Week 3 Strategy Series | Refined Focus for Profit Clarity - What are we doing? Part 2

Monday, January 23, 2017

 

Part 2 of 2 | Quadrant 3 | Activity Inside My Business

A big mistake many community and business leaders make is that they don’t know what makes them money today, how to make more, and how important their personal leadership style affects the success of their business.

 

Part 1 of this post is here.

 

Dig Deeper into Activity

Once we have looked at the financial performance, activity on the inside can expand to looking at;

  • Customer results

  • Strategic and business results

  • Innovation.

 

The following questions are a stimulus for critical thinking about your business units.

 
Customer Results

Customer results looks at your business through the customers’ eyes and through your customers’ behaviours. You can ask yourself;

  • Are my investments meeting customer needs?

  • Do I drive profitability at each customer touch point?

  • What does my customer see as ‘value’? How does this affect my pricing?

  • How do we decide what to measure with customer surveys?

  • How do we measure and manage customer survey results – do we create a business plan based on results?

  • If my customer purchases A, will they purchase B?

  • Why are they responding to my marketing and promotions? Or not responding?

 

Behaviours

In the following qualitative example, I have moved away from measuring the demographic characteristics of my customer list, like age and gender, and am now asking questions about what my core and target market are buying – the behavioural characteristics.

 

 

Customer experience versus expectations

You can also break down the customer process and introduce strategies for reducing errors. Errors can come from people, technology, equipment, layout (e.g. service design areas) or procedures, and cost money each time they occur. There is a need to understand the margin for error between peak times and normal trade.

 

Error reduction is a strategic consideration, as delivering services with few errors results in a quality standards and differentiation from mistake-prone businesses.

Providing exceptional service, which means meeting customer expectations with few or no errors, will make it harder for other businesses to win over your customers.

 

Strategic and business results

A successful strategy means continuing to build our strengths into a competitive advantage and doing the things we don’t do well differently.

 

Our strategic goals are reflected in the business plan. To measure business results, we need a direct line of sight to the strategic goal.

 

In the following diagram, I present a way to look at the planning cycle; the role of each plan and how we may measure results.

 

You can ask yourself;

  • Is my business action (today) leading to a strategic goal (for the future)?

  • Is there another organisation that could be doing this work better, more efficiently or at lower cost leaving me time to do my best work elsewhere?

  • When I set my previous strategic goals, what were the barriers I encountered that I wasn’t expecting?

  • What are my biases that prevent me from innovating?

  • What is certain and uncertain?

  • Where is the fragility in my supply chains?

  • How am I capturing what I do (e.g. reporting)?

 

Barriers

When we set our strategy, and enact it through business action, we invariable come up against barriers which prevent up from achieving profitability. Part of an operational analysis is unpacking those barriers.

 

Your barriers may be undercharging, under-resourcing an action, over-estimating results in budgeting, over-estimating your skill to complete a task, not dedicating sufficient expertise to new product development, and poor sales and marketing. Unpacking your barriers will assist in developing strategies that realise profitable business performance.

 

A method to identify barriers is to take a product and look at;

  • Revenue, grow profit, and net profit (loss)

  • Look at the operational cost breakdown

  • Look at the connecting business units.

     

Bias

As individuals, we have a wealth of experience and knowledge that can be helpful to planning. The same experiences and knowledge can also act as a barrier to planning. Recognising our bias will help us open our minds to do things differently, and may open the way to increased profitability. Here are some common biases;

 

Cognitive: A tendency to make errors in judgement based on the use of ‘rule of thumb’ or ‘this is what is always done’.

 

Emotional: Occurs when we are inclined to believe something that has a positive emotional effect and gives a pleasant feeling, even if there is evidence to the contrary, or to be reluctant to accept hard facts that are unpleasant.

 

Confirmation: A tendency to search for or interpret information in a way that confirms your preconceptions.

 

Hindsight: An inclination to see events that have occurred as more predictable than they in fact were before they took place. “I knew that would happen if I did this…”

Rosy retrospection: When we remember past events more positively than when the event occurred.

 

In-group: We give preferential treatment to others we perceive to be like us. For example, people of similar age, race or residential area.

 

Projection: We unconsciously assume that others share the same or similar thoughts, beliefs, values, or positions. “I like it and so will everyone else!”

 

Innovation

The need to keep invigorating your products to keep up with market changes, and the pressure for them to succeed, is becoming more urgent in a disruptive environment. In my business, I have seen products that were profitable a few years ago become ‘value-adds’ forcing me to keep developing my products, developing my skill set to deliver better results for my customers and get the marketing right (including pricing). You might be seeing this in your business as well.

 

Creating new products or developing current products to a new standard is one of the best options to establish, or re-establish pricing power. Innovation requires ideas, planning and investment, but product failures are common. To increase the probability that your new idea will work, and be profitable, you need to start with customer value and pricing from the get-go.

 

In an operational analysis, we look at the previous innovations introduced into the business and measure from the viewpoint of customer results, business action and financial performance.

 

Taking what we have learnt from the quadrant, Activity Inside My Business, you can ask yourself these (and other) questions;

  • Customer results: Will my new product satisfy my current or targeted customers? What is the value/price relationship?

  • Strategic and business action: Will my new product lead to a strategic goal? What barriers and biases do I need to consider? How will I market and sell the product?

  • Financial performance: What is the investment? When will my new product become profitable?

 

Working Together

One problem I see with many strategic plans is that there may be a lack of connection across business units, and a big wish list without considering the organisation’s capacity to resource the wishes (financial, human, time, etc.) or calculating the probability of success.

 

When we set strategy, we also need to prioritise organisational direction. We ask ourselves;

  • Where is the biggest impact?

  • How does this effect other departments?

  • How do we work together to take advantage of the impact – does what my department want to do line up with the other department’s goals, priorities, expectations, and resources?

 
Summary

While it’s tempting to do a surface analysis of your activity, insight is gained from digging deep and challenging your business.  

 

Your business may be progressing profitability, yet there are risks in the cultural aspects of leadership. Your business may have a great culture, but you can’t work out why the business isn’t making more money. Maybe business growth is challenged by a competitor wooing customers away, which may mean a change in direction on what you do, and who you do it for. It may be that your board and management need to upgrade skills, processes, and leadership for a changing society.

 

Reviewing activity inside your business is where it helps to have a third party with fresh eyes, and few of the biases we outline in this chapter. This chapter could have been many, many more pages of analysis examples and approaches!

 

Remember to write down your compelling findings.

 

Next: Week 4 | What in the world...?

 

CONTACT: SHAYNE LESLIE 0412 241 773

shayne@integratedgovernance.com.au

 

 

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