Author Archives: ron eagle

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Why healthy businesses are better

Can you recognise which businesses are better than their competitors? The ones that are most profitable? Perhaps those that are growing fastest? Or generating the highest returns to shareholders? What about the ones with the most satisfied customers? Or employees? As soon as you start to think about it, there are many ways of measuring businesses.

Of course recent performance, whether measured by profitability, return on capital or shareholder value, is important as it keeps stakeholders satisfied and generates the resources to invest for the future. But most performance measures tend to be backward-looking and say little about future potential. We therefore believe that the best measure of a business is its overall health.

Research by McKinsey suggests that at least 50% of long-term business success is driven by organisational health. Good business health propels sustainable good business performance. In addition to outstanding performance, two key features characterise healthy businesses: top quality capabilities and a first-class ability to manage change.

Business capabilities, namely resources, organisational skills and management practices, effectively determine the potential level of performance that can be achieved in the immediate future. The level of performance a business actually achieves is a measure of how well it uses those resources and capabilities within the constraints of its competitive environment. Improving capabilities should lead to better future performance. That is why our business health checks cover topics such as skills, competences, logistics and infrastructure.

Agility, Adaptability + Flexibility – our label for the ability to manage change – determine how well a business can shape and react to its competitive environment. This environment is always dynamic and often turbulent. All businesses need to react to changing customer needs, competitors’ behaviour and new entrants. And even the smallest businesses can influence other players in their market through innovation. The ability to proactively and reactively manage change is critical to successful performance over the medium- and longer-term. Our business health checks cover all the important components of the ability to manage change, such as business strategy, organisation design, governance and innovation.

A neat way of thinking about these three elements of business health is that recent performance relates to the past, business capabilities to the present, and agility, adaptability + flexibility to the future. Healthy businesses typically have a superior track record of recent performance, have the capabilities to continue operating at this high level, and have the agility, adaptability + flexibility to continue excelling over the longer-term. The most successful businesses will demonstrate excellent all-round business health.

However, only a few businesses excel in all areas – most have room for improvement. A business health check is a great way to find out how healthy your business is and where it can improve.

Our unique framework delivers an all-round evaluation of your business health presented as a balanced scorecard that highlights areas for improvement. We back this up with a set of practical and actionable recommendations for improving your business health. You can start your business health check now by clicking here.

The best businesses demonstrate superior all-round business health. Part of being healthy is an awareness of their own strengths and weaknesses, along with a determination to minimise any deficiencies. And because they understand the importance of business health, healthy businesses are able to sustain great performance over the long-term.

 

 


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Company Pulse Brexit blog

How can your business plan during the Brexit process?

We have heard a great deal about the Brexit process since the referendum, but most businesses are still unclear about how it will affect them and how they should (or indeed whether they can) plan for the future.

We now know what the government’s objectives are (a “clean Brexit”), what the position of the EU27 is (no “cherry picking”) and what the process and broad timetable should be.

But there are three main areas of uncertainty: which of its objectives the government can achieve and what trade-offs each side will make during the negotiations; how the negotiations will be affected by political events, including UK and EU parliamentary votes and upcoming elections in France and Germany; and, when we get to the end of the negotiations, what happens next in terms of implementation and any transitional period.

The economic background is a little clearer than when we posted our last blog on this subject. Sterling has fallen by around 15% from pre-referendum levels on a trade-weighted basis. The fall in the exchange rate is driving up inflation, which can be expected to rise above the official 2% target. The labour market remains tight and skills shortages abound, so we expect greater pressures for wage increases in response to rising prices. Overall UK economic activity has held up well during 2016, mainly due to consumer spending, but the rise in inflation and elevated levels of consumer-credit means that consumption is unlikely to sustain the economy so strongly over the next year or two.

And then there is a new major external factor – the Trump presidency and its unpredictable impact on international relations, global trade and the global economy.

So what can you do plan for the period of change Brexit will inevitably bring when there are so many uncertainties?

Probably the best tool in these circumstances is scenario planning. Scenario planning can be a detailed, rigorous, laborious and lengthy process. But, in the case of Brexit, we think a less formalised approach will quickly give you the insights you need to prepare your business.

We recommend that you start by identifying possible outcomes for uncertainties (in the case of Brexit, one uncertainty is whether or not the UK remains a member of the customs union) and group these together to form a coherent scenario. Each scenario must be internally consistent – a plausible future reality. Next you reduce the number of scenarios to a manageable number of alternatives for analysis, perhaps 2 or 3, which, to be useful, should be markedly different. Then you need to work out in reasonable detail what each of these scenarios would mean for your business, including how your business could respond, what resources you would need, and how other market players (suppliers, customers and competitors) might react.

Having analysed and war-gamed the shortlisted scenarios, you should be able to identify a set of weaknesses, risks, threats and opportunities some of which may previously have been hidden. These can be classified by impact (from existential down to minor) and whether they arise in all scenarios or are scenario-specific. These insights should give you a clear set of priorities for de-risking and improving the ability of your business to deal with Brexit.

We can help you work through this scenario planning process and we recommend you start by taking one of our business health checks. A business health check will help you understand how your business is currently doing, what your main strengths, weaknesses, opportunities and threats are, and how prepared you are to face the impending challenges.

We’ve also set out some key Brexit-related questions to help start your planning. These should give you a better understanding of any immediate problems requiring attention.

We think that the best ways to face the challenges of Brexit are to map out and plan for all likely scenarios, keep your options open, and to maximise the agility, flexibility and adaptability of your business.

