How to Survive and be Successful in this Competitive Business World
At all times you should be measuring your
business to survive and be successful.
The Market Pressures
Business life is getting tougher all the time. Competitive business survival needs to be fought for and the battle for customer favour is never ending. Market liberalisation and globalisation have opened the `gates` for many new competitors, and customers are spoilt and demanding. Companies and individuals expect better service, better products, better quality, and extremely better prices. At the same time companies need to deliver shareholder/Investors value in the form of profits and share/investor growth. Without these two ingredients the world stops developing! To help you in this endeavour, please read this article and view the powerful solutions at www.cavendish-mr.org.uk
Two aspects dominate business life:
* Customer value
* Share holder/Investor value
The order they are delivered is, first, `Customer Value` followed by `Shareholder/Investor Value`. If we do not please our customers we do not have a business. We are only allowed to stay in business if our customers so wishes! If we do not please our shareholders/Investors they will soon change the management or sell the business. Share volatility, as we have seen latterly in the press, demonstrates the increasing power of the market. If the business does not perform, the market will punish it very swiftly. The step from yesterday's stock market darling to today's acquisition `bargain` is distressingly short and our market position is continuously eroded as competitors offer excellent products with better prices on the world market.
The art to survive, we need to learn to swiftly respond to market pressures. We need to deliver better products innovation in terms of more product variety and shorter product life cycles. We need to deliver products more quickly within shorter lead times. The world operates 365x7x24, if the UK wish to compete, these times are the real world! We need to understand and monitor changing and increasing customer demands and price pressures. That puts more pressure on costs and the need to improve our business processes. The much maligned phase `business re-engineering` is re-entering our lives under the banner of `business transformation`, the same issue, just more aggressive. The challenge is competing with heavy investment in growing countries with low labour costs and low overhead costs together with grants to start-up/transfer businesses.
A SURVIVAL and SUCCESSFUL FRAMEWORK
To be able to meet commercial pressures in today's complex and competitive world all our employees need to understand and `be committed` to common goals. All of us need to:
* Understand what are our customer's value
i.e. what pleases the customer and makes them come to us?
* Understand shareholder/owner value
i.e. what drives the creation of value in our business and what are the
* Develop a common view of the business
i.e. have a clear understanding of our mission and vision for the sort of business we wish to operate and which is most likely to be successful?
* Ensure everyone is working towards the same goals
i.e. make sure all employees' objectives align with a common mission and vision. In particular, ensure that the vision at all levels aligns with the corporate vision and is supportive of corporate objectives and supported by local objectives.
* Check that we are achieving our objectives
i.e., identify and track Key Performance Indicators (KPI`s), at corporate level and at local workplace level. In particular, ensure again that local KPI`s align with corporate KPI`s.
None of this survival and success framework is easy. We see time and time again mission and vision statements developed by image consultants which look innovative and impressive in annual reports etc, but are largely meaningless at workplace level. There is nothing wrong with a mission of `providing health to all people` but, unless it is explained and put into context for the whole organisation in terms of product, process and customer service requirements, it is a fairly meaningless platitude and certainly not something on which the business can hang a unified set of objectives and KPI`s. Indeed, one wonders at times to what degree corporate visions, missions and objectives are published for PR reasons to the `out side world` rather than as a framework for corporate unity of thinking, planning and execution.
Developing the future
The mission of the business is the fundamental statement of intent by the business, for now and the future. It states the purpose of the business and is articulated by the Directors who define what kind of organisation they want to lead and which reflects the wishes of its shareholders/Investors. A possible mission emphasis may be on:
* Sustainable growth and profit
* Delighting the customer
* Ethics in business conduct
* Keeping the best employees
* Operating globally to improve financial performance
* Gaining market share
* Becoming the best
Developing a Vision
The vision is not a `dream`, but `reality`, of the way the business and its people should work to achieve the mission and must:
* Provide an image of the success of the business
* Be challenging
* Be achievable
* Be shareable by all employees
The corporate vision must be `translated` into a local vision, which aligns with the corporate vision, and people across the whole business must be able to identify with the vision. The cascading of the vision to all parts of the business and making it relevant at the workplace is usually a major challenge for many companies. Often the vision is too abstract or too broad to be meaningful. Often it is possible to identify to needs and pressures of the workplace with the vision of the overall business. Cascading of the vision is essential, however, if it is to become a guideline for the way the company is structured and managed.
Clearly the vision must align with the vision and a typical vision statement supporting the vision statement above might be:
* We will always offer the best possible quality and strive towards zero customer returns.
* Our business will inspire employees and customers by delivering continuous evidence of superior customer care and support.
