Business incubator The Icehouse presents a six-part series offering advice for growing companies. In part three Leith Oliver explains how to make your firm leaner and meaner
While you worry about fitting into your Speedos or bikini for the beach, think about tuning up your business to face the challenges and opportunities of 2010. Here are three tips for getting into shape:
RUN A HEALTH CHECK
A simple balanced scorecard can be set up that checks on only the key drivers of business performance.
Financial measures might include a track on gross margin percentage (the engine of profit), the current ratio (a quick test on cash flow), and the return on equity (a check on the risk and return of your investment).
Marketing scores could test how well you are in tune with your market. For example, how well you have systemised your relationship management with customers?
Operational measures could report on activity cycle times, productivity rates (what you pay for versus what you get), or the level of non-value-adding activities in your business processes that are costing you money.
Intangible assets are often the factors that separate the highly successful businesses from the also-rans. How well are you capturing and keeping the knowledge of your business and your industry? How much investment goes into research and development, and the creation of intellectual property?
LOSE WEIGHT
Accelerate the metabolism of your business. You can drop weight off the balance sheet by moving assets more rapidly through the business.
Asset turns measure the money tied up in assets relative to the annual sales they generate. Keep the asset turns high by eliminating under-utilised or unproductive assets.
The old adage goes that "debtors are delightful" because they represent future cash - but that works only if they pay. Collect the money.
Money in the bank moves first to stock, through to sales, debtors and finally back to the bank. The cash cycle is made up of days in stock, plus days in debtors, less days of credit from suppliers. Obviously the fewer days in the cycle, the lighter the balance sheet and the faster you can make money.
INNOVATE
Research indicates the biggest innovation payback comes from working at the edges. By the edges I mean the financial structure of the business model and the efficiency of the value chain that sits inside it on one edge, and the systems and methods of delivering products or services to customers on the other.
For the business model think of how to redesign the business in a way that reduces assets, broadens your marketing reach, lifts the gross margin and shortens the cash cycle. In the value chain try these innovation ideas: Leverage time with technology, connect everything with everything using the internet, intranets and extranets, value the transaction links more than production activities, and manage all business in real time.
At the delivery edge, look for innovation opportunities in the channel relationships with your market. Search for gatekeepers, networks and bandwidth that can make your reach to the market more effective.
Make your offer interactive and online. Create, then consistently honour a "brand promise" that is meaningful to your market. Make an emotional connection with your customers by shaping "perception" and delivering an "experience".
When you've done all that, relax at the beach - you've earned a rest.
Leith Oliver is the executive in residence for growth programmes for The Icehouse and a lecturer at the University of Auckland. The Icehouse is a business growth centre focused on making a difference for New Zealand. Visit www.theicehouse.co.nz