Click here to start a Company Pulse business health check.


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Company Pulse Brexit blog

How should your business plan for Brexit?

Four weeks on from the EU referendum vote and the details of how Brexit will proceed are still unclear. Whilst the new government has said that “Brexit means Brexit” and given some indications that it won’t be hurried, solid information to help businesses plan for the future has not yet emerged.

We are unlikely to learn anything concrete from the government until the autumn, and perhaps even until the end of the year. Official data relating to the post-referendum period will not be published for a few months. Market reaction and surveys of business sentiment may give some guidance – a downturn in the short-term is the current consensus – but these based on hunches, not data.

So what can you do to prepare your business for the inevitable changes Brexit will bring when useful information is scarce?

The first point to recognise is that the Brexit process is likely to take two or three years and its full implications will not become apparent for some years after that. So this is a case for long-term planning.

Second, this lengthy timescale is not an excuse for doing nothing. Waiting would mean missing opportunities and playing catch-up later. Nor should you necessarily defer investment decisions. What is needed is a realistic assessment of potential outcomes and how your business could react to Brexit. You should use the current period of uncertainty to take stock of your business, develop ideas and work up game-plans for a range of scenarios.

A third concern is not to jump to conclusions without hard evidence. Over-reacting to limited data is also dangerous, particularly if that cuts off other possibilities. If you do need to make any big decisions in the near future, be rigorous in your analysis and critical of all assumptions.

We’ve already set out some questions to help you plan in an earlier post. These will build a better understanding of your business strengths, weaknesses, opportunities and threats.

The next step is to consider how the business environment will develop. All aspects of the economy will probably be affected by Brexit, so many established assumptions around your business may need to change. External factors to review include macro-economic (consumer demand, price inflation, labour mobility, wage rates, terms of trade, interest rates, credit availability and the relative value of Sterling); governmental (regulation, public investment and taxes); and market-specific (competition, new entrants, substitutes, productivity and the supply chain).

Taking one of our business health checks will help understand how your business is currently doing and how prepared it is for the challenges posed by Brexit. Our Gold business health check specifically includes the scenario planning that is most beneficial when faced with great uncertainty.

We think that the best ways to face those challenges are to plan ahead, keep options open, and to maximise the agility, flexibility and adaptability of your business.

Click here to start a Company Pulse Business Health Check.


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Company Pulse Brexit blog

What does Brexit mean for business and for small businesses in particular?

The result of the EU referendum vote has taken many by surprise and the financial markets, at the time of writing, have been marked down sharply. Those who are running small businesses might find the prospects confusing and worrying, with little hard information available to help plan for a post-Brexit future.

We have to assume that Brexit will proceed but, at present, it is far too early to know what the full implications are for business as the political process hasn’t begun and negotiating positions are unknown. We don’t know which of the free-trading or anti-immigration aspects of the Leave campaign will predominate. If it is the former, and the ‘Norwegian model’ is adopted, many things will remain the same and business to could expect to recover to something like pre-referendum norms. However, that doesn’t reflect what many voted for and we may end up with higher trade barriers and consequently greater challenges and uncertainties for business.

While most people in business dislike uncertainty, there are some things that businesses can at least think about to prepare themselves for the inevitable changes to come. We have addressed these in the form of questions you could ask yourself under our 5 Pulse topics

People + Processes

  • If we employee EU nationals, what do we need to do to ensure we retain them? (at least until the legal position becomes clearer)
  • If the current skills shortage is unlikely to improve, and may well get worse, what can we do better to attract new employees?
  • Wage rates may come under pressure: the pound’s fall will raise the cost of imports, feeding into inflation – what can we do to ensure we remain attractive as an employer?

Utilisations + Outcomes

  • Productivity is likely to be a key ingredient to future success, especially if wages rise – what can we do to improve productivity?
  • Sales to overseas markets: can we take advantage of a lower pound and enter new overseas markets? And are there good alternatives to existing EU markets if our trading relations with the EU deteriorate?
  • If market conditions are depressed in the short term, what are the implications of a lower growth trajectory (e.g. on staff incentives, investor relations and banking covenants)?

Logistics + Infrastructure

  • Is our supply chain at greater risk of disruption (especially if we currently rely on EU suppliers) and what can be done to mitigate those risks?
  • Do our business continuity plans adequately reflect increased business risks post-Brexit and during the transitional period?
  • Do we need additional intellectual property protection to cover EU countries post-Brexit?

Strategy + Finance

  • Do we need to update our business strategy for Brexit, and have we considered the implications of any short-term recession?
  • When trading conditions are tough, cashflow management can make the difference between failure and survival – what can we do to improve working capital and cashflow?
  • UK banks are likely to be under greater pressure in the short and medium term – what alternative sources of finance are available to the business?

Ethos + Relationships

  • If we currently serve EU customers, what can we do to reassure them and retain their custom?
  • We should bear in mind that many of our employees will be confused and anxious about their prospects – what do we need to do to reassure them and how could our employee communications be improved?
  • In due course regulations will change (but probably not very quickly) – are we fully compliant today and how do we ensure we keep abreast of regulatory changes?

Taking one of our business health checks will help understand how your business is doing in each of these areas, and help you plan for an uncertain future.

The businesses that are most likely to rise successfully to these challenges are those that are well-prepared, by thinking through the implications and developing appropriate responses to each scenario, and are agile, adaptable and flexible to implement change quickly and effectively. So let us help you be one of those successes.

Click Here to Start a Company Pulse Business Health Check


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