Balancing Your Organisation

We operate in a fast-paced, high pressure environment with many competing priorities. There is little wonder that sometimes managers get it wrong or don’t achieve what is expected of them. Whether you’re in a Government, Non-Government, private enterprise, public company, charitable or not-for-profit organisation, it is always difficult to meet the expectations of all stakeholders. What is required is a balanced view of the world to help you prioritise and gain clarity. The balanced scorecard may be the answer.

The balanced scorecard is a management tool that helps managers to identify the stakeholders in their organisation, determine what activities are required to satisfy those stakeholders, and develop performance indicators to measure performance and stay on the right track. Typically, there are four perspectives that you should consider (there may be others), they are financial, customer, internal and community & environment perspectives. Considering these perspectives when managing your organisation will assist you to manage and deliver on the expectations of all your stakeholders.

The first step in developing your balanced scorecard (and we strongly recommend that you obtain external assistance) is to identify who your stakeholders are. To do this, consider who has a financial interest in your organisation, from whom do you obtain funding, who you serve, who you rely on and what communities you operate within. List your stakeholders in those categories.

The next step is to determine what each of these stakeholder groups expects from your organisation. When doing this, it is important to express this in ways that can be measured. So, if you’re looking at customer value for example, make sure you know how this will be measured.

Once you understand what is expected from you by each stakeholder group, you can identify the performance indicators and set targets to achieve. Some examples of performance are;

Financial Perspective
Financial Position – Balance sheet
Financial Performance – Profit/loss
Cashflow Performance
Financial Ratios – ROI, ROE, ROA, ROFE

Customer Perspective
Quality Performance
Value
Service
Innovation

Internal Perspective
Continuous Improvement
Organisational Learning & Development
Systems & Processes
People Development

Community & Environment Perspective
Community Involvement
Environmental Impact
Responsible Sourcing
Renewable Technologies

Now that you have identified the specific performance measures and established targets, you can start measuring your performance and report on it. This will compel managers to develop action plans to increase the level of performance in each area, thus providing the organisation with a balanced view and the ability to prioritise their activities effectively.

SOM Consulting offers services in developing and implementing a balanced scorecard and can assist your organisation to develop a sustainable framework for managing your organisation. Visit http://www.somconsulting.com.au for more information.

Measuring Your Carbon Footprint

With the upcoming carbon tax and impending emissions trading scheme, it is important for all businesses to measure and reduce their carbon emissions. Even for those organisations that will not be directly affected by the price on carbon, costs will certainly increase under the new scheme through costs passed on by electricity generators, airlines, transport companies etc. The case is simple, reduce your carbon footprint and you will reduce the cost impost.

The first step in reducing your carbon emissions is to generate baseline information. In this case, measure your current emissions. From this you can then set reduction targets and formulate plans to reduce your emissions. How do you measure your carbon footprint? It’s surprisingly easy with the assistance of software applications. Once you have chosen your program (and they range from very simple and cost effective to very complex and expensive) you can start entering your data that will form the CO2e measurement.

According to the National Greenhouse and Energy Reporting (NGER) framework, there are 3 types of emissions, scope 1,2 and 3. Scope 1 emissions are those where greenhouse gasses are generated as a direct result of your activities, such as consuming diesel fuel in your vehicles or manufacturing cement. Scope 2 emissions are defined as the result of direct activities that consume electricity. Scope 3 emissions are emissions that are generated in the wider economy as a result of activities such as flying on a commercial airline for business or sending waste to landfill.

Now that we have this information it is a simple matter of entering the data we collect into our chosen software application. The source of information varies but is often readily available from our existing documentation. For example, we enter the units of electricity (KWh) from our electricity bill, units of gas (MJ’s) from our gas bill, litres of petrol/diesel from our fleet report, amount of waste to landfill (kg) from our waste provider etc. In some cases we may need to develop a measurement system for determining the amount of waste paper that is diverted from landfill etc, but these are usually easy to establish.

The key to this is to determine up-front the boundary of the reporting and the methods of measurement so that it is consistent and can be easily explained if asked. Then it’s up to the software program to calculate your emissions footprint.

