Breaking through to a better bottom line
By Christopher J Tipler
For many Australian businesses the last three years have been tough and 2012 is not ending on a buoyant note. Capturing profitable revenue is a slog in the face of hesitant customers, greater import competition, wage pressures and relatively high (but falling) interest rates. The Board wants more and wants it soon. We prune and cut, but revenues and margins follow us down. We start wondering what else to do; the team has run out of ideas. Everyone is working hard – too hard – and there is a sense of fatigue. We contemplate more radical moves. Maybe we need to rethink our business model. Maybe Division X needs to go. Maybe the team, or some of the team members, is not up to it. Maybe we should bring in the consultants. Maybe it‘s all too hard! Maybe, maybe, maybe.
I have participated in many profit improvement programs over the years that create lists of things to do. I suspect the last thing you need right now is another list. So I am going to offer something more fundamental here; a set of four related ideas that might enable your business to break through to a consistently better bottom line. Two of these relate to marketing and two to operations. These may provide you with some food for thought over the Christmas break, and perhaps with something to get your teeth into in the New Year.
Marketing 1: taking a disciplined, quantitative approach.
I am constantly surprised by how few businesses have a good quantitative grip on their market. What I mean by this is a clear, accurate, understanding of how the market segments in both customer and product terms, and where the business sits in each PMS with respect to sales and market share. The diagram below outlines the very first requirement of effective selling – knowing how to think about the market and where to focus your efforts.
I could speak to you about the newspaper business that thought it knew its market, only to find (when it completed the PMS) that its advertising sales people were not calling on a number of lucrative market segments. Or the waste management business that thought it had a 50% market share, only to find (again when it completed the PMS) that the market was much larger and it had only a 10% share.
If your reaction to the above is ‘that doesn’t apply to us’, then I suggest you think again. I have never found a business that could not create additional sales revenues as a result of accurately completing this simple segmentation analysis. It is often the case that businesses do not even know what labels to put on the axes, or the labels they are using are too broad to be insightful. Try it and see what I mean.
Marketing 2: Let the customer experience drive everything.
The next suggestion confronts an uncomfortable truth; that few businesses delight their customers. In some cases (typically large businesses) the heartbeat of customer experience is barely a murmur. The way to delight them is to focus explicitly on the customer ‘moments of truth’ (MOT’s), and use these to drive organisation behaviour. In July 2011, I wrote about this (see corpusrios.com) under the heading ‘The only thing that matters’ where I used Telstra as an example of how an MOT focus could permanently change organisation behaviour in a way that drives more sales. I repeat here that working the coalface of customer experience is the key to sales and marketing success in every business, including yours, and, ultimately, is the only thing that matters.
In this context, I have not yet found a business that admitted to being anywhere near the mark on this front and I have seen businesses derive major sales benefits by reverse engineering all their processes so that they are driven by good customer outcomes.
Operations 1: Reframing through strategy.
When times are tough it is imperative that the capability of the organisation is focussed only on the things that will deliver a winning outcome. You ensure this through a strategic process that frames activity by asking ‘what must we excel at to win?’, and (for each of these) ‘what does it mean to excel at this?’ Approached in this way, strategy is not a peripheral ‘nice-to-have’ activity, but the mainspring of effectiveness and efficiency. It will define not only what you must do well but, by deduction, what you no longer need to do, or do as much. So few businesses have understood the power of strategy to deliver really crunchy short-term results, as well as longer term goals. Chapter four of my book, Corpus RIOS, spells out the approach step by step.
Operations 2: Reframing through new perspectives.
Familiarity and habit not only help us to repeat, and scale, useful activity, they also lock us into outdated ideas and poor performance. Most organisations, particularly large ones, have a deep vested interest in the status quo and they are skilful at resisting change. There are, it seems, always ten reasons why doing it differently is a bad idea. This is where fresh eyes and ears come in, as they enable us to ‘go to blank’ – to look at things in an unbiased way – and to challenge conventional wisdom.
Fresh eyes and ears can be found in several different places. Internally, we can invite people into the efficiency and effectiveness discussion who are not normally part of the conversation, such as first line supervisors and middle managers. Externally, we can acquire fresh eyes and ears by drawing on consultants and by talking to suppliers and customers.
Here is my final suggestion. Give this article to each member of your senior team and tell him or her you want to meet early in the New Year to discuss how the ideas could work in your business. You can be assured that at least one of the four themes will find fertile ground.
Christopher Tipler is a Melbourne-based management advisor and author of Corpus RIOS – The how and what of business strategy. His web site corpusrios.com contains more material on this and related topics.