5 Tips in Changing Your Mindset About Profit

 

Future Profit

A recently published book, Understanding Michael Porter: The essential guide to competition and strategy (Magretta, 2012), compiles and applies the work of management guru, Michael Porter.   Full of useful insights, here are five pearls of wisdom that can, if applied, create a more robust, more profitable and sustainable business.

Tip 1: “Strategy explains how an organization, faced with competition, will achieve superior performance. The definition is deceptively simple”

Performance is not about your competition, it is about achieving superior performance, every day, regardless of what is happening with your competitors or markets.

Tip 2: “Competitive advantage is not about beating rivals; it’s about creating unique value for customers. If you have a competitive advantage, it will show up on your P & L”

To create unique value is not about you beating your competitors, it is about you delivering (through superior performance) the unique value by focusing on your customers’ needs.

Tip 3: “Strategic competition means choosing a path different from that of others”

If you accept that the competitive goal is superior performance, then it makes sense to achieve that performance using methods different to the competitors. You have to be able to differentiate yourself not only in the customer’s eyes, but in how you achieve that differentiation – in how you deliver value to the customer.

Tip 4: “The value proposition is the element of strategy that looks outward at customers, at the demand side of the business. The value chain focuses internally on operations. Strategy is fundamentally integrative, bringing the demand and supply sides together”

Strategy is about achieving a position.  Here it is to achieve superior performance whilst delivering superior value to the customer.  You need to be able to focus on how you will drive that superior performance, and what this means in terms of superior customer value.  In this you need to continuously improve the efficiency of your internal operations.

Tip 5: “There is no honor in size or growth if those are profitless. Competition is about profit, not market share”

This tip serves as a reminder that we need to be the most profitable, not the biggest in top-line revenue or head-count.

Consider these five tips in context of your own organization. What should you do to meet the requirements of all five? Is your current strategy going to work for you in the coming next few years?

What has worked or not worked for you? Share your knowledge, share the wealth!

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Which Would You Rather Be – Efficient or Effective?

Which would you rather be – efficient or effective?

by Andrew Cooke, Growth & Profit Solutions

Efficiency is doing things right; Effectiveness is doing the right things.The focus for many businesses today is on the short-run, getting more for their dollar and squeezing more out of their resources.  Productivity is the name of the game.  Although this is laudable it has focused businesses on the short-term and distracted them from the long-term.

Efficiency & Effectiveness

Efficiency and Effectiveness are two competing yet complementary approaches to business.  For the purpose of this article these are defined as:

Efficiency

This is ‘doing things right’ and concentrates on tactics focusing on achieving short-term results.  It means doing things better and quicker.

Effectiveness

This is ‘doing the right things’ which is critical to the success or survival of any organisation. Strategy is the key, not just any strategy, but one that is well constructed and then executed.

How these two factors interact impact the business and an overview of these interactions can be seen in the Efficiency/Effectiveness matrix below.

Efficiency/Effectiveness Matrix Efficient vs Effective Matrix

THRIVE: Highly Effective & Highly Efficient

Businesses that pursue the right strategy efficiently thrive. They can meet strategic targets earlier than anticipated, and can go on to meet more challenging strategic targets, so as to sustain their ability to thrive.

SURVIVE: Highly Effective & Inefficient

Many businesses ‘survive’, they show potential but never attain the growth that they should be capable of.  This can be due poor management or inefficient practices.

DIE SLOWLY: Ineffective & Inefficient

The business lacks a clear vision of what it is trying to achieve, and so lacks the right strategies or has weak strategies on which to execute. The lack of clear strategies means that the short-term plans and tactics are lacking.  As such the business delivers poor results for several years and are in a state of steady decline before the business eventually ‘dies’.

DIE QUICKLY: Ineffective & Highly Efficient

Here the business is executing very well, but on the wrong strategies which drive it into a state of rapid decline.   The business leaders are not learning from their mistakes, or are not aligned with the market’s realities, and by doing so negatively compound the effects of their wrong strategies.
What Do You Do Next?

