Archive for the ‘Business Health’ Category
One of the biggest challenges facing organisations today is the task of standing out from the crowd; how can they be different – and successful?
Most organisations compete in what are often termed “red oceans”, the analogy being that as they fight to maintain their share of a defined market space, everyone suffers and has to make painful decisions. Hence the ocean is, metaphorically, covered in blood.
The concept of Blue Ocean Strategy as a methodology was developed by Chan Kim and Renée Mauborgne at INSEAD and is the result of 15 years of research. What Kim and Mauborgne did was seek out and learn from what was common to organisations who had successfully redefined their markets and enjoyed the very significant advantages that come from such an approach. Their objective was to work out how such results could be replicated or achieved in a systematic manner.
In the “blue ocean” , companies redefine their markets, creating a space where, for a period of time at least, they can make their competitors irrelevant.
The product or service stands out from the crowd because it satisfies often unperceived needs that no-one else addresses. It will frequently compete based on different factors and even where the factors are common, the offering is still different enough to stand out.
Often discussed in parallel is the concept of value innovation. “Value Innovation” is the identification and implementation of strategic change that delivers real competitive advantage, by simultaneously seeking out reductions in cost and increases in customer value. One of the main challenges put forward against such an aspiration is that you can do one or the other but not both. Experience shows however that you can do both and that when you do, you will operate in a market space that you control; where the competition will struggle to participate, at least in the short to medium term.
Over the next month or two we will post here a series of articles that will cover some of the concepts and tools, based on what we view as the four key stages of the process:
- Current State Analysis;
- Exploration; and
(Why it may be better for you to use a smaller consultancy practice sometimes)
Having worked for one of the largest accountancy practices in the world, let me start of by saying that large consultancy firms do have a hugely important role in helping the free market economy run effectively by providing high quality legal, accountancy and other business related services. They have access to a huge bank of highly trained and skilled individuals and have gained a reputation for providing a quality service that has been earned over a period of many years. Finally, there are a number of transactions that are of such a size and complexity that only the largest consultancy firms would have the resources to meet the needs of their clients adequately.
However, the vast majority of businesses are small to medium sized and the majority of the needs of these businesses are likely to be met more effectively by the business advisory and consultancy firms who would describe themselves as “mid –tier”. The reasons for this are as follows:
- More personalised approach – With smaller consultancy practices you are more likely to work with someone who can closely relate to the unique pressures of running your business as it is quite possible they have faced similar issues themselves. Also, you should get a solution that is tailored to your own specific circumstances because of the time that the smaller consultancy practices are able to devote to their clients.
- Highly skilled teams – Smaller consultancy practices often have people who have trained with the bigger consultancy firms or have worked for large organisations and are able to match the large consultancy firms in terms of knowledge and skills. Quite often the smaller consultancy practices will have an in depth knowledge of a particular business sector or industry class which may well tie in with your business.
- Costs – Large practices carry large overheads and this is reflected in the charge-out rates to clients. Smaller companies will often be able to provide similar services for a fraction of the cost.
In summary, there are areas of the market where big consultancy firms are the right solution for the right business. However, for the majority of small to medium sized businesses, the smaller consultancy / business advisory practices will deliver a service which will meet and often exceed their needs
No-one would dispute, especially during these difficult times, that any prudent business manager must be in control of their costs and often one of the largest of these is the salary bill. It is easy to articulate and generally understood by everyone. Or is it?
If you look at salary costs in isolation, you would most probably end up with a false picture. A study undertaken some years ago involving Walmart’s Sam’s Club and Costco (source: HBR December2006) showed that Costco had an attrition rate of 17% compared to Walmart’s 44%.
If you assume that the cost of acquiring a new employee (all costs) equates to 1.5 times their salary, the following table provides a more accurate representation of the true cost to the business.
|Company A||Company B|
|Recruitment cost Per Employee||£22,500||£28,125|
|Total recruitment costs in a year||£9,900,000||£4,781,250|
|Total Salary costs||£24,900,000||£23,531,250|
Add to this the fact that happier employees tend to take fewer sick days, the fact that they respond to training better (and lower attrition also often equates to lower training costs) and the fact that they are a key aspect of delivering a happier customer experience and you can start to see that bottom line salary costs form only part of the story.
When thinking about your salary bill, you need to look at the full picture and, in addition to the above, think about profit generated per employee. The study mentioned above showed that the operating profit per hourly paid employee at Costco was almost double the equivalent at Walmart.
Many business managers only look into the health of the business when something has gone wrong, or when they detect the early (sometimes not so early!) signs that something is not right.
The cost of correcting an issue after the fact is typically much higher than preventing the issue from occurring in the first place – studies have shown that this can be a factor of ten or more depending on the complexity of the situation and how quickly it is tackled. The longer a problem is allowed to continue unchallenged, the more difficult (and expensive) it becomes to resolve. The chances are that if the banks are already hammering at the door, you have missed the opportunity to prevent the problem, or at least mitigate it. So what should you do?
The most important thing to do is act in a timely manner. An independent health check will help you to identify potential issues in time to enable preventative or corrective actions to be taken early in the process. Those actions need to be implemented quickly and efficiently, so be honest about your own capabilities and availability – if you need help, get it!
Even if there are no major problems uncovered by the exercise, there is almost always a payback in terms of opportunities for improvement. This is where the external perspective can really help. By working closely with your own in-house talent and by involving all key stakeholders, the independent consultant can help you to quickly refocus and redirect efforts to the areas that will start to deliver immediate improvements.