CheckPoint Analysis Input

The environment in which a business operates is impacted by many factors. The prevailing political, economic, social, technological, environmental and legal conditions that affect the business. Be aware of how these industry environment factors hinder, limit or facilitate business growth opportunities.  PESTEL analysis.

Aim to have a business model that capitalises on changes occurring within your industry sector; technologies, consumer trends, available resources.

When a business operates in a market with large, dominant competitors they lose some ability to achieve prices or deliver services that remain profitable. They are threats when the dominant player becomes predatory or overly protective of its volume or market share. Rivalry.

Many markets require licences to operate. This becomes a barrier to new entrants who might choose to upset the established market. If the business has authority to operate, it’s a distinct advantage. If not, the reverse applies.

Using innovation to create competitive advantage is the driver of most startups. New Entrants

Businesses selling in the B2B environment are by nature closely linked to their customer’s own sales performance and strategic success. This may have less impact if the business is dealing with a wide group of customers in an industry.However, if linked by contract to a large customer or the vagaries of tendering, then control of business risk moves to the customer. Leverage.

Businesses with policies or intent to spread risk have wider customer spread and more likely to survive downturns. The aim is to survive the failure of your largest customer.

Suppliers and their customers (ie your business) can have many forms of relationship. Each has a different level of strategic value and loyalty, therefore the support they offer you.

Traders or vendors sell on price, they are ‘transactional’, so don’t expect much loyalty. Most suppliers sell by tender or contract, which is a price + quality + service package. Their support depends on what your purchases are worth to them. Strategic partners who form alliances can be relied upon due to the mutual value that’s generated.

Businesses that heavily rely on one or a small number of key suppliers pass risk and leverage to those key suppliers. If they don’t supply, or choose to increase prices from ‘a locked in customer’, it jeopardises your business viability and profitability. In turn, your customers. Leverage.

Technological change impacts any business that sells products and/or services. It is one of the mechanisms that create new business opportunities. It’s can also be the death knell of businesses unable to adapt or choose to ignore a customer’s new found ability to satisfy their needs by alternate means.  Threat of Substitutes .

Online or imported products and services from low labour cost companies are highly disruptive to established markets.  Established businesses have built their operating model and/or pricing.  Define and protect a USP to be more resistant to substitutes undermining of your market.

Strategy

A business that aligns its strategy and efforts towards a vision is significantly more likely to achieve sustained success. The follow on step is to have an up to date business plan that details how this will be achieved and the benefits.

Best to start with a simple SWOT Analysis. SWOT

Structure

Aligning the organisation structure with strategy and culture is necessary empower and get the best from people in the business.

People perform best when they know where they fit in the organisational structure. A suite of documents that set out organisations roles, job responsibilities (with KPIs), reporting lines and company policies increases job performance.

Teams that enjoy their work, understand the goals and feel part of the fabric of the business are highly likely to perform well and act in the best interests of the business. When employees are recognised, trained, fairly rewarded and motivated, they feel positive about the business. In turn this reduces staff turnover and its easier to recruit good people.

Actions

Converting the strategic plan into bite size, measurable chunks allows actions to be delegated and easily monitored. The loop is closed by having a respected regular review process. Then adjustments to process can be made to enhance performance or goals.

 

People

People working in a company need to know where they fit in the organisational structure if they are to perform efficiently. This necessitates a suite of documents that sets out the organisations roles, the job responsibilities (with KPIs), reporting lines and company policies. If these fundamental business tools are missing or confused then there is a high likelihood of poor communications, mismanagement and low business performance.

Companies are rarely stacked full of super star performers, and the bigger a business becomes the more average the team becomes. A characteristic of excellent management is how they proactively manage their teams. Understanding the current potential and performance of each individual through a documented review process enables managers to improve training (increase potential) or motivation (increase performance) in an organised way. People

Culture

Growth businesses require a team who have and accept delegated authority to manage their area of responsibility; while daily interaction provided ad-hoc coordination in good teams, regular team meetings are formal opportunities to discuss progress against goals. If decision-making all crosses the desk of one or a few people then growth and responsiveness of the business is limited by their availability and skills.

