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Business Building – There’s only one way!

Wednesday, January 20th, 2010

Business Building – There’s only one way!

                                                                                                  © Roger La Salle 2010

 Traditionally

Business is best defined as: “Creating wealth through profitable transactions”

I came to this definition many year ago after having won a job as General Manager of a medium sized company and later boasting to a friend that revenue has increased three fold under my guidance. “Great he said, but what about profit”?

 This was a great question.

Business is about profits, and indeed every department within a business should be contributing to that, even if they are so called “off-line activities” such as perhaps the training manager or the IT Department.

 The Simple Arithmetic

In simplistic terms the profit and loss sheet tells the story of a business and is comprised of just three components:

Revenue less Costs = Profits

 Reduce costs and reap the benefit?

 There are just two ways to increase profit.

The first is to reduce costs, thus profits will naturally rise. But beware of the old adage:

“You can’t cost cut your way to prosperity”. This is so true.

Many initiatives such as “Lean”, “Continuous Improvement”, “Six Sigma” and a host of other efficiency measures target the cost elements of a business. Unfortunately, although these may make you more competitive they will not make you competitive against low cost labour countries, nor in general will they increase the landscape of opportunity. Put simply, they just allow for more profitable operations from the same revenue base.

 Business Building

The only way to increase your business in real terms is to focus on building the top line, the revenue, and there are only three ways that can be achieved.

 1        More Sales to the same market

This is easily achieved as a short term measure by the addition of sales staff, increased incentives and perhaps more advertising and promotions. But this is not a sustainable endeavour and is too easily matched by competitors. Indeed increased expenditure on sales endeavours may be seen as the reciprocal of price cutting aimed at increasing market share. In price cutting, the customer is the only winner. Furthermore this initiative is again easily matched by competitors.

 2        New Markets for the same products

Opening up new markets, perhaps exporting or entering places where products of your type have never before been sold is another way to increase revenues, but this is both expensive and can be extremely risky. Furthermore, once you have done all the work in creating a new market – guess what – you have now laid the perfect foundations for your competitors to follow. This alone is not a good sustainable strategy on which to build your business.

 So what’s the third?

The third and only way to continue to expand your business is to constantly provide new and improved products and services and new ways of doing business – this is innovation. The search for new ways must be sustained and endless or you can be sure business stagnation and eventual failure will be the result.

 Indeed, as stated is some of my earlier work, statistics from USA based research cite the life expectancy of a publicly listed company in the USA today as being less than ten years, compared with some 65 years in the 1920’s.

 Companies that fail to innovate, ultimately fail to exist.

 Innovation and Opportunity Capture is the Answer!

Most business people would acknowledge that innovation is the answer, but unfortunately many confuse innovation with the abstraction of “creativity” and have not given sufficient time to understanding the difference.

 In short, innovation when properly applied is a tried, proven and rigorous tool for business building.

Even less understood than innovation is the formal process of “Opportunity Capture”.

Indeed you can easily show your people how to embrace the exciting and systematic discipline of opportunity capture, and it’s all so easy.

 Where to from here

There can be little doubt that the third way of new and improved products and services and ways of doing business is the only way to reliably grow a business.

So after the cost removal processes have been initiated, it may be time to start addressing the top line.

 That’s the way to build a business.

                                                         **** END ****

Roger La Salle, is the creator of the “Matrix Thinking”™ technique and is widely sought after as an international speaker on Innovation, Opportunity and business development. He is the author of three books, Director and former CEO of the Innovation Centre of Victoria (INNOVIC) as well as a number of companies both in Australian and overseas. He has been responsible for a number of successful technology start-ups and in 2004 was a regular panellist on the ABC New Inventors TV program. In 2005 he was appointed to the “Chair of Innovation” at “The Queens University” in Belfast. Matrix Thinking is now used in more than 26 countries.  www.matrixthinking.com

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Do You Connect the Dots?

Monday, November 9th, 2009

Do you Connect the Dots?
© Roger La Salle 2009
www.matrixthinking.com

How do you operate?

Have you ever worked in a company where the boss or your manager hordes information? Unfortunately this is not all that uncommon. The old saying goes that “Knowledge is Power”, and those of us that are insecure in our abilities or feel threatened by those around us try to remain in control by hording information.