For businesses to thrive they need to get both their efficiencies (tactics) and effectiveness (strategies) aligned – have the right direction and the right actions to help you bridge the gap between where you are now and where you want to be.  Look at what you are doing and where you are going  – review your assumptions, get an objective perspective, and continually review and improve to reflect the realities  of your business, marketplace and the business environment.

So what are you going to do? And will it take you in the right direction? And are you effective and efficient in what you do?

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Click here to find out more about Andrew Cooke and Growth & Profit Solutions.

 

4 Ways to Manage for Long-Term Results (& Its Not About Profit!)

Managing for profit can be detrimental to your business in the longer-term.  Discover the 4 guidelines to help your business thrive, not just survive.

We are in uncomfortable times.  Europe is facing a myriad of difficulties, China’s growth is looking to slow-down (albeit continuing), competition is more intense and customers are more demanding and better-informed. Yet amongst these difficulties there are companies who are not just surviving but thriving.

How are they managing to do this and what can we learn and apply from them?  Here are four guidelines for thriving, not surviving.

1. Manage for Value, Not For Profit.

You can’t manage profit – profit is an outcome of your revenues and costs.  You can manage your revenues and your costs, but you cannot directly manage your profit..

Successful companies look at managing value – they ascertain whether what they do creates and provides value both to them and their customers, or not.  You need to create value for both parties in order to be able to capture value for yourself.  Too many companies look at their relationship with their customers as a zero-sum game or as a win-lose opportunity i.e. we are dealing with a pie of a set size, so if I want a larger slice of the pie then the other has to have less and vice-versa.  This is a weak mind-set which immediately puts you in conflict with your customer.

Rather, look at your customer relationships as a win-win opportunity – the opportunity to create and grow value with each other.  This mindset allows the size of the pie to be increased, allowing you to capture more value, even if the split remains the same.  This enables you to collaborate with your customers and create long-term opportunities and relationships, rather than short-term gains at the cost of your customer relationships.

As such value is a driver of profit – the greater the value, the greater the opportunity to drive profitable outcomes.

2. Manage for the Long-Term

Too many businesses are driven by short-term considerations and take actions which, although they may provide relief in the short-term, destroy value in the long-term.  For example, investment in R&D may be cut now to save money and improve short-term profit – but it destroys value in the mid-to long-term as those assets which can create future value in the years to come are weakened, undermined or even destroyed.

3. Manage the Development of Your People

Every company claims that “people are our most important asset,” but few mean it. Frequently business’ investment in leadership development is cut during hard times – at exactly the time when it is needed most to enable and empower high-potential managers to lead the business to success and through these hard times.

In a recent survey of leadership globally, it was found that many of those countries with strong supplies of leaders today are facing a shortfall in the future – this includes countries such as the UK, Australia and Canada.  As such, business leadership is an important issue not only now but in the future (for further information see the blog “The Ticking Talent Timebomb”).

4. Manage your Focus – Be Customer-Centric 

Business needs to understand their customers in terms of what they need, what the business can offer, and how this translates into value for both parties.  As such you need to be able to properly address and craft your offerings to meet their needs.

Furthermore, you need to know not only what business you are in – but what business you are not in.  I have seen many companies grow and expand their offerings beyond what is their core business in response to meet their customers’ demands.  However, this has come at a cost.  As a result, management focus and attention is dispersed, scarce resources are allocated ineffectively and inefficiently, the business lacks the necessary skills to operate in these new areas, costs increase and margins reduce, and the business grows in an unstructured and  ad hoc manner which is difficult or impossible to consolidate.  All of which increases the level and range of risks to which the business is exposed, often beyond the gain that they might realise from this unstructured growth.

Summary

Don’t focus on profit – focus on value and you will achieve profit.  However, this requires discipline, courage and the willingness to invest in the long-term and in developing your people to ensure that you deliver what the customer needs and values.

What are you doing to grow your ability to create, share and realise value?  What has been stopping you and how have you overcome these barriers?

Share your thoughts and comments here.

Share the knowledge, share the wealth!

 

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Click here to find out more about Andrew Cooke and Growth & Profit Solutions.

How to Bait Your Hook

What do good anglers know which we can use in driving stronger business growth and results?

Fishing is one of the most popular leisure time pursuits in the world.  There is something about going out there, rod in hand, to capture that ever elusive fish.  This takes time, patience, skill and – let’s be honest – a bit of luck.