Sustainable Operations Management is licensed to deliver the 6P Green Program which is an environmental improvement program that measures and helps to reduce your carbon footprint. As part of the program you get a carbon measurement and monitoring application that measures your carbon footprint and reports on your emissions, enabling you to develop plans to reduce your footprint. For more information go to http://www.somconsulting.com.au

Strategic Planning for the Year Ahead

Now that the new financial year has begun, we have closed off the previous period, submitted our budgets and perhaps are putting the finishing touches on our company annual report. Now it’s time to look ahead and plan our strategy for the next year. Is it the same as last year? Do we need to adjust our strategic direction? What has, or will change this year?

A crystal ball would be very helpful here, but that’s a little too easy isn’t it? Sort of. What we need to do is break down the various factors and look at them one by one. If we look at what is going to change, or what is likely to change, we have a better picture of what is in store for our organisation. From this we can develop our strategic plan.
There are 6 different areas that we need to consider when trying to determine what the future holds with respect to business. The following section discusses those areas and provides a couple of examples that will help you to understand and give you a framework to use in your planning.

The Political Environment – Lots going on here. The Greens have control of both houses and are influencing the policies and direction of the Government. Julia Gillard’s popularity is at record lows and some suggest that she will not take Labour to the next election. Ask yourself ‘what changes is the Government going to implement?’ Consider what the potential impacts of this current situation are for your business. Does this mean that your current activities are reinforced or will you need to make some changes?

The Economic Environment – This isn’t difficult either. If you’re tied in with the mining industry things are pretty rosy. But there is the MRRT and the carbon price. Outside the mining sector, things are a different story. Retail, manufacturing, construction and tourism are all really struggling. What is likely to happen with interest rates and the Aussie dollar? How will changes in these factors potentially impact your business? What do you need to do to ensure your targets and budgets will be met this year?

The Sociological Environment – Look at the trends that are happening in our society. We have an ageing population, the Baby Boomers will be starting to retire, we’re living longer and we’re becoming more multi-cultural. Does any of this have an effect on your thinking for the future of your business? If these things aren’t relevant, what factors are and what does this mean for your direction this year?

The Technological Environment – One that’s guaranteed to change quickly. Things that come to mind are cloud computing, the NBN and tablet computers. How are these technologies affecting your business? How can you take advantage of these technologies to improve your competitiveness? Could these technologies contribute to product or service obsolescence in your business? Have a close look at what products/services you are currently offering and how you conduct business activities. Does anything stand out?

The Environment – Global warming, natural disasters and pollution come immediately to mind. Outside of the carbon tax, ETS and flood levy, how could these issues affect your business? Are you in a flood prone area or, like me, based 7 metres below sea level? (I didn’t know this until I asked the question). How could the changes in our environment potentially impact your business or what opportunities are opened up because of this? I recently added an environment improvement program to my service portfolio, recognizing carbon pollution as a major issue. What could you do?

The Legal Environment – This year saw the introduction of the Australian Competition and Consumer Act which replaced the Trade Practices Act. What are the potential implications for your business? Then, there are the legal responsibilities of Directors which seem to change every day. Look closely at your plan of attack and make sure you’re adapting to changes in the legal environment.

So, there’s the framework for monitoring the external environment. When broken down into the various areas, you can focus on potential changes and impacts to your business without getting confused or dominated by the topical issues. Use the information from scanning the external environment to put together your strategic plan for this financial year. And don’t forget to consider your competitive strategy and portfolio analysis.

SOM Consulting are experts in strategy. For more information or assistance with developing your strategy, contact us at enquiries@somconsulting.com.au

A Cost Effective Approach to Risk Management

What does it cost to have someone conduct a traditional risk management program in your business? Depending on your size, it could cost in the vicinity of $50,000 to have a significant firm develop your risk management system, and then there’s implementation, review etc. The cost is likely to be prohibitive…and that could prove to be disastrous for your business and you as a director.

Traditional risk management programs utilise an ‘outside in analysis’ which involves getting numerous people around the table brainstorming specific risks that your business faces. You then have to classify the risk, record it and develop appropriate risk mitigation strategies to manage it. A very long and expensive process! But, you also have to consider the possibility that some risks may not be identified and subsequently, not managed.

An innovative approach to risk management is our ‘inside out analysis’ which involves considering typical risk mitigation strategies and determining which of those are appropriate for your business. To demonstrate this concept, take the risk mitigation strategy of regularly measuring your quick ratio (this is an accounting ratio used to assess the short-term liquidity of the business. It’s used to measure the organisations ability to meet it’s short-term obligations). What are the specific risks a business can face in this area? Inability to pay creditors, a shortfall in cash holding, defaulting on debt repayments or interest covenants, or perhaps insolvency. Now, you can either try and identify every possible risk to your cash position and develop a mitigation strategy to deal with it (the outside in approach), or you can consider the need for a risk mitigation strategy such as calculating your quick ratio on a regular basis (the inside out approach).