In fact I know of one company where the Managing Director actually leaves notes lying around with incorrect or inaccurate information. The aim of this of course is to retain power by keeping the troops in the “dark” or better still, confused. Can you believe that?

The question is: what’s your modus operandi?

Many businesses have embraced innovation and opportunity capture as an essential business tool to survive and win in these days of ever increasing information flow, market intelligence, and speed to market. There are many innovation/opportunity models including that of so called “Open Innovation”, and what is best described as internal or “Closed Innovation”.

Closed Innovation

In this case the company has all its innovation endeavours conducted and held tightly within, there is little sharing of knowledge and little interest in eliciting the assistance of outsiders to enhance their innovation initiative. Indeed the managers of these tightly controlled programs use their skills to drive the innovation program. Unfortunately, they may be missing a lot.

Open Innovation

In this case, though the business remains in control of its destiny and direction it enhances its innovation initiative by making connections to a seemingly disparate groups of outsiders and companies all looking to expand their horizons by building on combined know how.

These days, there are so many diverse technologies and specialties that it is simply impossible to have a grasp on what is happening on all fronts, thus the connected model has great merit.

Connecting the Dots

One of the great skills of clever entrepreneurs and innovators is to see the linkages between seemingly unrelated issues. This is where in the open innovation model, broadly skilled technologists and open minded thinkers come to the fore.

For example, suppose I run a lumber business. That is the business of cutting up trees to provide timber for the building industry. What possible connection does that have with mathematics? Perhaps none you may think, or certainly the old fashioned timber manager may have thought. But in fact linear programming, quite an old science these days, when employed in that industry can optimise the way timber is cut to provide massive additional profits. But in the closed model, such knowledge may never be acquired, or if it is, only by word of mouth with other operators who may have long since acquired the technique.
Similarly, the technologies developed in putting man on the moon. How could that possibly connect to the business of pots and pans? Teflon coating is the answer.

• Clocks and cell phones or radio paging, is there a connection? Indeed there is. Imagine having a clock equipped with a radio receiver to receive time signals and thus keep perfect time, and even update for Summer Time changes. Such clocks are now available in Australia.

• The packaging business and home insulation? Of course, use bubble wrap as the ideal insulator, it’s light weight, cheap and easy to install and fire retardant grades are available.

• Optics and home insulation? Of course, use a reflective coating on one side of the bubble wrap to reflect radiated heat.

• Physiotherapy and the reduction of carbon emissions?

• The tooth brush and ceramic crystals?

• Extruded plastic “core flute” sheeting and aluminium extrusions?

The reader can ponder the latter three, but the connection in each of these cases has spawned real businesses.

There is an endless list of these seemingly unrelated disciplines that can be connected with an open innovation approach that encourages a wide search horizon.

Indeed this is why the new paradigm of “Opportunity Capture” is now emerging as the preferred approach to the more narrow discipline of traditional innovation.

What’s the Message

Managers in the open innovation space do not need to be great technologists, as perhaps with the closed model. Instead they need to be great net-workers, able to build bridges between people and companies. This is quite a different skills set to that of the managers operating in the closed model.

Thus, stay open minded, expand your horizons and embrace the art of formal opportunity search, where the reach is unlimited.

**** END ****

Roger La Salle, is the creator of the “Matrix Thinking”™ technique and is widely sought after as an international speaker on Innovation, Opportunity and business development. He is the author of three books, Director and former CEO of the Innovation Centre of Victoria (INNOVIC) as well as a number of companies both in Australian and overseas. He has been responsible for a number of successful technology start-ups and in 2004 was a regular panellist on the ABC New Inventors TV program. In 2005 he was appointed to the “Chair of Innovation” at “The Queens University” in Belfast. Matrix Thinking is now used in more than 26 countries. www.matrixthinking.com

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Process Innovation – Reduce your “Cycle Time”?

Monday, July 6th, 2009

Business is tough

The tightening of credit markets has made running prosperous enterprises even more difficult, and whilst some ‘wring their hands’ and lament the good old day of plentiful credit, how many people are looking at their business cycle time as an alternative to extended credit or increased overdrafts?

What is “Cycle Time?”

