Change can make or break a business. 528 Advisory’s Clive Hyman explains why it’s important to understand the costs versus the benefits of any change you decide to push forward in your business.
Very often the driver behind change is reducing costs. These are frequently attacked and managed – sometimes overly aggressively – without adequate attention given to growing revenue. So how do you manage change while boosting profitability? Here are my nine top tops:
1. Success measurement of Key Performance Indicators (KPIs)
Rather than making your main KPI cost reduction, make it revenue and profit increase. All change projects should focus on growing revenues and profits, and setting fair and reasonable KPIs which are in the best interests of the company as a whole, not of just the management or a certain internal team, or someone’s bonus structure.
2. Alignment of remuneration and incentives
Change is reinforced by ensuring the remuneration and incentives attached to the proposed change support the new actions required. It must be coherent with the new vision for the business and by doing this it ensures management, employees and shareholders are all pulling in the same direction.
Too often people leave the shareholders out of the discussion – especially when it comes to director remuneration. Frequently these decisions are made by non-executives who wish to please (or at least not upset) the directors. Care and attention is needed to make sure everyone is pulling in the same direction.
3. Joined up thinking
Too often the resources allocated to implement the cost cutting are then subjected to cost cutting themselves! For example, hiring contractors on day-rates rather than interim executives, with no one to co-ordinate their input or manage them on a daily basis.
Any, and every, project needs to be planned and managed to its conclusion – don’t abscond part way through. Think about the bigger picture and the wider impact of subsequent changes, rather than making new decisions that impact negatively on existing projects. It sounds obvious but in many instances it seems the right hand doesn’t know what the left is doing.
4. Bringing in help
Bring in help where needed. In my experience, companies repeatedly focus on costs of the project rather than the benefits. It is important to step back and work out what value you can garner from a project – it’s not just about getting it done a cheaply as possible. Cheap can sometimes end up being very expensive.
Look at the overall project and the benefits it will bring, and the best and most effective way to achieve this, factoring in issues like your own time, missing deadlines, having to re-do work, etc. In other words, ensure you fully and accurately scope the project. Once all the possibilities are considered you can make an informed choice on the cost vs. the benefit of bringing in help.
5. Protecting value
Value can be destroyed by people not looking at the impact a change will have on customers. Walking the floor and visiting locations and talking to people is the simplest way to work out how to protect the value embedded in your business. Any change should be organised around a clear company vision and strategy – and that always include considering the customer’s needs.
A lack of attention to this detail and taking only the big picture view can lead to executives being out of touch with their own customer-base. Many global businesses have lost their edge, and their profitability as a result of this sort of thinking. Yet the management team continue to reward themselves for under performance. This must change.
6. Wood for the trees
Owners, chairs and CEOs sometimes get stuck on working in the business and not on the business. They lose their perspective. Allow the management and their teams to do their jobs, so you can do yours and put your focus where it is needed.
Book in regular strategy away days. These can pay handsome dividends if staff are engaged and communication is clear and delivered with empathy. Managers sometime focus too much on the cost of these days, rather than thinking about the benefit of everyone understanding the business and being able to answer routine questions and work towards a common goal.
No one wants to deal with a company where the employees are so demoralised that they simple transfer the call as they don’t know how to answer and get stressed because they haven’t been given the information to deal with basic queries.
7. Towards the common good
Everyone within the business should be working towards what is best for the company – not for any one individual or group of individuals. For example, set bonuses where 80% relates to overall company performance.
Too often bonus and remuneration are narrowly focussed on the particular silo a person operates in. This tends to lead to competition rather than cooperation, and selfish decision making rather than considering the common good of all stakeholders – staff and customers.
8. Innovation
Most large businesses struggle to innovate – shareholders and directors won’t tolerate short-term profits being hit by the investment required to get a new idea moving. Unless the company is working for the common good, is clear on its vision, is engaging all the stakeholders and has a clear understanding of the costs vs. the benefits of any new project, it is likely the required changes and the initial costs will stop innovation in its tracks.
9. Be nice and have fun
Work should be fun. Too many people are being abused in today’s workplace – low wages, long hours and poor leadership resulting in disillusioned employees. Imagine if all your staff were empowered and happy at work. Would they go the extra mile? Undoubtedly.
These nine tips will make a difference to your profitability as your business steers its way through a major change. We worked with one CEO throughout the process of selling his business, supporting the management team as they navigated the massive changes this sale brought. By helping the managers focus on keeping the business performing and achieving growth, the company added $150m to the sale price.
