Benchmarking – A great tool for all businesses!

John Walters

John Walters

Companies within some industries routinely use benchmarking. What about you and your industry?

Large companies frequently use benchmarking, but perhaps you are a small business, in which case you may mistakenly believe that benchmarking is not for you!

I believe that benchmarking is a great tool regardless of your industry or size, and when used correctly can be invaluable in uncovering areas of strength and weakness.

Benchmarking in itself is a fairly simple technique involving comparing the performance of one activity, department, office, and or company with another using predefined definitions to calculate metrics.

Benchmarking studies can be contained to a few high level metrics i.e. Sales/FTE’s (full time employees), Cost/FTE’s etc. but more often than not the technique is expanded to cover both operations and finance. The studies can be both internally and externally focused and can become quite sophisticated.

For instance, the Petrochemical Industry subdivides its production processes in to a number of discrete areas and individual companies report their performance based upon agreed definitions.   An independent third party collates the information so that the individual responses remain confidential, but they go one step further and introduce the concept of the “Theoretical Plant”.

Here they take each step of the process and identify the best performer, which they then aggregate to come up with the “Theoretical Plant”.  The rationale is that no one single company has the best performance in all steps and so even the industry leader can potentially improve on its current performance. It becomes a matter of cost vs. benefit.

I’m not necessarily suggesting that everyone should take benchmarking to the above level, but I am suggesting that benchmarking is a tool that can be used in every business.

As such I’m suggesting that you should spend a little time thinking about how you can use benchmarking within your business to uncover areas of strength and weakness. To gain a more complete understanding of benchmarking you may wish to take a look at the following presentation.

Should you wish to further explore benchmarking, I suggest that you contact us. We have the experience, we care and we are there to help you with all your benchmarking needs.

Why a clear vision is so important to running a successful business

John Walters

John Walters

A vision is about creating a short statement that will guide you over the next 3 to 5 years.  It should be specific enough to say something about what you will do and equally what you will not do. It should be capable of driving the organization to achieve a common goal, and be somewhat motivational so that you have a constant reminder of what you are trying to achieve when the going gets tough.

Without a vision, a business is like a ship without a rudder and is in danger of drifting aimlessly. Many small businesses lack a clear vision and so they tend to jump from task to task without a clear understanding of what bonds the individual actions together and/or the value created by the individual actions. Your vision should provide the cornerstone for everything that you do in the business.

Let’s examine the following vision statement and highlight some of the pitfalls it creates.

“I want to be the best company in the world”

This vision is not specific enough, it says nothing about what you will do and equally what you won’t do.  As such, you are unable to identify the key actions that you need to take and or define what success looks like.  Furthermore, what does the best mean? Does it refer to the number of employees in the business, having record sales and or profits?  As you can see this vision is in reality very weak and clearly does not provide the cornerstone for everything else that follows.

Let’s suppose you were looking to open a restaurant. Your vision, as well as the actions required to bring about success, would look very different depending on the type of restaurant.

Consider the following two visions:

“Providing quality fast food to the residents of Howard County at affordable prices”

“Providing Howard County residents with a premier fine dining experience”

If you look at the above visions it is clear that the focus and actions will be very different.  Marketing, Operations and the Skills required will also be very different.  In summary, your goals, actions and measurement criteria is driven by your vision.

Use the following guideline to create/evaluate your vision:

  1. Your vision should be concise and give purpose to your business.
  2. The vision must be capable of motivating you and others in the business.
  3. The vision must provide the cornerstone for your business.  Helping you to link your actions to your strategic goals.  Your actions must be driven from a clear understanding of value they will create.

Should you require further assistance with creating a compelling vision for your business, then please do not hesitate to contact us.

Do small businesses have a cost problem?

John Walters

John Walters

Generally, I would say No!

Most of the small businesses that I come across do not have a cost problem. That’s not to say that they do not have opportunities to shave a little off their costs here and there, but the reality is that most small businesses have a revenue (sales) problem, i.e. sales are too low.

It may be obvious that you need to increase sales, but let me be a little provocative and challenge you.

  1. Knowing that your shortfall in revenues is the underlying problem, what are you doing to correct the situation?
  2. What are you planning to do differently to increase your sales?

Too often I come across businesses that do the same thing every day, week, month, and somehow expect a different result. In truth you need to dig a little deeper, and analyze what you are doing to grow your sales.  Ask yourself if what you are doing is really working or are you simply going through the motions. Find out what’s working for you, and do more of it, and also find out what’s not working and stop it.

The above is not meant to be insulting, it’s just that we all tend to get stuck in our comfort zone, and if we are to improve then we have do things differently.