Cycle time is best defined as “the total time in business it takes from receipt of an order until payment is received and banked” © RLS 2006. In many businesses the cycle time is typically 90 days. In some cases it is much longer. For complex projects payment can be staggered over many years and final payments are often withheld for a guarantee period, extending even further the total cycle time.

Negative Cycle Time

Some businesses have a negative cycle time; that is the money is received and banked even before the goods or services are delivered. Airline tickets or pre-paid phone cards are typically negative cycle time businesses, so too are on-line sellers such as Amazon. Indeed in the latter case there is not even a need to have expensive infrastructure, such as in the case of a telco or an airline. Amazon as a business needed nothing more than a PC and a web site as its investments to get started and create a highly successful negative cycle time business.

“Cycle Time” can mean the difference between Success or Failure

It is important, especially in smaller businesses, to understand the influence cycle time can have on success, or perhaps failure. Indeed there are many stories of business that have failed because they grew too fast and were unable to provide the finance to support that growth.

In simplistic terms, if a business is shipping $100K per month and is operating on a three month cycle time, a minimum of $300k is needed to finance the business. Banks, especially these days, are loath to finance businesses against orders, but rather look for bricks and mortar assets as collateral. If suddenly the business starts shipping $200k per month with the same cycle time, now $600k is needed as working capital, and if that is not available, then foreclosure may be staring you in the face.

However, if the same business can reduce its cycle time to just 1.5 months, then sales of $200k can be supported with the same initial equity base. That’s how important cycle time is, but unfortunately, this is often overlooked.

Customers are slow to pay

Doubtless the greater part of cycle time is the delay in customers paying their debts.

Whilst we can push for deposits, short term financing or even early payment incentives, we should not ignore the inbuilt delays inherent in our own internal processes. If these can be identified and rectified any reduction in cycle time will be immediately seen on the bottom line as pure profit.

So what’s the solution?

Some businesses look to “factoring” their debts. This essentially means taking a short term loan for the period of financial stress, but in many cases the interest charged is sufficient to wipe-out any potential profits. Thus, whilst factoring does have a place, look closely at the costs before seeing this as a panacea. Yet another means is to offer discounts for early payment.

Unfortunately, whilst both of the above may improve cash flow somewhat, they come at a cost.

A better solution to gaining a partial reduction in cycle time is to the take immediate deposits on a customer’s placement of an order. Deposits from customers are seldom seen as your ploy to gain some payment a little earlier, but more likely embraced by many as a means to secure their place in your delivery queue, and thus they are not viewed negatively.,

The best solution is to analyse your entire business cycle time. This is best done by dissecting the business into its serial components from receipt of an order, to shipment, and debt collection and to look for ways cycle time can be reduced.

Process Innovation is one way of investigating cycle time in a systematic manner. It is quite amazing what effect small changes to processes can have in delivering real cycle time reductions, and any gains made here go straight to the bottom line as profit, pure and simple.

What’s the message?

Process Innovation applied to the Cycle Time reduction should be seen as a means to reap hidden profits from transactions that may otherwise cost real money. Dissect and analyse your business, there is always room for improvement.

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Are you asking the right Question?

Wednesday, March 4th, 2009

Innovation is about finding better ways of doing – What?

As we know, a good definition of Innovation is “Change that adds Value” and embracing this term opens the way to make innovation a relatively straight forward exercise, providing you are asking the right question.

How many times do we solve a problem and even implement a solution, only to then realise had we asked a better question we may have come up with a much better solution. How many times do we convene a meeting without having a specific one sentence idea of exactly what we wish to achieve in that meeting?

Being able to crystallise an issue to a single sentence question is so important, but few people implement that valuable practice.

Have you found the best question?

To put this into context, let me pose the question, and have you think of the answer, before reading on:

  • What is the specific purpose of a written job application?

The obvious answer is to get the job, but this not correct.

The sole purpose of the written application is to get an interview, to get in front of the people making the selection.

With that clear purpose in mind, the written application takes on a different form. Indeed, what you leave out is just as important as what you include. You should lead the reader to a point where they wish to speak with you to learn more. This is quite a different approach from writing everything you can think of in the hope that will win you the job. The written application never wins you the job.

The above is a simple example of making sure you have a properly defined objective, and that it’s the correct objective.

