to focus on those to whom you can deliver superior value. The evaluation of your target niche, the motivations of those at the bottom of the niche who are likely to be your best, stickiest, long term customers, then delivering value to them, is a key to growth. Once you have consolidated your niche, widen it a bit, seek adjacencies, look for novel uses of your capabilities in other niches, but never forget the niche.

Growth is long term.

Nothing useful happens overnight. Growth happens as a result of patience, commitment, and an ability to remain focussed on the goals, even when the short term stuff looks dark, or there is some compelling distraction. While it is fine to experiment, sustainable growth comes from building smaller success over time, not from frequent changes in direction. When looked at in hindsight, successful growth always has some elements of compounding small success present. Remember the fable of  the wise adviser who wanted nothing but compounding grains of rice on his chessboard, each square having double the grains of rice of the previous.

Seek leverage.

Identifying the means by which you can apply leverage to the assets you can deploy always pays dividends. Often this means combining your marketing with the behaviour  drivers of those in your niche to deliver some unique value, bit just as often is means ensuring that the basic processes that deliver the cash every day are robust, and repeatable. Having Standard Operating Procedures that are a part of  the operational DNA saves huge amounts of time and energy better applied to activities outside the mundane . Successful growth engines always have their core processes working well, and those growth activities seeking the points of greatest leverage.

Insights not data.

These days we run the risk of being overwhelmed with data, unlike when I started in business, when quality data was a rare beast, hard won. Today there is just so much data that the real skill is sorting it out and finding the hidden gems that offer insights you can leverage.  Data guru Avinash Kaushik calls it ‘data puking’ which is in my view a fine description. The metaphor I use is going into a library, without any idea what you might be looking for. You end up overwhelmed by the choice, with little chance of finding the right book.

Recognise your ecosystem.

What makes successful businesses successful is an ability to mix and match the best options for  their target customers, in ways that best deliver leverage for both parties. Growth is a two way street, no business can be sustainably successful unless their customers and suppliers are also successful. The task is to make the pie bigger so everyone benefits, not to take a bigger share of a static pie.

No silver bullets.

Growth comes from hard work, focus, determination, commitment, and not from luck or circumstances. My old dad used to say, the harder I work  the luckier I get. And that has been echoed by every successful person I have ever come across. It is never left to chance, it is a managed, deliberate process of making choices between alternative applications of limited available resources, being proved right more often than not, and learning from the times when you are wrong.

Clarity.

Finally, and perhaps most importantly, is clarity. We are in a world that is intensively competitive for the attention of those we may be able to serve. It does not matter if you are the corner store, or a multinational, your marketing challenge is to gain, then hold attention of those we can best serve, while we relate to them the reasons their best interests are best served, their challenges overcome, by working with you. The first test is to ask a few of your employees, close friends, and current customers what problem you solve, looking for a consistent and clear response. In its absence you have some work to do.

A lot of this is common sense, an increasingly rare thing in a complex world.

 

 

 

 

 

A simple way to value your SME

A simple way to value your SME

Aug 21, 2017 | Governance, Management, Small business

The value of your business is absolutely dependent on its ability to generate free cash flow, which in its simplest terms, is the cash required to keep the business running, after necessary capital expenditures have been considered. It is a measure with many formulas that differ only in the detail, and means of determining the meaning of ‘necessary capital’

The durability of that free cash flow is simply an estimate of the confidence you can have in projecting that free cash flow into the future. The durability is usually expressed as a discounted cash flow, which simply applies a rate of inflation expected over time to the current value of a dollar. However, this is only half the calculation as financial projections are impacted by far more than just inflation. They are impacted by competition, regulation, emerging technology, and many other factors. In 2001, who would have thought the global Blockbuster video rental chain, who had built a multibillion dollar turnover, had 54,000 employees, and thousands of franchised and owned stores worldwide would be dead in a decade.

This thought was sparked by a conversation I was involved with that wondered at the difference in the value of two service businesses, that on the surface look very similar. One of them was a successful but modest sized suburban accounting practise, the second a similarly sized suburban wealth management practice. The wealth business had a market value several times the value of the accounting practice, should either of  the principals choose to sell up and enjoy a retirement.

When quizzed, the customer retention rate of the wealth practice was far greater than the accounting business, as was the share of the clients wallet that they had. There are accounting practises, selling pretty standardised services on every street corner, all with a similar offering solving similar problems for a potential client, whereas Wealth management is a way more specialised business, focussed on bespoke solutions to the wealth retention problems faced by wealthy individuals.