Clearly, the inside out approach is much more cost effective as it takes significantly less time to work through. This then frees up time and funds to concentrate on your risk management activities, making sure that the program is implemented and your business is protected.

SOM Consulting offers iRiskplan, an innovative risk management program specifically designed for medium sized business. For more information, visit www.somconsulting.com.au

Areas of Risk in Business

We know that our businesses are exposed to various risks that must be managed if we are to achieve our objectives. To sit down and identify all those risks without a framework is difficult and some significant exposures may be missed. What are the areas that we need to consider?

I have researched this extensively as part of my risk management tooland come up with a list of risk areas that should be analysed when developing your risk management program. There may be other areas for specific businesses but these risk areas would apply to the average business. The list may not be exhaustive, depending on your actual business and activities.

Financial Risk
Consider all risks to your profitability, cash flow, working capital, balance sheet, funding and equity in the business. Ask yourself, what could go wrong with…

Compliance
Consider the effectiveness of controls you have in place for OH&S, taxation, superannuation, trade practices, industrial relations and EEO, environment and mandatory reporting.

Commercial Risk
Consider the risks to your ongoing commercialism. Look at the level of competitiveness within your industry, changes to the external environment, market trends and consumer behaviour and preferences. Think about things that could occur and damage your brand or reputation.

Strategic Risk
Think about your strategy and identify risks to your business model, your competitive advantage, your M&A plans. Think about your social responsibility and how the outcomes are managed.

Organisation Risk
Consider the strength of your management team, your internal strengths and weaknesses, the external threats you face and your organisational structure.

Operational Risk
Consider your ability to manage OH&S, human resources, product development, processes and systems and your production of goods or delivery of services. Consider significant agreements and contracts. Explore the risk to your assets such as property, plant & equipment.

Security Risk
Consider the risks to the security of your physical assets, your people, data, cash and finances.

Technological Risk
Think about the risks to your technologies, your systems, software and hardware.

Project Risk
Identify the risks to the outcomes of your projects. Think about the inputs to your projects and their effectiveness in delivering the outcomes. Think about how these are managed.

While these risk areas would apply to all businesses, the specific risks in each area are likely to be different, with different exposures, outcomes and controls. This framework can help you identify the specific risks to your business which then need to be classified in terms of significance.

Portfolio Analysis – Evaluating your Products & Services

How do you currently evaluate your products and services? When your thinking strategically, it’s important to evaluate the potential of your existing range, especially when it comes to capital investment, research & development funding and advertising campaigns. Is one of your products a “cash cow”? Or do you have a “dog”? This post explores the method of evaluating your products and services.

As with all things, our products and services have a life. This life moves through various stages, much like the business life-cycle. Understanding where your various products and services are in their life-cycle is very important when it comes to strategising in your business. Let’s look at an example. Where would you imagine the carbon/carbonless invoice book is in its life-cycle? The answer? Very close to the end! So, if you’re a manufacturer of carbon/carbonless invoice books you had better be looking for something else to manufacture. Now, I’m not saying that these books don’t sell because they do. What I’m saying is that the market for these products is in decline and will be completely dead some years down the track (for obvious reasons). Market growth (or otherwise) is axis 1.

The second axis is the relative market share you have for each product. Do you dominate the market with this product or are you a minor player? Is the market saturated with many small players or do some larger businesses dominate? This requires some careful research so make sure you get it right.

Now that we know where are market is going, and we know how much of the market we have for each product, plot the products position on 2 axes, market growth low to high on the Y axis and market share high to low on the X axis. If your product sits in the top right quadrant, call this a question mark. The top left quadrant is a star, the bottom right quadrant is a dog and the bottom left a cash cow.

So what do these names mean? Look at the cash cow. The market is in decline but you dominate it. This means that you can most likely charge a premium for the product, making as much money out of it as you can until it dies. You hold a strong brand position and the equipment to produce it probably owes you nothing in terms of depreciation. A cash cow!

A star is what we all want to have in our portfolio. A market that is growing steadily and lots of market share to get hold of. This presents an opportunity to your sales and marketing teams to come up with the right formula to take advantage of the potential in this product.