Too close to the problem

To cite another example, recently a workshop was undertaken in a large multinational trading bank, the team came to the session wanting to resolve the question – “How can we reduce the cost to businesses wishing to raise a Letter of Credit (LC)?”  This seemed like a sensible question and was workshopped by the group for a time until they came to the “Re -Question Catalyst in the Innovation Matrix.

So challenged to “Re-question” the group digged deep searching to find the real reason they wished to lower the cost? The answer that crystallised was, so that people would be more willing to use their LC facility.

In fact, the real and best question to ask was, ”How can we inspire businesses to raise more LC’s”?

On investigating this different issue it was soon realised that the cost, maybe $20.00 was irrelevant. Why would that be a “show stopper” for somebody wishing to raise an LC for perhaps $500k or more.

The real reason people were adverse to raising LC;’s was the time and effort involved. The process was just too complex and time consuming. Yet the bank in its daily work transfers multi-millions of dollars around the world with little more than the click of a mouse. So why are LC’s so complex?

The better question, the real question was “How can we make it easier for clients to raise LC’s”? With this question in mind the workshop was continued based on a Process Innovation Matrix.  An answer was soon found.

There are countless examples of this, usually caused by being too close to the problem. Just ask any design engineer.

You can be sure almost without exception, after a complex design is implemented, and maybe even marketed, the next embodiment of the same product will be much simplified. Why, because having done it once, better designs questions and issued can now be resolved.

So what’s the solution?

The classic method of questioning with the “why” “why’ “why” challenge is one way of trying to drill down to the best question.

Another way is to have somebody quite remote from the issue present in any meeting that addresses a problem. You can be sure that a person NOT skilled in the area will ask some very interesting and challenging questions. This always helps in drilling down to the real issue and the best question.

Most often when a group of people comes together to investigate a burning issue, a solution will be found, just make sure the best question has been asked, a question that leads to the best solution.

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Service Innovation – the Next Wave

Wednesday, January 21st, 2009

What is innovation?

Simply put, innovation is best defined as “Change that Adds Value”© La Salle 1999.

That is, take an existing product, process or service and innovate (or change) it in some way to add value, this is a very low risk way of business building.

A structured thinking matrix (or rectangular array of “Seeds” and “Catalysts”) for services had been developed that provides a rigorous way of innovating services.

What is less understood are the concepts of Service Efficiency and Quality in the service domain?

Efficiency and Quality in the World of Tangibles

In the world of tangibles, one of the best definitions of quality is “conformity to design”.

That is, decide what is it you wish to make and do it repeatedly without change to meet an agreed specification; and for many manufactured products there is absolutely no benefit to the customer in exceeding the specification or tightening tolerances.

For example, increasing the tolerance on the diameter of a 75mm long nail from say +/- 0.01mm to +/- 0.001mm would be of little benefit to anybody, but would no doubt cause all sorts of production problems and added costs.

In the manufacturing world, for the purpose of Process Innovation it is appropriate to define process efficiency as:

*Process Efficiency   =   Output/unit time ÷ Costs

*Consistent with the maintenance of quality.

Efficiency and Quality in the World of Services

In the services sector things are a little different.

Consider a call centre where the performance specification (or “Service Level”) states that staff shall always answer the phone within three rings.

Suppose somebody then finds a way to answer the phone every time, within two rings. This variance from the specification would be seen as advantageous to everybody, especially the callers. Indeed improving even further and answering after just one ring would be even better.

Unlike the manufacturing sector, in the services sector there is really no limit to the benefit afforded by improving service level (or quality of service). The important consideration is, at what cost, and what is the benefit to the customer.

Drawing an analogy from Process Innovation from the manufacturing sector leads to a useful metric for Service Efficiency as:

Service Efficiency    =   ­ *Service Level ÷ Costs

*The secret in the service domain is in properly defining “Service Level” as one of the key performance or quality measures.

Service Metrics are Essential

It is important to establish typically five metrics or KPI’s for key people and deliverables in your services enterprise and to use these as a basis to systematically “innovate” your service efficiency.

Without these properly defined and quantifiable metrics there is little point in attempting any sort of innovation at all.

Finally, even though the above metric for service efficiency refers largely to the service sector, remember that even a manufacturing enterprise has a significant element of service fulfilment in the interface with your customers. This too can be measured and innovated in much the same manner.

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Rising interest rates, maybe ‘tightening of belts’ – is this an opportunity?

