The last few years have seen enormous change in almost every aspect of our lives. The next few years of economic challenge, may need to see even more.
We are often asked by clients of our Healium LLP consultancy business to help them to improve their financial performance.
This can be any of a wide variety of issues, such as a project focussed on driving profits through better pricing strategies, or perhaps working to develop better sales systems to help upsell and cross sell their products and services better. It can also be more ‘accounting based’ such as better debt collection or better reporting of key performance indicators or financial results.
If we are to be successful in any of these, we need to understand that they are at their heart, a change management project. What changes are needed and how these are done, are just part of the project, making them stay done is another story.
So we consider these key steps…
Firstly, is there a need or desire to change?
Some clients approach us because they are in distress. There is an obvious and immediate need to do something, and the client’s team often accept any suggested changes readily because they understand that the alternative may be much worse! Frustratingly for us, many businesses leave it until the last minute and don’t have the time to make the necessary changes.
Other businesses may be doing OK, but the owners or managers can see untapped potential. Whilst it is good news that the business is successful and profitable, that sometimes means that there is less urgency and need for change to occur, and this can remove the motivation to do so. The expression, “Good is the enemy of great” is a real issue. If the business is already 7 out of 10, where does the desire come from to achieve 8 or 9 out of 10?
Motivation can be generated by creating a fear that the world around us is changing, and that continuing on the same pathway will mean that what was 7 becomes 6 or 5, or that there are unknown financial challenges that may evolve and create a financial imperative to maintain or improve profits to survive (Covid or recession for example).
The point is that for any change project to succeed requires a “WHY?” question to be answered. Even if you as a business owner can see the merits of a plan, others will not automatically buy into your ‘why’. You will need to get consensus to the merits of change if you are to get agreement to the method of change.
Can you change, and will it be worth the effort?
The answer is almost always yes to both. In any business that has had insufficient attention on any area of its activities, any attention to it will see improvement. So if you were doing little to drive pricing expertise and profit margins, and then you do more to drive it, improvements are almost certain. If you had poor systems to ensure sales people up sold and cross sold, better systems will see improvements. If this attention is to, say, pricing issues, then tiny changes in the top line, translate to substantial improvements in the bottom line. In many projects a 3% to 5% top line increase has seen a trebling or quadrupling of the bottom line. Whilst every project will be unique, and the scale of each business will be different, it is almost always the case that relatively small improvements in a few key areas can have a huge impact on the bottom line. We use a great financial modelling tool to work this out, so ask us if you would like a free copy of the ‘5 ways to grow your business’ tool.
The real issue for any change project is that you need to do 4 things…
Inform – pass on knowledge, examples, case studies etc and raise the understanding and awareness of the key people (or whole team perhaps) on the issues under review. Get them to understand the changes proposed and how these work in other businesses and how they could work in your business.
Engage – Persuade the key people that change is needed (or at least beneficial) in your organisation. Exactly how does it apply to you? What techniques and procedures will work in your business? How far are you willing to be pushed on improving any particular strategy? This is intended to gain the buy in of your team to the merits of improving this aspect of the business and get their consent for change. Apply the principles and demonstrate what this could mean for them in terms of job security, bonuses, promotion potential etc etc.
Change – The key implementation phase. Who is driving the project, when, how, with what deadlines and targets? This usually means a team set up to drive the changes, with some external expertise if possible. What systems, processes, disciplines and controls are needed? This is the hardest part. Most people hate change and many actively resist it even when they may agree it is needed. You need to try and push for far more dramatic impacts, in the knowledge that there will be resistance and reluctance to do that. I.e. aim for 15% price increases knowing that most front line people will drag that ambition back to perhaps 5%. But better that than starting at 5% and getting dragged back to 2%.
Maintain – Whatever changes are agreed, and whatever systems and processes are implemented to enable those changes, there will be a need to police them to ensure compliance, and to have consequence. Either ‘pain’ (financial, disciplinary, public league tables etc) for non-compliance, or ‘pleasure’ (Rewards – financial, recognition, praise, etc). These are the two core motivators for any action, do you get pleasure or pain for your efforts. Interestingly people will work much harder to avoid pain than they will to achieve pleasure. i.e. penalties for not playing the game have more impact than rewards for embracing change. Without this aspect of any project, most changes will be undone within 3 months as old habits gradually slip back in. Sure, the process should measure results and adapt is needed, to be more or less aggressive with changes, but systems that enforce compliance are essential.
This may sound very complicated, but the principles are very simple…
- Are there areas of your business that could be better?
- Do you want or need to change these things?
- Are you able to make the changes and will the benefits be greater than the cost?
If these are all ‘Yes’ responses, then Inform, Engage, Change and Maintain. If you want help on any aspect of changing your business, and in particular, actions to drive profitability increases, then talk to our Healium team to explore options.