Maintaining a competitive edge in a fragmented market is a challenge for all catering equipment providers. Clive Newell, managing director of business development specialist Halagen, explains why a little lateral thinking can make a radical difference to the financial performance of your business.
"If everyone understands the impact they have on the financial performance of the business, they only have to shift their behaviour, decision-making or actions by as little as 1% and the financial impact can be huge.
Secondly, it is the front line people, such as the van drivers, installation team and service technicians, who can have the biggest impact in delivering a 1% improvement. If you have not shown them how they can make a difference and by how much, it will never happen. You will have efficiency, profit and cash leakages all over the place.
The technique can be applied to any organisation, regardless of size or sector and is very effective and simple to implement. It is about the engagement of your teams, both horizontally and vertically, from board level down, throughout the business with the financial consequences of what they do, think and feel. If you are responsible for a team, you may like to read on! The objective is to achieve improved resource utilisation efficiencies in key areas to drive improved financial results, but certain dynamics need to be understood first:
This is everything about the business model, how it works, the systems, culture, markets, brand, management and leadership capability and so on.
As an example, if you are in an industry that generates revenue from or is affected by any time-related activity (which most are), then the business model must be understood. Under/overruns on time will have a significant impact on financial and business performance. Look at the business model impact if your installation or service technicians are programmed to take 10 days for a job and take 11.
What do you really sell? A classic example is the precision engineering business. “We sell precision components, but we often suggest design and finish improvements or innovative engineering solutions.” It is this latter part that is the brand dynamic and through which profitability can be leveraged upwards. Customers love it because their products are enhanced.
The catering equipment sector is selling confidence that product quality, hygiene, service and the customers’ own brand is in safe hands. This is first rate and this gives the best chance of competitive price advantages. Selling on product/price models alone are a weak place to be.
Systems and Processes
Look closely at this dynamic. The purpose of systems and processes is to provide the mechanisms for delivering the policy and strategy of the business. If the goal is to grow your distributor business from £3m to £10m to £20m, your current processes will not support that strategy and will need upgrading.
For decades, culture has been recognised as one of the key business model dynamics that drives wealth creation in an organisation and increasing attention is being given to it to be as optimal as possible. Complex? Not necessarily. Quite simply the objective is to get everyone in the organisation driving in the same direction and get individuals to feel they can make a difference, particularly in supporting the brand and bottom line performance. Two things are needed: cultural change and cultural alignment with the brand values.
Financial and Other Metric Dynamics
No need for paralysis by analysis here, just a focus on the key metrics that need to respond following the implementation of an effective Project Percent Programme. Typically the main metrics revolve around the following examples:
– True gross profit to sales ratios: Applies especially where a significant part of the business model relies upon bought-in products and services. True gross profit is derived after deducting direct variable costs from sales. Too many accountants add fixed labour elements into costs and this obscures the true gross profit.
– Time performance ratios: Applies especially to service/installation business models.
– Cash performance ratios: Applies to all organisations. Indirect examples are just as important, but must be fully linked to the financial metric outcome. For example, customer satisfaction levels link to brand, pricing strategies and true gross profit improvements. Staff turnover rates link to culture, delivering brand values, competitive advantage and profitable revenue growth. And supply chain efficiency links to brand and true gross margin improvements. A similar result can be applied to pricing efficiencies, time efficiencies and other resource efficiencies.
So if your buyer understands the impact of securing a 1% improvement in procurement, the chances are it will be 1% of a big spend and hence a significant profit improvement. Installation and service technicians completing on time will keep budget performance on track. Administrators must not be ignored. They are the guys that can keep operational efficiency optimal and have a big impact on profitability. The list goes on, but remember it is about linkage and is very simple to implement.
Of course, a 1% improvement across multiple areas in the business will have a correspondingly large and significant impact, and for many business a 10% improvement in overall financial results is easily achievable.
In summary, it is the gearing effect that a ‘Project Percent Programme’ will deliver. The key is to link the job role to the financial consequences to drive informed decisions, better actions and better behaviour. This is for everyone, not just the board, and can be achieved by educating and engaging them more fully with the businesses finances.
You will be surprised at the response and how your teams will feel they make a difference — and how the business will perform, even in a fragmented market."