As you would expect, the dog is a dog! The market is in decline and you don’t have much market share. Don’t waste your time going any further.

So what about the question mark. It’s exactly that. Question whether you think you can increase the market share of this product. If the market is dominated by strong brands you may never achieve any real traction with your product. Examine this one closely, it’s not one you want to get wrong.

The objective of this exercise is to assess the potential of each of your products and make sure you don’t just rely on the cash cows that will provide short-term results and long-term cash issues. Forget the dogs and re-think the question marks. Try to develop the stars that will take your business forward.

Sustainable Operations Management are strategy experts. We can work with you to develop your competitive strategy and earn above average returns. http://www.somconsulting.com.au

Competitive Strategy – Earning Above Average Returns

Think about the concept of above average returns for a few minutes. In business, are you happy with average returns – hopefully not! Well, without a valid competitive strategy, that’s about all you can hope for. And, you may not even do that well.

In order to earn above average returns, your business must have a competitive advantage over your rivals. This competitive advantage can be in the form of your ability to produce goods or services at a lower cost than your competitors. It may be that you can produce quality above that of your competitors and charge a premium for that. Or, you may be able to source products from around the globe cheaper and sell them for a good profit, above that of locally made goods.

Achieving a competitive advantage isn’t as easy as just doing it, you must have, or develop the competencies that support and facilitate your advantage. To develop these competencies, you must tap into the intellectual property that exists in your business, invest in R&D or training of your staff. Achieving a competitive advantage is all about identifying and leveraging the unique skills and/or knowledge in your business. If you don’t currently have this, work on developing it.

So, having a competitive advantage translates into above average returns? Not yet. In order to achieve those elusive returns, you must develop a competitive strategy. This means developing a strategy for how you are going to compete in the market place. The 2 most common strategies for competing in markets are cost-leadership and differentiation. Cost-leadership means that you are the cheapest option every time (which can also mean under-cutting a competitor). Bunnings Warehouses operate on this competitive strategy with their “Lowest prices every day, or we’ll beat it by 10%” statements.

Differentiation means that your product or service is different from others on offer which allows you to charge a premium price. Apple Inc use this strategy with their relentless pursuit of new technologies such as the Ipad etc.

We can’t just decide that we’re going to use a cost-leadership strategy and charge ahead though. First, we must conduct a competitor analysis to find out who else might be using the same strategy. A competitor analysis benchmarks you and the other major players in the market on factors such as price, service and quality. To make a cost-leadership strategy work you would offer products of average quality for less than the average price. If you are the only one doing that, and you can actually produce at a lower cost, then you may have a competitive advantage and earn those above average returns.

A word of caution here. If you employ a cost-leadership strategy, charging a lower price then you had better be able to produce at a lower cost, otherwise it’s a recipe for disaster. Virgin Blue have used this strategy successfully for years, operating at a lower cost than their competitors through turning their planes around quicker, having cabin crew clean the aircraft etc. They have an advantage because they genuinely operate on a lower cost base than Qantas for example.

Lastly, I have seen many businesses that state “we won’t be the cheapest option”, but when it comes time to justify the higher price, they find that the customer doesn’t really value what they have to offer above the average offering and negotiate the price down. Just as important as ensuring you have a lower cost to produce when using a cost-leadership strategy, it is important to confirm that the customer values what you’re offering in exchange for the premium price. Think of this in terms of a BMW motor car. Premium price for a premium product.

That’s a lot of information to consider. It is complex and can be tricky to work through on your own. We suggest getting help to develop your competitive strategy and source of competitive advantage. We use tools such as a competitor matrix, portfolio analysis tool and a strategic planning framework. If you would like more information or some of these tools, contact us at enquiries@somconsulting.com.au

Retention of People a Key Concern for SME’s

A recent survey of thousands of Australian SME’s revealed that the second biggest concern (behind funding issues) is the retention of skilled labour. 86% of business owners surveyed expressed concern about their ability to retain skilled labour and talent within their business in the immediate future. Reasons for this concern are cited as low unemployment driving high wages growth, difficulties managing generation Y employees and issues with career progression.

The answer to this problem is a relatively simple one, although implementing the solution is not so simple. Basically, the most effective method of retaining great employees is to satisfy both company and employee objectives simultaneously. This is where good HR practices come into effect.

