Your key implementation plan framework to get you started
Dr Greg Fisher is a professor in the Management and Entrepreneurship Department at the Kelley School of Business at Indiana University and a visiting lecturer at the Gordon Institute of Business Science (GIBS) in South Africa.
Over the past three years, GDP growth in South Africa has been small. Economists expect 2018 to see GDP growth at 1% or less. And yet the growth strategies of businesses are aiming much, much higher. How do you target 15% to 20% growth under such tight economic conditions?
According to Dr Greg Fisher, a professor in the Management and Entrepreneurship Department at the Kelley School of Business at Indiana University and a visiting lecturer at the Gordon Institute of Business Science (GIBS) in South Africa, you can’t just ride the momentum of the economy. You need to do something more to fill that gap. And therein lies the challenge, because there’s no silver bullet that can drive double digit growth.
“Ultimately, you need to be able to critically think through and formulate multiple ways to fill that gap,” explained Greg during his keynote strategy workshop at the 2017 ThinkSales Sales Leadership Convention. “Success in anything — sports, raising children, learning and business — is driven by fundamental principles that need to be applied with balance and moderation.
“A conceptual understanding of what to do isn’t enough. You need to take action — your ability to drive double digit growth lies in developing a strategy based on five key principles, and then executing it.”
Here are the five key principles you must unpack in order to formulate and execute a growth-driven strategy.
1. You need a good plan
Every successful business shift begins with a good theory. It doesn’t need to be sexy. It does need to be insightful, and give you a map of what to do next, what not to do next, and what value needs to be created through which channels going forward.
Leverage foresight, insight and hindsight to formulate a mental model and hypothesise (or develop a theory) that relates to your market.
Take Steve Jobs as an example. He hypothesised that people would pay a premium price for ease of use and an elegant design in computing. This would form the foundation that other digital products could be added to.
2. Strategy is about making choices and trade-offs
Strategists are constantly faced with choices and trade-offs that need to be made if you’re going to stick to the plan. Remember, true value is created when you make a choice, and don’t try to dabble in multiple things at once. You need a clear and manageable goal. Choices require decisions, often relating to where you will be channelling your resources. A trade-off is not doing something. What will you do and not do? This must align with what you’ve already theorised. It doesn’t serve you or the business to follow too many paths and options.
Which markets will you pursue vigorously and which will you leave alone? Which customers will you target, and which won’t you? Which products will you produce to enact your theory? Which activities will you engage in inside your organisation, what will you outsource and what won’t you do at all? Who will you hire? Who won’t you hire? And which assets will you choose to own?
Everything is a choice and a trade-off. Take Ikea, a retail brand that’s enjoyed 70 years of successful growth. Why? Because of fundamental and particular choices relating to product designs and style. Ikea isn’t everything to everyone — it has a very specific value proposition and delivers on it relentlessly.
This is fundamental. Even if you’re the low-cost provider in your space, you still need to be doing something different to drive those costs down; you still need to be differentiating yourself and the way you operate. The world is more competitive than it’s ever been, and buyers have more access to information and options than they’ve ever had. To be competitive, you need to really interrogate your differentiators.
The strategy conversation tends to happen early, the profit conversation happens late. You need to bring them together. When you’re having a strategy conversation, you need to understand how it will drive bottom line growth. The role of strategy is to bridge what customers are willing to pay for a product or service, and what it will cost you to deliver it. The strategies you adopt are determined by theories, choices, differentiation and costs.
The formula is the following:
Profit = the number of products you sell x price of product — expenses.
How does your strategy impact this equation? Which lever will your strategy pull? You ultimately want to drive profit, and to achieve that, your strategy must point to one or more of these three elements.
In other words, either you need to sell more products, or you need to increase the price you can charge, or you need to decrease the expenses you will incur to get that product to market (or a combination of all three).
The key question is therefore: What can you influence to drive the outcome you want? What strategy will drive profit?