Change is not easy, and that’s why many businesses enlist external professional help.  If you feel that your business could do with a boost, contact us to schedule an appointment. We have helped many businesses and we can help you.  We have the experience, tools and proven methodologies.  We care and we are there to help you.

Mergers & Acquisitions

John Walters

John Walters

Mergers and Acquisitions, just for the big guys? I don’t think so!

I see a number of small businesses that struggle with growing their business organically, and I ask myself how many of them have considered a merger or an acquisition of a similar business.

Merging or acquiring another business is obviously a much faster route than organic growth, and hopefully by bringing the two businesses together you will be able to extract synergies. You know 2+2 = more than 4.

So if Mergers and Acquisitions are such a good way to grow businesses, why do smaller businesses not utilize this technique more often to grow their businesses? I believe that it is because when companies merge or acquire other businesses, the ownership structure is generally impacted, and naturally small business owners are concerned about giving up part of the company they have built.

However, it may be that it makes sense for you to take a smaller percentage of a bigger pie.  You need to do the math and be honest about whether you are willing to relinquish some control.

My message is that you should at least consider Mergers and Acquisitions as part of your ongoing strategic evaluations.

Contact us if you need assistance to evaluate your strategic alternatives.  We have the experience, we care and we are there to help you.

Struggling with your business and not sure if you should engage a consultant to help?

John Walters

John Walters

I was recently asked to give a short presentation about my company to a local group of Small Business Owners. Rather than bore them with what I do and how; I focused my presentation on the results achieved, and gave some practical examples (whilst maintaining client confidentiality).

I was accompanied by a current client who spoke about how she had spent some considerable time deliberating whether or not to engage an external consultant, before engaging “121”.

Having her give a personal account of the dilemma that she faced in deciding whether or not to engage an external advisor, and why she decided to bring “121” in to help was of particular interest to the audience.  Her dilemma was/is entirely consistent with the dilemma faced by all Small Business Owners who are considering hiring an external advisor.

Namely:

  1. How can the small business owner be sure that the external advisor can help?
  2. How can you be sure that the external advisor will deliver value in excess of the fee?

Good questions! Let’s try to address them.

First there are very few guarantees in life, but you can take out some of the risk by asking for testimonials from other clients, before engaging the advisor. Second, make sure that your engagement is clear in terms of duration, milestones etc. so that you can effectively manage performance.

The above will not guarantee success, but it will help you to mitigate the risk.

As for “121”, I responded by saying that I was confident that I could help any business based on my experience, and the fact that all businesses have inputs, a conversion process and an output.  By taking a process view, the actual nature of the business is of secondary importance.  Furthermore, I emphasized that generally you are not hiring a business consultant because they know more about your business than you; you are hiring them for their general business acumen and to gain an outside perspective.

I was then asked, why did I think local small businesses were slow in seeking help?

Not an easy question, but my attending client alluded to, and I believe her to be correct, that the Small Business Owner primarily focuses on the fee, and not the value creation potential. This to me is a real shame, because I can say that if “121” or any other external advisor for that matter is not able to deliver inherent value, then the engagement cannot be regarded as a success, which will lead to a dissatisfied client, and damaging to the reputation of the consulting company.

To be absolutely clear 121’s primary objective is to deliver client value.  My message is that if you are struggling to take your business to the next level, or you simply have a nutty problem to sort out, you should contact “121”.  We have the experience, proven tools and methodologies; we care and we are there to help you.

Job Descriptions – Relevant to a small business?

John Walters

John Walters

The reality is that people have to be very flexible and undertake a variety of tasks to simply survive in small business, and so you may be thinking that job descriptions have limited value in the small business environment.

I suggest that job descriptions have a role to play within the small business environment as they help to bring structure, and discipline.  Job descriptions are used to define areas of responsibility and to help to drive accountability, providing the foundation for managing individual performance.

Furthermore, job descriptions are a way to ensure that you address key issues such as workflow in order to achieve a reasonable balance between employees. Also that key tasks are assigned to individuals, and that you identify/nominate who will perform the key tasks in case of employee absenteeism.

I’m sure that you appreciate that individual accountability is critical to all organizations irrespective of size, and as such the job description has a role to play in the small business environment.

Should you require help to develop job descriptions for your business, you should contact “121”. We have the experience and we are there to help you.

Weeding out your less profitable customers

John Walters

John Walters

Weeding out your less profitable or even unprofitable customers pre-supposes that you understand your customer account profitability.

Customer account profitability is something that many businesses struggle with. From recording actual materials and labor used on a particular job, to allocating fixed costs in a way that makes sense, and or developing systems that can manage the data in a timely manner.

