Category: Business Performance

Productivity improvement is an important focus area for anyone seeking to build a more resilient business. It is also an effective route to building a more valuable business if you are thinking of selling.

Productivity improvement is a major motivator for acquirers. It is described in different ways, but ultimately, all amount to the pursuit of improved productivity. The motives list is long, but might include for example:

• Recurring revenue
• Access to clients for cross-selling
• Automation
• Filling skills gaps
• Advanced systems and processes
• Innovative, disruptive, lower cost business models
• Unique data

If productivity is a major motivator for acquirers, then owners considering a sale are wise to also recognise and focus on it.

Definition and business benefits

Productivity at company level is simply a measure of how efficiently and effectively outputs are produced from costly inputs. Greater efficiency and effectiveness in how inputs are used leads to greater productivity.

So far so simple you might say, every company already seeks to make the best use of inputs, don’t they?

The evidence doesn’t support that view. Pretty much every company operates in a competitive environment and it is possible to benchmark productivity against your competitors. The most productive businesses in any sector enjoy freedoms and characteristics which less productive businesses do not:

• They produce more outputs from the same inputs.
• They convert inputs to outputs quickly, releasing surplus cash from margins for re-investment into priorities.
• They have greater pricing flexibility when its called for and can apply significant pricing pressure to competitors.
• They enjoy higher profit margins.
• They systematise how they do things, documenting the causes of success so that they are repeatable and teachable.
• A culture of continuous [productivity] improvement is “baked in” to their commercial DNA.

That’s quite a list of [enviable] benefits which not surprisingly gets acquirers very interested.

If you want to be a prime target for acquirers and you want to sell for maximum value, a focus on productivity is a very good place to start.

Productivity improvement

Productivity is an output which results from the right inputs and how they are used. What we are really talking about here is process improvement and optimisation. A process is of course, the actions undertaken to convert inputs into outputs.

Process improvement and optimisation activity though, has a wider scope when preparing for sale. Yes, look inward to identify inefficiency and ineffectiveness, but look outward as well.

Look outward as well as inward

When preparing your business for sale looking outward includes your customers, but also your peers and your likely acquirers – the latter being indispensable.

Every business wants to understand customer needs to shape products and services which best meet those needs.

When considering a sale, a business owner should liken an acquirer to a customer. Getting to know the acquirers [customers] specific needs and wants enables you to assess your saleability. Informing how well you meet acquirer need, it also provides clarity for how you prepare for sale.

Let me give you one common example of something which really motivates acquirers, the first item of my opening list in this article.

The risk reduction, compounding and productivity enhancing effect of recurring revenue is well understood. The presence of recurring revenue alone, however, is not sufficient to motivate an acquirer. An acquirer will almost certainly have expectations about what percentage of turnover should be recurring. An acquirer will also look very closely at client retention levels, the longevity of those recurring revenue relationships.

This acquirer expectation is repeated across the numerous attributes which get acquirers seriously interested. It is both the presence of an attribute and its qualitative nature, as defined by the acquirer, which must be present.

Additional benefits and conclusion

I try to steer clear of economic forecasting if possible, but I will share this view anyway. If I’m correct the added business resilience benefit of productivity gains will be invaluable. If I’m wrong, the benefits described above still accrue to your business anyway.

There are some key events which may mean we will have to get used to higher inflation:

• The unwinding of what has been a deflationary cause for much of the last few decades, offshoring to lower wage economies, China most notably.
• The pandemic will cause supply chain re-engineering to accelerate – reshoring or nearshoring was already underway. The cheap[er] labour motive is now more likely to be displaced by other imperatives, for example ethics, security, continuity, quality control.
• Lesser free trade with the EU, possible tariffs, or more likely, heightened compliance costs.
• There is inevitably some pent-up demand which when released will be inflationary in some sectors – although this may not be sustained over the medium-term.

In conclusion, focus on productivity, it makes good business sense no matter what.