The variants on the profit equation that you need to consider include:
- Industry average competitors
- Uniquely differentiated competitors
- Low-cost competitors
- Competitors with a digital advantage.
On the other side:
- Customer willingness to pay
- The cost to produce and deliver your goods.
Profit lies in the middle. Focusing on two or even all three of the levers is challenging, but it will result in the greatest results if executed properly.
But remember: The management of the profit equation is ongoing. You need to manipulate it in action and create a strategy that can be adjusted when and where necessary, always tying it back to the bottom line.
Ideally, you want to spend less while delivering more, resulting in higher profits. Before you can do that though, you must identify your profit levers. Finally, does your profit equation tie back to your points of differentiation, trade-offs and choices and ultimately business theory?
5. Activity integration
Your fifth, final and most important point is activity integration. You need to make your strategy happen. The previous four steps are meaningless unless you can do something with them.
Activity implementation is the result of the business performing a certain set of discreet activities. These include the sales force, managing customers and managing returns. This is your core and critical to business. Think of each business unit as a part to a mechanical watch.
The challenge becomes: How do they all work together in the service of the four points above? Your goal is to ultimately create something that is beautiful and precise. Independently, these departments are meaningless. Success lies in multiple activities, all working together to drive your strategy.
Start by driving your strategy and ensuring integration
To get started, consider which activities are necessary to drive your strategy and ensure integration. How these activities work together reinforces everything you’re doing. Activities amplify each other, until 1 + 1 = 3.
The problem is that multiple activities working together is difficult to replicate. There is no single activity (or silver bullet) that will drive success. You need to optimise all of your activities — you need ten primary activities, and you need to do them all very well. That’s activity integration.
The problem is that it’s not easy, which is why so many organisations fail at this stage.
If you can get this right though, the results will speak for themselves. 1x1x1… to 10 = 100%. 0.9×0.9×0.9… to 10 = 35%. That’s the power of activity integration. It also means that doing each activity at 90% will bring the entire organisation down to 35%.
Walt Disney conceptualised the entire Disney business according to activity integration. Each element worked into the next, starting with movies at the centre. Get that right, and all the other activities — Disneyland, merchandising and so on — work. Negate the movie piece and the rest disintegrates.
Bringing it all together
- What’s your theory?
- Do you have a clear, consistent and concise theory on how to succeed?
- How does that theory translate into your choices and trade-offs?
- What definitive things are you choosing to do and not to do?
- How do these choices drive differentiation? You need a core differentiation that customers can appreciate, value and buy into.
- How does your differentiation ultimately drive profits? Can you articulate it, and what levers are you pulling?
- What activities do you need to implement your strategy, and how do they ultimately integrate with each other?
Your Business workplan
Your key business plan to discover and implement the five core elements of a business strategy
Briefly describe the THEORY underpinning your organisation’s strategy.
A theory is a mental model about how your organisation does (or could) create value. It reveals hypotheses about how an organisation can create significant value. It usually entails:
- Foresight about the evolution of the industry in which you operate
- Insight into how your organisation can create value in the industry as it evolves
- Hindsight about how you might build past competencies, relationships and assets.
We theorise that
Key questions about yourself
- What are the assumptions embedded in your theory? Are they valid? Could they be tested?
- Would the other leaders in your organisation describe a similar theory underpinning your strategy? Do you have a consistent view of opportunities and mechanisms for value creation across the organisation’s leaders?
2. Choices & trade-offs
Identify the CHOICES & TRADE-OFFS that you have made, and need to make, to act on your theory.
A choice is a clear decision to do something specific and meaningful. A trade-off is a clear choice not to do something that is somewhat tempting or attractive to pursue.
- We have chosen to Identify 3 to 5 important strategic choices you have made
- We still need to make choices with respect to Identify 3 to 5 important strategic choices you still need to make
- We have chosen NOT to Identify 3 to 5 important trade-offs that you have made
- We still need to decide NOT to Identify 3 to 5 important trade-offs that you still need to make.