Let’s face it, it’s not unreasonable to accept that an employee will look for employment elsewhere if their expectations are not being met. This is a key reason for people seeking alternate employment. Typical reasons for dissatisfaction are;

• Lack of recognition for the work they have performed
• Poor management skills of their immediate manager
• Lack of personal and career development
• Boredom associated with mundane or routine tasks, etc.

So, how do we address these issues AND satisfy company objectives at the same time? The short answer is a People Management System. This is a system that helps you to recruit, select, induct, manage, develop and retain your best employees. The classic People Management System comprises of the following components;

1. Position Description
2. Person Specification
3. Employment Contract
4. Induction Program
5. Training Matrix
6. Competency Assessment
7. Probationary Review
8. Half Yearly Review
9. Annual Review
10. Key Performance Indicators
11. Personal Goals Review
12. Personal Development Program
13. Career Development Program

Now, all that might look like a lot of cumbersome work but really it’s not. Once you have the structure in place it is used for all employees and is modified for each individual person. Many of the reviews are quick “catch ups”, which only take a short amount of time. Tools such as position descriptions, person specifications, employment contracts, training matrix’s are all generic and specific details are updated for each employee.

What you will find when using this system is that you engage your employees about all sorts of issues and they will respond with both increased performance AND loyalty to you and your organisation. It’s a simple matter of managing your employees better.

SOM Consulting can help you implement a world-class People Management System for a one-off low-cost. Call us today to discuss your needs on (08) 8285 3413

Reducing Your Carbon Tax Exposure – Part IV

In previous posts we have referenced AS/NZS 3598:2000 for the requirements of energy audits. This is the level 3 audit explained in detail.

The level 3 audit is the most detailed and complex audit and is designed to deliver detailed information on increasing energy efficiency, investment analysis and an implementation plan.

A level 3 audit includes the following;

(a) The information contained within both level 1 and 2 audits.
(b) Meetings on site to review current energy usage levels, finalise the project methodology and timing, and a presentation of the recommendations and suggested implementation plan.
(c) Provision of a detailed analysis to determine where, when and how energy is used. This should include evaluation of the building operation and services, plant & equipment operation, control systems, maintenance schedules, hours of operation and analysis of staff working hours. Identification between predicted and actual energy use.
(d) Preparation of hourly consumption profiles of all fuels used over a period of 7 days.
(e) Provision of all meters, instruments, and equipment necessary to meet the intent of the audit, ensuring accuracy.
(f) A report which includes any findings and recommendations. Recommendations should be defined in such detail that will allow detailed quotations to be invited without external assistance.

The level 3 audit is designed to assist high energy users to identify opportunities to increase energy efficiency and make significant savings employing capital expenditure to acquire new, more energy-efficient equipment and/or energy-saving infrastructure.

Reducing Your Carbon Tax Exposure – Part III

This weeks post explains in more detail the level 2 audit. A level 2 audit is more complex than the first as you would expect. The audit includes the following;

(a) The tasks specified in the level 1 audit.
(b) A meeting on the audit site and an inspection observing energy use patterns, plant & equipment operation and maintenance, and building fabric.
(c) Analysis of the sites energy use, identifying sources of energy, the amount supplied and detailing what the energy is used for. The analysis identifies important factors affecting energy use, such as the hours of operation.
(d) Preparation of energy use targets and indicators (e.g. kWh/m2) of energy end use throughout the site (e.g lighting, HVAC) which compare actual, predicted and post audit target levels.
(e) Provision of an itemised list of recommendations to reduce energy consumption and cost which may include capital projects and management options. Capital projects recommendations include the following information;
(i) A clear description of the project
(ii) Predicted annual energy and cost savings
(iii) Predicted cost of implementation
(iv) Comparison of both benefits and costs

Management options which would facilitate more energy efficient use include the following information;
(i) Provision of energy sub-meters to facilitate ongoing measurement
(ii) Changes to maintenance and operating practices
(iii) Modifications to existing plant & equipment
(iv) Alternative fuels
(v) Alternative tariff structures
(vi) Alternative staffing arrangements
(vii) Staff training in energy management practices.

The recommendations are listed in order according to opportunity in terms of payback etc.
(i) Those easily at little or no cost
(ii) Those requiring capital expenditure and a payback period of less than 3 years
(iii) Those requiring capital expenditure and a payback period of more than 3 years.

(f) A documented report that includes all findings, recommendations and benefits.
(g) A full explanation of the report.

The level 2 audit is recommended for high energy users such as manufacturers, processors and densely populated buildings such as multi-storey office complexes.