Teams that enjoy their work, understand the goals and feel part of the fabric of the business are highly likely to perform well. They create competitive advantage because they act in the best interests of the business. When employees are recognised, trained, fairly rewarded and motivated, they speak positively about the business, which reduces staff turnover and its easier to recruit good people to the team. Leadership Culture

Marketing

Marketing is a multi facet mix of awareness communications; brand, advertising, social media, brochures, PR, signage, apparel etc. It serves many aspects of the business; primarily it is there to attract prospective profitable customers. It also promotes business values, engages suppliers, investors and staff in the company story. Marketing supports word-of-mouth’ and builds defence against competitors. Underinvestment in marketing is often a short term cashflow saving, that comes with a long term downside. Marketing vs Sales.

Sales

Sales converts the prospects generated by marketing. Having strong durable multilevel interpersonal customer relationships leads to higher long term profitable sales. This requires pursuing mutual best interests, rather than short term transactional or trading relationships. Strong relationships develop when businesses are seen to be seeking and acting on formal customer feedback. Have sales plans for Top 5 or Top 20 customers.

Development

New product and market development in all industries (services, online, manufacturing, … whatever) means continuously working on new offerings for markets to stay ahead of or differentiate from their competition or substitutes. This may be dedicated R&D investment in staff, an owner or marketing team that is continually tuning the presentation of the offering. Development

Profitability

For an established business “no-profit” (loss) leads to no company, so consistent profitability is essential for continuance and growth. All industries have best practice numbers that indicate its relative performance. Losses may be seasonal, or transitional but cannot be continuous, unless the owners are running a charity for their suppliers and customers.

Understand the financial reports. “Profit” is an opinion. “Liquidity” is reality. Financial Ratios

Liquidity

In turnaround cashflow is king. Start-ups plan for a period of cash burn. Established businesses may be suffering a short term downturn or investing in new growth that tales more cash than generated. Owners should have cash reserves in the business and/or established lines of funding to ensure they do not run out of cash. Do not risk the business.  Solvency & Liquidity

Accounting

These days every business has access to computerised accounting and bookkeeping tools that reduce accounting costs, offering real time financial reporting. However if these reports are only used for looking back, then the business may easily crash into unforeseen events.

Successful financial management requires effective budgeting and forecasting. Thus it is important to understand the purpose of each and how they are interdependent. Business needs a budget to allocate scarce resources to efficiently achieve goals and objectives. Forecasts are predictions based on probable future events upon which the budgets are based.

Financial and management accounts need to be regular and reliable to monitor progress against forecast and budgets. Budgets and Forecasts.

Administration

Financial reports and KPIs are essential, but they are lag indicators of a businesses performance. High performance growth businesses need lead and current indicators of performance; CRM systems report sales funnel activities; operational systems indicate quality / non conformance, on-time-delivery and customer’s satisfaction / complaints; WH&S statistics, staff turnover; and many more depending on the particular industry. “Dashboards” may be a suit of spreadsheet reports or part of an integrated CRM-ERP system. What matters is having high visibility of current and future performance.  Integrated Admin – ERP

Production

To satisfy customer demand a business must have, or have access to, machinery and equipment with the right capabilities and capacity. Demand is not usually steady so the business may carry some measure of excess to average utilisation; over investment is not good use of assets. Availability is reflects maintenance or organisation.

Application of Lean 5S management and Kaizen provides supportive thinking to underpin high performance business operations. It started in manufacturing, but is now applied in sales, administration and other key functions. A continuous improvement culture puts a strong focus on cost reduction internally and improving quality outcomes for customers. Lean – Kaizen

Operations

Having an end-to-end efficient value stream workflow leads to sustainable profitability, happy people and satisfied customers. Process mapping provides insight into a process, help teams brainstorm ideas for process improvement, increase communication and provide workflow documentation. They identify bottlenecks, repetition and delays. Business Process Mapping

Legal

Well run (and legal !) businesses respect their regulatory obligations and desire to be recognised as a good corporate citizen. Being and being seen to operate in this manner reduces long-term costs and enhances the company’s market reputation, which means less risk for external investors and bankers.

Every business has legal issues involving employees, suppliers, competitors and customers, as long as they are infrequent. A good organisation handles these within their stride. However, acute, systemic or chronic legal issues are distractive to management and/or indicate an underlying problem that can be damaging the viability of the company. Ethics, morality and the law.

Governance

Corporate governance is a major factor in overall organizational health and sustainability because it does the following:

• Protects shareholders rights.
• Encourages investment.
• Increases accountability.
• Increases transparency.
• Ensures disclosure.
• Creates better relationships with stakeholders.

Corporate governance is carried out by people in the company with duties and responsibilities that ensure open, honest, and compliant corporate behaviour. Governance.