One thing that experienced anglers do is that they don’t waste time in an unproductive location.  You can try a few casts, change the bait, but if the fish are not biting then it is time to move on to a new spot.

We need to be like good anglers – if the fish do not bite quickly, then be prepared to move on and try elsewhere.  You might try for the same fish in another location, or using different bait or lures, or even go after another type of fish.  You want to be in a market where you will get a positive reaction as early as possible.

Doing this will save you time, money and embarrassment – it will also allow you to learn from the experience, and to apply it in future fishing spots.  What we do or how good we think something is not important.  There is only one judge out there and that is the market, and the market only cares if what you’ve done meets its needs.

The lesson here is that business is not about us, it is about our customers.  The question I like to ask to illustrate is this: “Why do people buy a quarter-inch drill?

I get a lot of answers – to hang a picture, for home improvements, to replace my old hand-drill etcetera.  They are all wrong.

The answer is simple: “To drill a quarter-inch hole!”

Customers are not interested in the features of the drill – such as its colour, whether it is turbo-charged, the special safety grip it has etcetera – they are only interested in the outcome from using it.

So if your product or service is not getting traction or garnering the sales you want then you need to do three things:

  1. Check that your product or service provides the outcomes that the customers/market need (have your hook properly baited);
  2. Be prepared to change fishing holes if the fish aren’t biting
  3. Continually learn from your experience so that you can:
  • produce a product/service that better meets the needs of the market (don’t confuse this with a better product which has more features but still fails to address the needs) and;
  • find and locate better fishing holes more quickly.

What do you do to find the right fishing holes?  How long do you wait before you move to a different location?  Are you really focused on delivering the outcomes a customer needs or delivering the product or service itself?

Share your ideas, insights and experience!  Share the knowledge, share the wealth!

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Click here to find out more about Andrew Cooke and Growth & Profit Solutions.

Creating KPIs that drive engagement & performance

How to create KPIs that drive engagement and performance

Setting KPIs

“If you can’t measure it, you can’t manage it”. 

Although this is true many companies don’t know what to measure or, if they do, they don’t know how to establish KPIs.

Why is this so important?

KPIs drive behaviour – if you know you are being evaluated against certain metrics then you will adapt how you work and how you perform.  This sounds good, but it can also be highly counter-productive, especially if you don’t know what to measure or measure the wrong thin. The result: bad management, mixed messages, confusion and employees focusing on the wrong thing.

You need to establish and develop your KPIs with care. Have too few and you may have an unbalanced “portfolio” of KPIs, have too many and it becomes a case of “everything is a priority, nothing is a priority”.

KPIs vary for different areas and different roles – but they are all underpinned by one factor: the company’s strategy and operations.  As such your KPIs are the indicator of where the company is headed. But it is also the one area that many companies mismanage as they are not thinking about how a KPI is helping the company to meet its targets.

Goals are not KPIs

A common mistake is to confuse KPIs with goals. The two are not the same.

For example, a company wants to achieve a $100 million of sales – this is often assumed to be the KPI when it is not.  In this example the KPIs there should be about the sales process. The KPIs might be about how many new customers, how many customers visited gave a repeat visitation, how many of those visits ended up in a presentation and how many of those were closed as deals. The KPI has to measure the process. You want the KPI linked to the corporate goal but it is not the goal itself.

When looking at the process you are measuring make sure that the KPIs relate to the corporate goals.  For example, having a KPI of sales reports in time does not drive sales – it only supports the process.  Furthermore every industry has formal KPIs (often found in the job description) and informal KPIs that are not written down. Like incongruent KPIs pulling in different directions, they can leave employees confused and disenchanted.

KPI is about Performance, Not People

KPIs are not about measuring people, they are about the process.  The KPIs are there to measure the performance of the organisation and KPIs are tools that people can use so that they can work not just in the business but also on the business, in other words improve the way the business works and improve its performance. They track the strategically important goals and objectives of the business.

Developing KPIs

It is absolutely critical for managers to develop the KPIs in consultation with the employee.  Developing them in isolation and imposing them on high creates, at best, a lack of buy-in and at worst total disengagement.  People want to succeed, and they want to be involved in how they succeed.