Key questions to ask yourself
- Do your choices and trade-offs clearly reflect your theory?
- What’s preventing you from making the choices and trade-offs that you still need to make? What would it take to definitively make these choices?
Identify the points of DIFFERENTIATION that are embedded in what you do (i.e. in your theory, choices and trade-offs).
Differentiation is something that clearly distinguishes an organisation from others in the industry. It is something that other organisations targeting the same customers are not doing and which those customers ultimately find valuable.
- We are different (or strive to be different) with respect to
Key questions to ask yourself
- Do your customers see and experience these points of differentiation? Would they agree you are different in this regard?
- Would the employees in your organisation describe similar elements of differentiation? Do you have a consistent view of your organisation’s differentiators across the organisation?
- How easy is it for your competitors to emulate your points of differentiation? Could they easily copy your points of differentiation? If not, why not?
Identify how your points of differentiation drive PROFITS.
- A useful way to examine the connection between strategy and profits is to examine a simple version of the profit equation as follows: Profit = (Number of products sold x Price of products) – Expenses. Identify how the organisation’s differentiation elements drive profits as follows:
- Identify those elements of the profit equation that apply for your strategy and complete the statement where applicable
- We are able to sell more products than rivals (YES/NO) because
- We are able to charge higher prices for our products than rivals (YES/NO) because
- We are able to reduce our expenses relative to rivals (YES/NO)because
Check those that are appropriate and complete the statement
- We sell more products because
- We charge higher prices for products because
- We reduce expenses because
Key questions to ask yourself
- What more could you be doing to increase volumes, charge higher prices and/or reduce expenses?
- Does your profit equation tie back to your theory, choices and trade-offs, and to your points of differentiation?
- Is the profit equation consistently understood across the organisation?
5. Activity integration
Identify the ACTIVITIES needed to deliver on your points of differentiation, and assess whether these activities are adequately INTEGRATED with one another (i.e. reinforce one another).
- STEP 1. Write up a brief description of each activity required to deliver on your organisation’s elements of differentiation.
An activity is something that a organisation does repeatedly in the process of developing, marketing and delivering products and services to clients.
- STEP 2. Draw links between the activities that currently reinforce each other.
Reinforcement between activities comes about when two activities support each other such that when they operate together, they are more effective than if they operated independently i.e. doing one activity well enhances the other activity.
Key questions to ask yourself
- Do we consistently view our organisation as an integrated system of activities that reinforce one another, or do we tend to deal with each activity independently?
- Are our activities arranged in a way that consistently and effectively delivers on our key points of differentiation? If not, how could they be rearranged to more effectively deliver on key points of differentiation?
Sasfin Is Gearing Your Company For Growth
How trade and debtor finance solutions can enable business growth beyond self-imposed ceilings created by cash flow restraints.
When an entrepreneur running a manufacturing business approached Sasfin for Trade and Debtor Finance, he had four things going for him: Experience, reliable customers, orders and a relationship with Sasfin. When other banks let him know via email that his financing had not been approved, he approached Sasfin, knowing the organisation would take a deeper look at his company than a spreadsheet analysis.
“He approached us because we had a working relationship with the business and they were looking for a facility that would enable them to purchase the stock they needed to fulfil their orders,” says Linda Fröhlich, Head of Business Banking, Sasfin.
“They didn’t have any assets, but they did have those orders, which meant they could bring their debtors to us and we could advance cash against them, getting them started.”
Solutions to enable growth
Today, Sasfin offers a full suite of inter-connected products designed for entrepreneurs and SME owners, but the bank, which operates under the slogan, ‘Beyond a bank’, was built off a base that began with trade and debtor finance.
“Sasfin’s founder, Sydney Sassoon, went into trade finance in the 1960s because as a textile importer he recognised the need for trade finance amongst SMEs and importers,” says Linda. “It takes an entrepreneur to understand entrepreneurs. This business has never been about products — it’s about the best solutions to enable our clients to grow their businesses.”