* We will provide the highest level of customer delivery service in the industry by installing superior order fulfilment processes.
* We will strive for the industry leading cost-to-performance ratio to offer better value to our customers than our competitors.
* We will ensure that we understand and deliver ` value` at all times.
Developing Objectives for Success
Based on the vision and in support of the mission the business and departmental objectives are derived. In other words, the vision is realised through objectives. Clearly, objectives need to be ambitious but believable to the leadership team. If they are not ambitious enough, the business will probably fail in its competitive struggle. If they are too ambitious or are seen to be unachievable or irrelevant, there will be no buy-in. Objectives whose only force of persuasion is the threat of senior management, sanction will not be effective as a vehicle for business performance improvement. Since normally objective achievement is related to reward, a reward, based on unattainable objectives will be de-motivating.
Typical objectives to meet the vision above might be:
* Customer satisfaction level above 95%
* Customer `churn` below 10% per annum
* Customer value index at over 95% (where `customer value index needs to be defined and measurable).
* Return levels at below 0.03% of sales by value
* All customers' complaints and queries acknowledged within 4 hours and 99% resolved within 48 hours.
* 98% next day delivery within UK
* 99.5% delivery on time on export orders
* Out-perform our stock market sector by 20% per annum cumulatively
* Gross margin of no less than 40%!
Clearly objectives need to be measurable and the measures must ensure that objective achievement is properly demonstrated. In other words, we need to identify the KPI`s to meet our objectives. We will find that some of them are already embedded in our objectives (e.g. customer returns level and gross margin). Others will support objective achievement (e.g. stock service level, fulfilment lead times, manufacturing quality and forecast accuracy).
KPI`s measure the achievement of objectives and that will only be possible if the objectives are clearly defined and have measurable attributes. A vision of `nice people to do business with` might be a good marketing slogan but is not that easy. (though by no means impossible) to measure.
To develop the KPI`s it is therefore necessary to identify what the relevant metrics for each objective are and how we define the metrics. Once the KPI`s and metrics are clear in our minds there is the question of data i.e. how do we obtain the data and what are the current values? Often the base line metrics can be difficult to establish, but to do so is important to obtain the measurement base line. Often at this stage it is found that some of the objectives are wrong (i.e. too lax or too stretching) and there may well be a re-examination of the objectives and possibly even of the vision. Management courage may be needed at this stage: if it is found that the gap between current performance and objective achievement is huge then senior management needs to develop strategies of closing that gap and be able to obtain collective buy-in across the business.
Based on the Balanced Business Scorecard
Much has been written about the balanced scorecard and this article will only briefly touch on the background. The key issues are that there are two perspectives for the business:
* An external view, based on customer demands and financial demands (if either stakeholder group is unhappy with the business there soon will not be a business).
* An internal view, based on people/innovation and on processes (the people and the processes need to support the demands of the external stakeholders for the business to survive and be successful).
The `simple` task is then to structure KPI`s around the balanced scoreboard such that they support the mission, vision and objectives of the business.
We normally start with the customer needs; we are only here because the customer allows us to be in business! It is generally understood that in virtually any business the customer is the key stakeholder who needs to be satisfied first, foremost and continuously.
Some typical customer service KPI`s which are often used today are:
* On-time. In-full-delivery performance: i.e. every order is delivered complete and on time-one item missing or one order line one day late is a 100% failure for this order.
* Quality on time, in full, the difference is obvious but significant. (a variant on OTIF).
* Number of customers lost per time period. (e.g. year).
* Number of customers gained per time period.
* Average customer `age` (how long do customers on average stay with the business?).
* Value and quantity of customer returns.
* Quantity and cost of warranty claims/calls.
* Customer satisfaction rating.
* Customer order lead-time.
It costs 5 times as much to acquire a new customer than to get business from an existing one is a common claim, though in many businesses the cost of acquiring a new customer is a higher figure. As an example for Digital TV the cost of retention is negligible but acquiring a new customer, supplying a set top box and installing the service might cost hundred pounds for every one new customer. Also, look at the cost of the retention of your employees!
Financial value KPI`s are heavily dependent on the business mission
They may be typically based on profitability, return on assets or share/investor value growth. Profit is the most obvious one and is probably on its own not the key item. In the dotcom world and telecoms industries the word `profit` is largely unknown and until recently, that did not deter investors from supporting these industries. Return on assets is a better measure since it relates the profitability of the business to the asset base. There are many ways of managing return on assets but, in principle, key levers are, of course, profit increase and asset reduction. The latter has become more important to many businesses as the former becomes more elusive. Inventory reduction is a useful asset as well as a cost reduction mechanism and the current trend towards outsourcing is largely driven by the same motivation. Share/investor growth (often closely linked to profitability and ROI) is in most companies the core financial performance measure. Company vision and objectives typically focus hard on share/investor value growth these days.