If you are considering how and when you might sell-up, it is a route to building a more value-adding business whilst you still own it, and a more valuable one at the point of sale.

Fivefold provides solutions which deliver productivity improvement in a business sale context – enabling our clients to look inward and outward.

We combine expert M&A research, analysis and market engagement skills with process improvement and optimisation capability.

Steve Anstey - Managing Director

steve.anstey@fivefolduk.com 

What can we do to build more resilient businesses?

We are all starting this journey from different places. The impact on the private sector of government responses to Covid-19 ranges from thriving to complete destruction.

I offer these eight tips as possible “food for thought” whether you’re re-starting, re-building, or resuming:

1. Re-define what it means to be a resilient business – revisit business risk and continuity planning to be less conservative than in the past – think the unthinkable.

2. Nurture entrepreneurialism – no matter how mature your business is, encourage innovation. Entrepreneurialism will thrive as we emerge from this pandemic, but why should this happen outside of your business? If you’ve lost some of it, how can you rediscover your own entrepreneurial mindset and energy, and encourage others to be entrepreneurial while they still work in your business?

3. Strip back bureaucratic decision-making – review how decisions are made and remove steps which add no value. Ensure where possible, that decisions are taken faster enabling your business to adopt defensive, opportunistic, and expansive positions more quickly.

4. Invest in capability to better harness data – I view this as a necessity; it is a component enabling all the other things listed here. Data quality, data accrual, data mining and data analysis is increasingly important. Become a more intelligent business; get the right data to flow at the right time to the right locations to make well-informed, faster, and less risky decisions.

5. Get exposure to future-proofed and growing sectors – determine sectors which are, and will remain, durable. Develop and implement strategy and tactics to win direct market-share or indirect exposure along the connected value-chain.

6. Reduce dependencies – a longstanding risk management strategy but as relevant as ever. Address customer and supplier dependencies especially.

7. Improve productivity – People right across your business involved in the day-to-day, will tell you immediately what hinders them. Acting to remove hindrances can quickly lead to productivity [and morale] improvements.

8. Communication – Establish and articulate a clarity of purpose for your business as it emerges from this disruptive period. Enable everyone to connect what they do each day with the pursuit and achievement of that purpose.

Not a definitive list by any means, you will all no doubt have things you might add to it.

If you are doing things which are working well for you, I’d love to hear about them.

Steve Anstey - Managing Director

steve.anstey@fivefolduk.com 

The balance of quantity and quality of activity is a necessary part of sales success.

Good flow of quality data has a positive impact on decision-making and business performance. Companies who achieve it are more likely to meet their objectives, they are typically more ‘intelligent’ than their competitors.

An accepted definition:

Intelligence is one’s ability to gain knowledge and one's ability to use this knowledge to problem solve or meet an objective.

Managing the flow of data

Applying this in a business setting requires a company to manage dataflow through technical and non-technical means. For example, a good CRM system which is suitably configured might be one obvious solution. More challenging is implementing effective systems to connect the unstructured and non-digital data and knowledge with those who need it. Companies tend to have an abundance of this, and it is arguably some of their most valuable.

Map data flow

Mapping data flows makes good business sense to truly understand its journey into, around and out of your business. The outcome is a detailed map of a company’s current Data Circulatory System and the opportunity for improving it.

Data Circulatory System health is derived from these six components:

1. Data is high quality – relevant and complete.
2. Data is fit-for-purpose – in the right format for its use.
3. Data flows freely – available when and where needed.
4. Data flows at speed – is responsive and available without delay.
5. Data accrues constantly – it is captured effectively and consistently.
6. Data is GDPR compliant – use is maximised, risk is minimised and always GDPR compliant.

Over time, through continuous use and enhancing of data and knowledge assets, a company becomes more [and more] intelligent.