When Sasfin first launched trade finance it was because of the challenges around importing goods: The time it took for the shipment of raw materials to arrive, manufacturing to take place, the finished article to be sold and then a further 60 days for payment was crippling for SMEs.
Not only were no facilities available that understood that time frame, but traditional overdrafts require security and are not designed for specific needs. Trade and debtor finance on the other hand work hand-in-hand and provide SMEs with the most valuable commodity: Cash.
Cash is King
“Through trade and debtor finance, we can finance the purchasing of your goods and I can give you terms that fit your cash flow cycle,” says Linda. “Now that’s meaningful for the business owner. Yes, we charge for the facility and the risk we carry, but if you have to make a payment upfront to an exporter, you can also negotiate discounts and off-set a portion of the discount you will receive from the supplier to our fees, which is win-win.
“More importantly though, the biggest challenge that SMEs face is cash flow. Cash flow is king, and that’s where trade and debtor finance comes in. If you borrow money that enables the growth of your business, the finance cost is part of the cost of your sales. The upside is that you have access to cash, enabling growth.”
Many SME owners are familiar with the challenges of growth: You work hard, build your client base, get traction in the market, and suddenly you’ve signed a large order or client whom you can’t service without assistance, because your own cash flow doesn’t cover the raw material costs of the order.
“This is true across all product-based industries,” says Linda. “Instead of slowly building cash reserves to grow the business organically, or waiting between 30 days and 60 days for clients to pay, we advance our clients up to 80% of the value of fulfilled invoices, enabling business owners to grow beyond a self-imposed ceiling created by cash flow restraints.”
Related: Think Beyond The Box
Over the years, Sasfin has watched its clients grow from strength to strength.
“One of our SMEs started out with a R5 million facility. Today they’re operating a R50 million facility and continue to grow. That’s the power of cash flow,” says Linda.
“There’s always a good time to gear-up the growth of your business, where it will enhance the growth and profitability of your company. If the time is right, a financing solution that suits your needs can make all the difference.”
The benefits of trade and debtor finance
- Converts sales with proof of delivery into cash for day-to-day expenses
- Extended terms of repayment, with up to 120 days for local purchases and 150 days for imported goods
- A fully disclosed factoring facility or a confidential invoice discounting facility
- Match sales to repayments, enabling cash flow management.
My Business Is Growing… What Now?
Unplanned growth can be disastrous for a business, particularly a start-up where most of the departments consist of one person – the founder – or where the business has been based in one city or town or focusses around one service or product for some time.
It is a known fact that most growth and change are uncomfortable – especially in business. However, when your business grows, you grow with it and so will the business revenue, employment numbers and contribution to the country’s economy. Planning for growth is not only a good way to stay motivated through tough times in business, it will equip you for when the moment of growth arrives– to take your business to the next level.
Make the mind shift
James Cash Penney, founder of JC Penney, said:
“No company can afford not to move forward. It may be at the top of the heap today, but at the bottom of the heap tomorrow, if it doesn’t.”
Business growth should be actively pursued and be a constant part of your business planning acumen. Frequently ask yourself and your staff members: Where do we want to go to next, and what will we do to get there?
Take time out to plan
Research and planning lead to informed decisions which will be critical for your business growth. Consult all stakeholders – external and internal – through meetings or Strat sessions. Whether you bill by the hour, or bake by the truckload, it is critical to remove yourself from operations at least twice a year to take figurative stock of your business growth. This process requires you to be quiet and give it the importance it demands.
Reasons for growth
Studies have shown that the top five reasons for growth include:
- To increase the business’ market position
- To increase profitability
- To improve the use of company resources, better economies of scale
- To increase frequency of use or number of users
- To remain in business.
Know your obstacles
Know what challenges you may face on your journey to growth and be ready for them. Listing the obstacles will bring reality home and help you prepare for how to tackle these obstacles. Think of creative ways to sidestep these barriers to growth by being flexible.