When discussing this you need to talk about three things:

  • What the person is employed for, and
  • What is going to give them satisfaction that will ensure they stay loyal and motivated; and
  • How this relates to the company’s main goals

Once there is a shared and common understanding you need to discuss the KPIs that are most effective and relevant to the processes that affect how they work and perform.  This is not to say that each individual has their own unique set of KPIs, rather that there is an agreed and understood portfolio of KPIs that complement and reinforce each other, whilst aligning the individual and team(s).

Monitoring KPIs

KPIs need constant monitoring to have relevance.  If they are measured, for example, only on a quarterly basis then it becomes like an exam.  It is viewed as being extraneous their job, rather than intrinsic. This creates a feeling of irrelevance, a lack of commitment to the KPIs and people having to be forced to comply – creating ineffective KPIs and reduced performance.

So what have you done and what are you going to do with your KPIs?  Talk to your people. Be clear on your goals, understand the key processes to be measured, and make the KPIs relevant, meaningful, measurable and review.

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Click here to find out more about Andrew Cooke and Growth & Profit Solutions.

5 Steps for Effectively Delegating & Managing Work

A 5-step process by which to effectively delegate and manage delegated work.

DelegateDelegating effectively allows managers and leaders to free up time; ensure the work is down to the right person at the right level and on-time; helps to develop people and their capabilities, and allows the managers and leaders to focus on what is important – not just what is urgent.

Creating the Conditions & Capabilities for Delegation

For effective delegation you need to have:

  1. A culture which supports and allows delegation to occur
  2. The desire and the ability to delegate
  3. People with the necessary abilities and attitudes that you can delegate to.

If you lack any one of these it makes delegation difficult.  As such be clear as to where you are on these factors and what you need to do to address them if necessary.  Yet even if these conditions are in place many managers and leaders find it difficult to delegate.  Common reasons for this include:

  • Short-term thinking – it would be quicker to do it myself
  • Perfectionist thinking – I can do it better myself
  • Requires an investment in training/mentoring of others – I don’t have anyone I can trust to delegate it to
  • I don’t know how to delegate

The key to enabling others to delegate is to understand what delegation entails.   I define delegation as:

A task, for which a nominated individual(s) is given specific responsibility, to complete in part or full, by a given time to produce an expected outcome or result, and for which you will receive feedback on.

The 5 Step Delegation Process

  1. Identify the Task – be clear on what the actual task is that you are asking someone to complete.  In doing this put a clear frame around it – what does it include and what does it exclude.  Providing a clear description and understanding of this is critical.
  2. Nominate the Individual(s) – Identify the person(s) who will be involved in the completion of the task.  Be clear as to why you want them to do it (is it for personal development reasons, part of what they need to be able to do to gain promotion etcetera?), and make sure they understand this.

    Delegation Process
    The 5-Step Delegation Process
  3. Define the Responsibility – when discussing it with the nominee(s) ask them to summarize what they have understood that you want them to do – this will quickly highlight any discrepancies or misunderstandings before they can become problematic.  Check that they are prepared for this responsibility and are committed to completing it within the scope and timeframes that you have determined.  You also need them to be clear on your expectations as regards their completing this task and the associated results and outcomes.
  4. Completion – do you want them to complete the task in full, or only in part, before they report back to you on progress made.  If it is an area in which they have little experience, or you have a low level of trust in their ability to do so, then get them to complete the first part before reporting back to you.  This gives you a checkpoint to ascertain how they are progressing, what further guidance is necessary, and if they can be left to their own devices to complete the task.
  5. Review – establish regular times for reviewing their progress.  If you are uncertain of their capabilities then you may have multiple review points during the work on the task, or you may ask them to report back once it has been completed if you have high confidence in them.  Reviews should be short and you must ensure that the responsibility for the work stays with the nominee(s), otherwise you will find the work delegated back to you!

By breaking the delegation process into these 5 simple steps it makes it easier for you to delegate, for those delegated to understand what they need to do and what is expected of them, and for the work to be done in a controlled manner which allows people to grow and develop without being micro-managed.  Use this with your people and see how much time and effort you free up for yourself, and how your people work more effectively.