Cascading Objectives through the Business
As the business objectives are cascaded through the business so the KPI`s need to be taken through all levels in the business to ensure that the local KPI`s support local objectives which in turn, support overall business objectives. Cascading KPI`s is traditionally a difficult process and in practice often ignored. Many functions and departments typically set their own objectives and KPI`s which frequently only have the most basic link, if any, to overall business objectives. If the wrong local KPI`s are picked their achievements might well be detrimental to the overall business. The traditional example is the maximisation of overhead absorption within manufacturing by maximising output without regard to inventory levels or customer requirements. Fortunately that particular issue is getting less common these days but there are still many examples of local departments optimisation leading to overall business sub-optimisation.
One example of objective and KPI cascading is:
* Board level KPI-Sales margin maximisation
* Sales department KPI -Customer `churn` rate minimisation
* Call centre KPI-Time to resolve query
* Warehouse-Picking accuracy
* Manufacturing-Product quality and cost
* R&D-Time to market
All these KPI`s focus on keeping customers happy and retaining them.
Fundamental KPI Measurement Issues
Once upon a time we measured very few items, usually based on the `personal` experience and the `gut` feel of the Chief Executive. With the wide introduction of computers we progressively switched to measuring everything. Computers made it particularly easy to get lots of data and to present it in thick management reports. Management suffered information overload and did not know which measures to focus on. These days we tent to find that smart companies are identifying the small number of KPI`s which really matter to their business and then focusing hard on these KPI`s. That does not mean that manufacturing necessarily takes a very narrow view of the business and ignores everything else but management knows that, if the KPI`s are on control, the overall business is in control. Clearly the section of the correct KPI`s is vital and there has to be a continuous reference back to customers and financial stakeholders to ensure that the KPI`s used continue to be relevant and complete.
Visibility to the whole workforce of overall and local KPI performance is normal practice these days. Few companies will fall into the trap of one particular large corporation, where the CEO at some point stopped the display of the share price on the corporate Intranet, because he felt it would be too de-motivating for his staff-especially those with `Share options`.
`Past` and `Modern` Measures
In the past we focused very much on `hard`, typically financially based performance measures. The balanced scoreboard approach has taught us that customer-based KPI`s are more important and that these are to a degree quite soft.
Look at questions such as:
* `How do you measure customer satisfaction? `
* `What really makes customers come to you or defect?
* `What parameters need to be measured to reduce customer `churn`? exercise executives minds these days when considering KPI`s.
Past company objectives might well have been;
* High margins/high profits
* Big order book
* Large sales(irrespective of the impact on the operation)
Today, with a strong emphasis on the `customer`, more relevant measures might well be;
* Customer attrition (churn) and attraction rate
* Repeat business as a percentage of total business
* Good businesses i.e. low risk with good assurance of adequate profitability.
* Resource constraint-balanced order intake
* Meeting of promises
* Sensitivity to customers demands without chaos.
In summary, I would remind you of the importance of;
* Ensuring that the mission and vision of the business are `really` understood throughout the business by `all` personnel.
* Using a few good measures-quality, not quantity.
* Using measures, which support business objectives.
* Watching performance trends rather than absolute values.
* Making sure that KPI performance is visible to `all` and understood by `all`.
* Ensuring that objectives are measured by KPI`s and are realistic but stretching.
Other research reports in the series are:
Achieving Excellence Through Customer Relationship Management
Crunch Time Questions to Survive and be Successful in Business
Measurement Framework for Success.
Plus, many more business models and research reports for your success.
These can be obtained by visiting http://www.cavendish-mr.org.uk
Useful solutions to take on board;
New book to help you with your success;
`Formula for Success` by Colin Thompson - Foreword by Karl George OBE
Check out http://www.cavendish-mr.org.uk for details by clicking on the publications button.
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Turning Limited Companies into Limitless Companies.
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Note: About the Author Colin Thompson
Colin is a former successful Managing Director of Transactional/Print Manufacturing Plants, Print Management/Workflow Solutions companies and other organisations, former Group Chairman of the Academy for Chief Executives and Non-Executive Director, helping companies raise their `bottom-line` and `increase cash flow`. Plus, helping individuals to be successful in business and life in general. Author of several publications, research reports, guides, business and educational models on CD-ROM's/Software and over 400 articles published on business and educational subjects worldwide. International Speaker and Visiting University Professor.
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Survive and be Successful in this Competitive Business World!