Therefore the durability of  cash flow from the wealth management business is considered by those who might be considering buying such a business to be more reliable into the future than that of an  accounting practise.

How does this apply to your business.

If you want to open a sandwich shop in a strip shopping precinct, there is nothing stopping someone opening a competitor next door, indeed, they often do when the first is seen to be successful. However, a similar sandwich shop in a shopping mall will not have a competitor next door, as the mall will not allow it. You do however pay for the privilege of that increased  certainty with the lease rates and turnover ‘tax’ extracted by the mall ownership.

The more specific and specialised  the problem you solve for customers, the less likely they will be to move elsewhere, and you are able to price your services accordingly, delivering both a higher free cash flow, and greater confidence in the durability of that cash flow. It also follows that clients are harder to find,  so the marketing costs prior to them becoming a client are likely to be higher.

The value of your business is absolutely dependent on the amount of free cash flow, and the expected durability of that cash flow. Little else really matters beyond arguing about the book value of fixed assets and any inventory.

 

Are you pushing rope?

Are you pushing rope?

Jul 10, 2017 | Leadership, Management

Activity for the sake of activity, ‘busywork’ that does not contribute to an objective associated with creating value for that ideal customer group, is as useful as pushing rope.

Ever pushed rope?

No matter how hard you push your end, nothing happens at the other end, all you get is rings of rope somewhere close to your hand.

Useless.

The only way to move rope is to go to the other end, and pull it towards the objective.

In most organisations there are barriers to grabbing the end of the rope:

There is no budget

The boss will not like it (worse, the boss’s wife will not like it)

We have not done it before

I am too busy

It is not my job

There are a thousand reasons people push rope, and there is really only one way to change that.

Empowering every employee to stop doing non-productive activities in favour of doing stuff that counts.

Then we need to celebrate the changes made, or the elastic nature of ‘the way it has always been done’ will kick in, and you start pushing the rope again, as it is usually more comfortable than pulling it.

 

3 great strategies to get good at anything

3 great strategies to get good at anything

May 15, 2017 | Management

Malcolm Gladwell’s ‘10,000 hours’ of practise to become expert has worked its way into the lexicon, for good reason. However, is it always so?

I watched my father practise golf after he took it up in his 30’s, endlessly, while never getting his handicap below 18. He had been a very good tennis player, and all round social athlete, so with the practise should have been a scratch golfer.

Why was he not?

On reflection, two reasons: He  simply did not have whatever natural talent it requires to be a scratch golfer, however many hours he practised, and the second and I think way more important reason, his practise was not real practise as would be required to be a scratch golfer.

He practised alone, without feedback beyond seeing where the ball he just hit went. Even the best golfers in the world have coaches, who give them feedback, look for the tiny places to improve, and polish the technique relentlessly. By contrast, Dad practised alone, because he enjoyed it.

He might have put in the hours, but I suggest the hours were not tough enough.

Thinking back on 40 years of managing, consulting and coaching, there are a number of things that I might have advised dad to do, were he still around.

  • Identify what ‘expert’ really means. Any endeavour has boundaries, inhabited by the few who are just better than anyone else. Roger Federer comes to mind. Learn from what they do, break it down into the tiny items that add up to being a superior performance, and know what that performance looks like.
  • Seek out areas of weakness to fix. Performance is always uneven, some components are better than others. The tendency is to double down on what you do well, which is always my advice on strategy, but improving the poorer bits while polishing the peak bits gives a stronger base, and a more reliable standard of performance. It usually takes an outside view to identify these areas, a coach, which is why Federer has one, as does every athlete at the top of their game. A coach demands maximum effort in practise, and highlights areas for improvement. Dad did not have a coach, just Mum begging him to do stuff around the house instead of hitting a golf ball.
  • Practise to a program. Putting in the hours when you have them spare is different from exercising the discipline necessary to make the choice to practise instead of doing something else, and then to practise with intent. Having intent means there is an objective, clear steps towards the objective, and performance measures to ensure that the practise is in fact improving the performance, rather than embedding those tiny habits that tend to creep in and inhibit performance.

None of this is any different to what happens in the businesses to whom I consult.

Generally they are small to medium sized manufacturing businesses whose bread and butter is in doing a range of things really well, and then being sufficiently confident to chip their way out of the rough when they find themselves in it, indeed being prepared to risk the rough in order to have a shot at that corporate birdie.