Have you evolved your management systems as you increased your revenue?
We recently introduced the concept of growth management systems; a trend we see is for these systems to be overlooked as businesses focus on growing revenue. For many companies this trend comes back and haunts them; the systems that work for a £10m business will not work as well for a £50m or £100m business.
So, what should we be considering?
Generally, ‘instinctive’ business planning is top-down; it is based on what the owner, partners or managers want to achieve. No consideration is given to asking ‘what is the maximum we can achieve with our business right now?’
“Just add 10%”
You will have seen the classic example of setting revenue or profit figures by taking last year’s information and adding 10%. This can sometimes mean placing too high an expectation on an already super-efficient team. More often, however, it’s setting a target that is far too low because you have a lot of spare capacity or too high because you did not consider current capacity blockers.
How much money could your business produce right now?
It is a serious question, and yet when I ask it most businesses aren’t sure of the answer.
You probably know how much revenue or income you produced last month. You probably have a figure in mind for how much you want to produce at some point, defined or not, in the future. But if you’re like most businesses, you’ve never done the exercise to determine your current capacity to earn.
That’s important, because not knowing your capacity means you can’t be sure how efficient – or not – your business is at any time. It also means not being clear on how you are going to move from where you are today to that goal you have in the future. Typically, when we first mention this topic, people immediately think about staffing levels but that is only part of the story. It can be anything that limits the growth of the company.
To illustrate the point, what if your business was manufacturing 10,000 widgets but had the ability to produce 15,000 widgets?
You would feel comfortable in your manufacturing capacity. However, what if you only had the ability to ship 11,000 widgets without drastically overhauling your fleet of trucks or even worse the industry only had the capacity to absorb your current production levels? Therefore, you have to consider the complete picture to come up with answers.
One last tip on this topic; businesses can only realistically run at 80% of their overall capacity for an extended period of time. You can go at 100% in short bursts, but it can’t be sustained. Why? Well that’s a story for another day.
The management team of your business should be its greatest asset: an important part of its infrastructure.
So how capable are you and your team to grow your business?
While some aspects of business – like turnover or number of employees – are easy to measure, it can be difficult to score management skills. Even if you could, how would you use that score to prioritise the development of skills and create strategic priorities for your team?
In measuring the capability of a team or an individual we consider 2 dimensions:
Width – this is the range of skills you have, for example marketing, sales, decision making, managing staff and so on… and
Depth – of skills, or how capable you are at that particular skill. For example, if you are a golfer, are you a good all-rounder, or an ace putter or a phenomenal driver? A good all-rounder is said to have “width”; a specialist in one particular skill is said to have “depth”.
Your businesses capability is a combination of the two.
“Capability” is the term that we use to describe the quality and skills of the management team of a business. Note: this doesn’t mean the specific technical skills which are particular to your business, but rather the general skills required to run a business successfully.
Then we score your “capability” either as individual skills, department skills or across the whole business.
Concept You understand the basic principles.
Strategy You have a documented plan of how you address this area in your business
Implementation You have a documented strategy and have started using what you have learned in your business.
Next Phase This means having the planning and mentoring capability in this area to ensure it does not simply sit within one or two individuals
Leverage When the framework is seamlessly incorporated in the processes and strategy of your business and your life.
Each Skill – for example, ‘Managing Staff’ – is marked at each layer with either a tick or a cross depending on whether you have that specific skill at that specific level.
You can complete this exercise as an individual or in regard to your business. At the end of the analysis exercise, you will have placed a tick or cross in the relevant boxes and have your score which should be reviewed on an ongoing basis for such things as training needed or maybe as a benchmark for promotion.
Try this exercise out in an area that is underperforming, and it will become really clear why that area is in fact underperforming.
Functionality (Strategic Resources)
SME’s operate in very competitive environments and being able to respond to market changes – whether taking advantage of new opportunities or fighting off increased competition – is vital in achieving profitable growth or perhaps even surviving.
Are you creating key person risk?
How often do you find yourself spending your time handling day-to-day tasks and fire-fighting the myriad issues that constantly arise in an SME organisation?
There just never seems to be any time to work on the stuff that will really grow the business (like building culture, or commercial strategies, like refocusing the positioning or looking at new product or packaging opportunities) or to plan and communicate where the business is going (vision).
It is a classic situation. More often than not, in a company that has grown from the top down, owners structure their businesses without a real plan in mind. As the business expands, they simply hire staff. And the people they usually hire are for the department that screams the loudest. Businesses don’t grow in an orderly, methodical way. Growth turns up in lumpy chunks and the key to your success is how you manage those chunks. If you’re serious about growing your business beyond what you can personally and directly manage – or you want a less stressful life – resourcing your business should be a strategic function and not one that is dictated from the bottom up.
The starting point is to identify the best functional structure for your business, one that will enable you to step back from a fully operational role, maximise the talents of your employees, and operate at maximum profitability.
This means assessing which job functions and activities are really needed and then allocating roles to the people who are most appropriately skilled or experienced for that job. And you may well find that the most appropriate person is located in another part of the business.
A functional internal structure ensures the right people are doing the right jobs at the right times.
To us a business is split into 3 areas, which we split by colours, for ease of use and why we call this model Red, Blue, Black (RBB) and can be demonstrated by the diagram below.
Capacity, Capability and Functionality are three key components for having a productive business and often overlooked in good times.
We are not suggesting there is a post brexit downturn around the corner but if there was – are you prepared.