Data and knowledge as a catalyst

Undoubtedly, data and knowledge can act as a catalyst, there is practically nothing which happens within a business that cannot be aided by these resources. People can make decisions that are:

• Well informed, supported by evidence
• Taken with greater confidence
• More accurate and precise
• Taken more quickly

 Other benefits

There are other benefits to mapping and improving data and knowledge flow. The productivity gains and cost savings can be extraordinary, for example it can reveal:

• Costly data duplication
• Inefficient and time-consuming informal data systems
• Risky data use practices and data protection weaknesses
• Poor quality data and sources
• Excessive data storage requirements

Lee Wickens, Director at Fivefold sums it up well:

“Data is an increasingly important business asset, one which plays a significant role in achieving competitive advantage. It enhances the value of businesses who accrue, use and maintain it to a superior standard.”

What makes [or could make] you more noticeable in the crowd of other product and service providers?

Very few companies enjoy a monopoly position, most face stiff competition. Identifying and amplifying distinctiveness is critical.

Ask yourself these simple questions:

• What do we do?
• Why do we do it?
• How does that benefit our customer?

The final question is arguably the most important.

Features and benefits

When running this thinking exercise to explore customer benefits more fully, it can be eye-opening how benefit-rich communication with prospective clients could be. This should be an exercise involving all departments across a business to capture all possible features and benefits.

The output we create is a ‘FAB Grid’ (the ‘Grid’), the FAB acronym standing for features and benefits. When complete, it serves as a source document for making marketing, prospecting, and selling, much richer in benefits. The Grid remains a live document which is maintained, revised, and extended.

You might run a more extensive update if for example, new markets are being explored, new products launched, new competitors emerge, disruptive business models and technologies change customer habits.

The Grid provides much more material for differentiation and communicating value. It also means customer benefits are never forgotten or overlooked.

Embed a common language

Having completed the FAB Grid, we also recommend spending time on creating a common language used to describe features and benefits.

We have seen plenty of instances of confusing and imprecise marketing and sales messages which are also feature rich but benefit poor.

Words are extremely important; marketing and selling, after all, are communication disciplines.

The symptoms or poorly communicated benefits

There are symptoms which indicate opportunity for improvement which anyone in sales leadership will recognise:

• Over-selling to win a sale
• Heavy discounting
• Prospects becoming unresponsive
• Extended sales timelines
• Buying decisions deferred repeatedly
• Increasingly losing to competitors
• Declining conversion rates

Sustaining success

We advocate making a small group from across the business responsible for keeping the FAB Grid updated. Keeping your features and benefits aligned with customer expectations and communicating them well is key to sustaining success.

The operative word in the title is MASTER.

These three things are present in every business already, but arguably, every company can improve performance in these areas. Businesses who master them become leaders and constantly attend to them to ensure they stay there.

If you achieve mastery of any one of these things it can have a significant positive impact on your business performance, expressed ultimately as improvements in productivity, profitability, and growth (‘PPG’). Master all three and enjoy compound PPG effects.

Three things which can unlock business potential are:

1. Superior flow of high-quality data and knowledge

Ensuring high-quality data and knowledge flows to people when they need it enables more high-quality decisions first time. It means being able to dramatically reduce the incidence of assumption. In turn, that leads to doing much more of what is known to be right, minimising error, remedial and repeat work.

2. A sales approach built around customer needs

It still surprises me how many product and service providers who try to sell to me by-pass a ‘discovery stage’ to understand my needs. A customer-centred selling approach always begins with understanding needs so that you can engage in solution selling which is always more satisfying for the customer.

3. Keep processes lean, producing outcomes which meet customer expectations

Every process step can be costly in terms of resources – time, materials – consumed. Lean processes involve only those steps which are necessary to cause the desired outcomes, those which meet customer expectations.

• Make these things central to your business culture.
• Let everyone know why they are important.
• Equip, encourage, and incentivise people to master them.

You will then have a business making high-quality decisions, getting things right the first time. One which has a higher performing sales team, and which is operating lean cost-efficient processes delivering outcomes which completely meet customer expectations.