As such, customer account profitability is often tackled as an ad hoc exercise because systems are generally not geared up to automatically capture this data.

The fact that it may not be easy to calculate your customer account profitability should not deter you from making the effort.  Without a reasonable overview of your customer account profitability you are flying blind, meaning that it is very difficult to set about effectively managing your customer portfolio.

Be aware of customers that make a contribution to fixed costs, but not sufficient to generate a profit.  It is rather obvious that you cannot build a profitable business if all your customers fall into this category, and yet we are sometimes reluctant to tackle these accounts for fear of losing the contribution that they bring.

It’s important that you understand the financial consequences of potentially losing an account before you seek price increases in an attempt to move the account into a profitable situation. Remember that if your customer walks then your fixed costs will need to be covered by fewer customers, and so the fixed cost per customer will actually increase.

Not withstanding the above discussion on fixed costs, weeding out your unprofitable customers through increased pricing can be a very effective way to improve your profitability. If you attempt to increase prices and your customer stays with you then great, but if they walk, you will still have improved your profitability.

Good luck in weeding out your unprofitable customers.

Should you need help to develop customer account profitability for your business so that you can effectively manage your portfolio you should contact “121”. We have the tools experience and we are there to help you.

Process Mapping for Improvement

John Walters

John Walters

Process Mapping is a great tool for businesses of all sizes. Process Mapping enables you to record (capture) existing processes, analyze risks and control procedures, and it can also help you to identify waste within your processes.

Remember, that you have to first identify a problem before your can correct it, or an opportunity, before you can take advantage of it. Consider Process Mapping as a fact-finding tool.

It is my experience that when you gather the people that perform the job on a day-to-day basis, and have them map the process, you often find that bits have been added or taken away over time, and that the actual process is quite different to what you envisaged.

As such Process Mapping can be a fantastic Team Building and Learning opportunity. Done correctly, it can bring people together, giving then the opportunity to openly discuss the process, in terms of What’s working, What’s not working, and What could be done better.

I would encourage you to take the time to map your key business processes.  I’m confident that you will benefit from the experience.

If you need help to map your key business processes you should contact us, we have the experience, tools, we care and we are there to help you.

Franchises – The dilemma

John Walters

John Walters

A franchise business owner, unlike the owner of a conventional start-up business, is hopefully buying into a proven methodology, tools and support system, for which they pay a royalty payment.

So far so good, but experience shows us that the most successful businesses tend to look outside of their industry to see how the best in class perform specific tasks, and therein lies the dilemma for Franchised Operations.

The Corporate Offices of the Franchised Organizations are the “experts” within their chosen industry, and they tend to operate within their “comfort zone”, meaning that they are less likely to look outside of their industry for best practice.  Before you shout, I’m not saying that every franchised operation will operate in this way, but some do.

Given that most franchise owners pay a substantial royalty payment to corporate, they generally rely on the corporate services provided.  This may or may not be important dependent on how successful they are.

Let’s suppose that your current performance places you in the lower quartile of performers within your franchised organization then you can probably get all the help that you need from Corporate.

However if you are one of the top performers then you may have to look outside of your Franchised organization in order to get to the next level.

Should you require assistance to get to the next level you should contact us to schedule an appointment. We have the experience, tools and proven methodologies, we care and we are there to help you.

Job Costing is a tool you should have in your toolbox

John Walters

John Walters

Most businesses that charge their customers on a time and materials basis are probably already familiar with job costing.

For those of you that are unsure what job costing is all about, it’s a method of calculating the cost an individual job.  It could be the cost of replacing a window, resurfacing a drive, landscaping a garden, and the list goes on and on.  It’s a tool used in many industries.

So it’s probably safe to move forward, and assume that you know about job costing, and probably use it in some form or another in your estimation/quotation process, but how many of you use job costing to record the actual cost of the job, and then compare the results to your original estimate.

This step can provide you with valuable insights into your business:

  1. By making the comparison you can confirm the accuracy, or not as the case may be, of your estimation process.  If the actual results are very different to what you originally estimated; you need to understand the reason for the difference.
  2. By comparing the actual results of similar jobs over time you will build up a knowledge bank, which will improve your ability to quote similar jobs in the future with a greater level of confidence. In short you reduce the likelihood that you will be caught out by nasty surprises that have an awful habit of eating away at your profits.

My advice is simple, if you are not using job costing, or stopping short of making this actual to estimate comparison then you need to take steps to correct this situation as soon as possible.

If you need help to design and implement an appropriate job costing system for your business you should contact us. We have the experience, we care, and we are there to help you.