We look further at delegation in the following article, How To Manage Those Delegated To.

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Do You REALLY have a Leadership Team?

The differences and the impacts of leadership by a team and by committees.

Teams or Committees?

Many CEOs and senior leaders in companies with which I have worked with often believe, in all sincerity, that they have a leadership team or executive team which works together to help focus and drives the business.

This, in my experience, is rarely the case. More often than it is not a leadership or executive team, but a committee.  This is true for all levels of the business but becomes increasingly more frequent the further you go up the hierarchy.

It is important to understand whether you have a leadership team or a leadership committee?  The impact of each is considerable and quite different.  Many problems that you may be experiencing with your leadership team have, at their root, the fact that the leadership team is actually a leadership committee.

Let me explain by looking at teams and committees in turn:

Teams

For the purpose of this article, I define a team as a group of individuals who are working together, towards a common goal or goals, in which they will either succeed or fail to do so together.  There is a strong common purpose, common understanding and real alignment to which all members of the team are committed.

A team that is well-aligned and works well together only does so because there is a high level of trust.  As such the team sets its own goals, and all the members share resources, information, and insights. There is open and frank communication between the members, with members, prepared to challenge each other in order to resolve issues and achieve the desired outcomes. Honesty and candor underpin the team allowing alternatives to be discussed and decisions are taken only after healthy and robust debate.

Committees

Here a group of people come together because of their title or role or function (and in a role as a representative of a given area or function) and agree to work together as long as it is individually beneficial, but at any time they can withhold information, resources, or not comply; also they can be rewarded differentially i.e. I win, you lose.  The individuals participate rather than promising an outcome or a result.

There is a lack of trust and there is no common purpose or any alignment, or it is very weak if there is any.  The focus of the committee tends not to be on achieving the outcomes, but on tasks and following process. Political battles and turf wars break out as committee members jockey for position.  They can withhold resources and information from others in doing so, and people will work or collaborate with others only so far as doing so helps their individual interests.  In a committee, people can win at the expense of the others. This means decisions are made on a sub-optimal basis and, although they can advance one area’s interests, may do so even though it causes damage to the business itself.

Which Do You Have – Teams or Committees?

So how do you know which you have?  Chance is that you probably already have a pretty good idea, but sometimes the group may be in a “gray area”.  In these instances, I suggest you apply the five criteria:

Andrew Cooke’s Five Golden Keys for Evaluating Groups

Look at the questions in the following areas.  If the answers tend to favor the group over the individual you have a team, if it is the individual over the group then you have a committee.

  1. Individual and Group Intention – how would you describe the individual intentions for each group member and the group overall?  Are they prepared to put the interest of others ahead of their own in advancing the group’s interests?  Are the group’s interests shared or do they vary from each individual?
  2. Effectiveness – is the group and the members focused on doing the right things?  Are there a clearly shared and understood set of priorities and outcomes? Is the group delivering progress towards the defined outcomes, or is progress being achieved in a multiple and conflicting directions against outcomes which may or may not be those which were defined initially? Are members participating or working to deliver outcomes.
  3. Communication –what kind of discussions and debate is there between group members?  Do they focus on the issue at hand or the personalities involved?  How well do they share with others what they are doing and why?  Do they have a shared and common understanding which they can consistently and clearly articulate?
  4. Relationships  – are they cooperative and collaborative, or is it a case of acting in the individual’s self-interest?  Is the nature of the relationship long-term, strategic and aligned; or are the relationships short-term and transactional in their focus?
  5. Power – is power perceived by the group and its members to be vested in the group itself, and thus all members are subordinate to the group; or is it perceived to be vested in certain individuals for who the group’s interests are subordinate to theirs?

Do you have a leadership team or a leadership committee?  Think carefully before you answer.  If your team is exhibiting signs of dysfunction then it is likely that you have a group that is a committee or has strong leanings to some of the characteristics of a committee than a team.

Consider one of the dysfunctional teams you either have been on or are a part of now.  Is your team a committee in disguise as a team?  If so, can you apply this distinction to diagnose the problem and get your team on track?

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Click here to find out more about Andrew Cooke and Growth & Profit Solutions.