Wednesday, March 12th, 2008

With inflation in Australia above the Reserve Banks targets, interest rates have risen yet again in an attempt to slow the economy and dampen demand. Is this a “show stopper” for business, or can it be viewed as an opportunity?

Traditionally

The Reserve banks uses interest rates as a questionable means of dampening demand and so slowing the economy, but in the last “sledge hammer” approach to economic control under Paul Keating when interest rates reached the dizzy heights of 17% and more, our balance of trade remained in the negative and consumers were still spending. Eventually, after many businesses “went to the wall” demand did damped and inflation slowed – but at what cost?

The ready availability of credit cards and the “must have it now” culture is one of the reasons that the impact of rising interest rates has little immediate effect on slowing the economy.

Notwithstanding the above, one thing is certain; as interest rates rise people do become more discerning with their expenditure. For the first time in perhaps more than a decade people now look twice at bills and purchases and compare alternatives with a little more rigour than before. Churn in now on the increase, and this is where the opportunity lies. Now is the time to win customers from competitors and increase market share.

Innovation is not the only answer.

Many companies embrace innovation (best defined as “Change that Adds Value”© La Salle 1999) of products, processes and services as a means to drive change and as a way of ever improving their offering and moving both their customers and businesses to an ever better place. Opportunism is perhaps another way of thinking, a way that is seldom even touched on by traditional innovation initiatives.

What is an Opportunity?

The dictionary defines the word opportunity as a fortunate intersection of events” or something similar, unfortunately such a definition is not a call to action for it fails to show one how an opportunity may be found.

Perhaps a better definition is:

“An observed fortunate set of circumstances” (© La Salle 2002).

This simple definition underpins an entirely new search endeavour for business development and has the effect of moving the mindset of staff from that of merely operators to opportunists.

Make Opportunity your opportunity!

There are five important search criteria for finding an opportunity. People need to be skilled in the use of these and to work through the simple opportunity stimulants to find new unthought of initiatives. Not only does this work for businesses, it is equally valuable for personal, job and career development.

Be assured, opportunities are abundant, perhaps more so now in times when people are reviewing spending patterns.

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Process Innovation – A key to unharvested wealth?

Thursday, February 14th, 2008

Process innovation can open your business to a complete world of new opportunities if approached from the right perspective!

Traditionally

Process innovation is traditionally viewed as more appropriate to the manufacturing sector, but in fact process innovation applies to everything we do, manufacturing, services and even management processes.. It aims at improving business outcomes by cutting costs. Properly implemented process innovation come with little risk.

Further, a dollar saved in process improvement goes straight to the bottom line as a full dollar, whereas increased revenue targeted from heightened sales activity translates to only some portion as a bottom line increase.

The more common process innovation approaches include, ‘Six Sigma’ with its aim for almost zero defects, ‘Lean Manufacturing’ that focuses on cost down initiatives and waste removal; and ‘Continuous Improvement’ that aims to involve the entire organisation in looking at ways of endless incremental improvement.

Innovate and remove market risk

If we accept that the by far the single biggest risk in business is market risk, that is the risk that nobody will buy the product, then logic would have it that the best way to mitigate this risk is to find something people are already buying and simple improve it. This in fact is what innovation is all about and leads to the ideal definition of innovation as “Change that Adds Value” © La Salle 1999

Nokia is one of the world’s greatest innovators with new improved more featured hand phones coming on to the market every six months. They understand this game perfectly.

Car companies are pretty good as well with face lifted models every 12 months and models bearing a new shape, aimed at rendering your present one obsolete, almost every three years.

Why should the message be different for processes?

Create a Paradigm

Have you ever realised that some of the world’s great businesses have grown on the back of nothing more than improved processes!

FedEx, DHL UPS, did nothing more than look at the very successful postal service and innovate it to provide faster deliveries.

So too Dell Computers, Reuters, and even the Ford Motor company.

Henry Ford did not invent the motor car, he simply innovated the way they were made.

The list of such innovated process that spawned new global businesses is almost endless. And in the case of Amazon, they created a business with a negative cycle time, doing nothing more than finding a new way to sell books.

A structured approach to process innovation can identify complete new paradigms, if only conducted in the right mindset.

Remember, there is always a better way.

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