Return on Investment – Strategy and Action
Many times we undertake projects because we have the “excess” funds available to do so. We invest capital and time to improve the operations and processes that are functioning and are somewhat successful (or we wouldn’t have the funds).
At the times the organization is struggling, stumbling, or on the verge of ceasing – a time when cash and other resources are most constrained; spending on “fixing” or “altering” the organization isn’t usually an option. While those expenditures could be viewed as a necessity – keeping the lights on is the priority. What we define as necessary are the core infrastructure items and continuing to sustain operations as they have been operating.
It is often difficult, if not impossible; to consider spending money to look at what the business needs to do differently – to diagnose the organizations issues and problems, its opportunities and strengths. At the time when something needs to be done differently, the resources are generally not there to get help with the problem.
It is tough to take a strategic and tactical approach to what the business needs to be doing when what you have been doing isn’t working. Businesses tend to continue what isn’t working because they see no alternative. If the organization can see itself objectively and identify changes, then finding the monetary resources to make those changes can be tough or impossible. So the organization continues the same processes, changing the things it can without having monetary resources to do more.
Many traditional “changes” come into play when an organization isn’t profitable – cut hours, cut wages, cut people, and stop investing in change. These activities are often significant contributors to the downward spiral of the business. You get rid of the things you need most in order to keep the doors open a bit longer. These cuts often aren’t strategic; they don’t consider the long-term implications. They look at saving cash today, they do not examine how you will generate revenues (and cash) tomorrow. Realistically, cash conservation is a top priority; it needs to be done, however, with an eye toward effecting changes that will still enable the organization to engage in business.
When operations falter, it is time to look for more effective solutions and results. What is the problem that needs to be defined and addressed – too few sales? Too many sales at too low margins? Price too low? Price too high? Poor quality? Poor market perception? What is going on with the business?
It is critically important to diagnose the problem and its source correctly BEFORE you take action. Once you understand the problem, then you can make decisions as to what to divest (people, products, or assets) and what to add…When you can define the specific desired outcomes and results which are not happening, then you can look within the organization to determine what is broken and how to fix it. If you don’t have the capabilities within the organization to analyze, diagnose, or fix the problem(s), then you may need to look externally.
First take a look at your organization yourself and with your team. Review the organization’s financial records:
• What money is coming and from where?
• What is the gross margin on those revenues?
• What is the revenue dollar amount being generated per person in your organization that is?
• What is your the structure for producing your product or service?
• How much are you spending each month – burn rate?
• Where are your expenditures occurring?
• Where are you leaking (or hemorrhaging) money?
Look next at the organizations staffing plan and structure:
• What is the composition of your organization’s staffing plan? Do you have the right roles? The right people?
• How successful is your sales force?
• If you’re not selling, is it the product/service, the message, the after-sale service, or the sales team?
Also look at buying habits – for everything from equipment, spare parts, to office supplies. (When one company analyzed purchasing patterns they found that in the July/August timeframe office supply costs nearly tripled…’twas the back-to-school season….) Every aspect of the business needs to be examined to understand its impact on financial results.
When resources are at dangerous levels, the ability to deploy those resources for return/result is mission critical. Every dollar needs to generate a return – directly or indirectly. If the organization has not demonstrated the ability to find a new approach, path, or plan of action, then finding a way to get a new perspective, to identify new alternative, and achieve viability depends upon the organization’s willingness to seek out tools to aid the process. There is a range of tools readily available:
• Business books and references
• Magazines and case studies
• Market research (pre-existing reports can be purchased for a fraction of custom research)
• Business advisors
• Business partners
• Workshops and lectures
• Peer groups
Some of the things you are seeking:
• Cash analysis – sources and uses
• Operational analysis
• Customer service ratings
• Sales per sales person
• Sales per employee
• Customer profitability
• Business-line or product profitability
• Pricing analysis versus cost to produce and deliver
It is difficult for an organization and its leadership and team members to evaluate objectively what is happening in the business. Any time an organization is experiencing financial crisis or competitive pressures, uncertainty increases. When you start analyzing the business for issues and opportunities, it is extremely important to communicate honestly and directly with the organization’s members about what is going on, why the information is needed, and the approach being taken. No memos posted on the bulletin board or sent via e-mail. This is an in-person meeting in small groups or company-wide. It is far better to communicate the truth than let rumors further erode operations and morale.
How do you enable your organization to determine what you can do better and what is working well? How can you get the ideas and answers you need from the right people – those who know (generally the people doing the day-to-day transactions of the business will know the situation operationally better than you do!)?
Sometimes it takes outside resources working directly with the organization. Sometimes it could be through attention and focus on or by particular team members – small groups given the accountability, authority, and responsibility to act. Still another approach is to engage with peer groups external to your organization:
• Share experiences
• Brainstorm options
• Engage in discussion
• Review ideas
• Challenge assumptions
• Craft alternatives, approaches, and solutions
If you take the peer group approach, be sure it is a group focused on action, execution, and implementation, that it will hold you accountable for staying on task and on time. If you are able to determine what is going “wrong” in your organization, you may want to seek out specific action groups that focus on your particular issue. There are in-person and virtual groups focused on strategy, marketing, and other business topics and operations in most areas.
In selecting a group, be aware of the nature of the group, the agreements related to shared information, and what degree you may need to share proprietary and/or strategic information in order to get sound ideas. If you would be sharing “competitive advantage”, intellectual property, or financial data that, if disseminated widely could adversely impact your business, you will need to determine how tightly participants are bound by agreements – confidentiality, etc. Proceed cautiously; know, however, that the right group can help you lay the groundwork for business change, assist you in acquiring new perspectives and skills, and get you to the point where you can seek out specific advisory services for your business.
Copyright © 2004 F.O.C.U.S. Resource, Inc.