Continuously look for planned, achievable and sustainable growth opportunities. Calculate the risk, be mindful of the pitfalls, but do take up new growth opportunities in your business. See growth as the opportunity – that big break – you have been waiting for in your business, and it just could be that. Start slow or small but do continue to grow your business. In the words of Virgin’s Richard Branson: “There are people in this world who choose to see the glass half empty instead of half full… Personally, I see any glass half full as an opportunity to top it up, start a conversation and perhaps spark a great new idea.”
Growing Globally – Supporting SMEs On The International Stage
Successful internationalisation is often recognised as generating considerable business benefits, which can include increased efficiency, innovation and productivity, whilst also generating growth for the wider economy. However, recent reports have indicated that SMEs in South Africa are not growing and expanding as expected when compared to its international peers.
Internationalisation refers to the increasing participation of businesses in international markets. Commonly associated with exporting, internalisation is far broader than just this activity alone. Importing, supply chain participation, establishing business partnerships and foreign direct investment are all notable examples of relevant activities.
Evidence from ACCA SME members revealed some of the following insights:
- Just under half (45%) of SMEs said the main benefit of internationalisation was access to new customers in foreign markets. Increased profitability (35%), faster business growth (33%) and access to new business networks (30%) followed.
- Both SMEs and Small Sized Accounting Practises (SMPs) considered ease of doing business and high growth potential as the most important factors when choosing an export destination. Geography was seen as less important, which may be a result of new technologies reducing its significance as a perceived barrier.
- Both SMEs and SMPs recognised foreign regulations as the most significant barrier to internationalisation. For SMEs, the second most important was competition (27%) whilst for SMPs it was foreign customs duties.
- In terms of the future, SMEs’ international ambitions are focused on building the capacity of their business (45%), building networks in foreign markets (45%) and introducing or developing more products and services to market (44%).
Small businesses’ call to action
SMEs see the capacity of their business as the most significant internal barrier towards internationalisation and expansion. This may be linked to a limitation in resources, often associated to either the ability of employees to respond to the workload or access to financial capital.
Accordingly, 45% of SMEs also planned to increase their international activities by upscaling their business’s capacity. SMEs looking to successfully enter into the foreign markets should focus on development across the following areas:
1. Adopt cloud technologies from the start
Providing a valuable platform for future international expansion, appropriate applications will provide SMEs with a real-time flow of information, offering detailed measures across various workflows and complementing existing reporting processes. However, each business will need to adapt their business models and management processes to suit these applications, rather than the other way around.
2. Create a business strategy with global ambitions
Internationalising businesses should ensure relevant activities form part of a wider strategic plan and detailed in specific growth objectives. This could form the basis of agreed relevant working priorities and the investment needed to achieve international growth. Such an approach can facilitate a managerial mind set around international growth to be channelled across the business’s wider operations.
3. Develop the scalability of your finance function
An internationalising SME’s growth trajectory can often be unpredictable, often requiring the business to scale up their operations rapidly in order to meet the demands of suppliers, customers and partners. It is therefore crucial that SMEs develop a finance function which has the flexibility to withstand these challenges. Building the right finance function early on can provide greater operational agility allowing better management of future challenges.
4. Identify where external advice could support your international journey
It is important to consider where external advice may be able to support businesses international objectives, depending on the stage of international growth reached by the SME. This should be conducted as part of a business’s planning process, such as through an internal review programme or through regular meetings with senior management.
Technology enabled solutions
SMEs today have access to a wide variety of cloud-based technologies that enables businesses to develop their finance function rapidly when internationalising.
In particular, relevant software can help businesses to monitor operations in international markets. Activities such as processing payroll, compliance events and employee expenses can now be managed centrally with the use of innovative software solutions.
This technology also allows SMEs to understand the flows of data within their own systems as well as with business partners and suppliers. This becomes increasingly necessary with the added operational complexity of participating in global value chains.
Working with professional advisers, this data can be used to support the development of one’s finance function which in turn can cater for international growth. This allows for new business streams to develop as external professional insight with these new technologies is required.
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