Taking advantage of change means two things:
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Noticing opportunities (or threats) caused by changes.
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Responding quickly and accurately to opportunities (or threats).
Success requires insight and information. GrowthPath helps get you both. Firstly, faster and more useful information by improving the understanding, processes and reporting of your finance team. Secondly, by giving management and business owners focus on the elements of the business.
In MBA-speak, focus means an understanding of your real barriers to entry and added value. Adapting to change and exploiting opportunity comes from quickly finding new ways to use your real strengths.
In plain English, ‘focus’ means insight into the key drivers of your cash performance and true understanding of why your customers come to you.
If an SME is truly focused, it is apparent through:
- simplification of reports, models, forecasts and finance processes
- effective use of information coming from outside the accounting system
- an organisation oriented by the customer segments it serves.
Turning change to advantage
Firstly, the organisation has to be agile: to be able to change direction and try new ideas. It’s easy to see why agility is praised, although it’s not easy to achieve. For SMEs, agility is greatly helped by better information about the business, which is why GrowthPath advocates a new mission for the finance team (you can read more here).
Focus
Next, “focus”. Partly, focus is knowing your real cash costs when doing something new … knowing them to “good enough” level. ABC (Activity Based Costing) takes too long to implement; it is overkill.
Mostly, focus is knowing how your organisation adds value to customers. A black-box view of a business is misleading. You don’t simply sell and deliver products. During the process of attracting a customer through to fulfilling an order, many steps happen. The classic example is the 19th century railway companies, which didn’t realise they were actually transport companies in the eyes of their customer. When technology and government investments made automobiles and trucks a better way of moving things around, the railway companies failed.
What are your customers really buying?
In some of these steps, you will be outperforming competition, and in some steps you will be under-performing. Your customers are coming for the added-value steps. Many organisations don’t really understand this. Standard reports like the P&L average everything together, providing no focus, but smudge and blur. Better insight is valuable because change affects different parts of your organisation unequally. The railway companies had a strong network of ticket offices, customer service, strong brands and solid corporate contracts, all of which cost their new competitors money to duplicate. With the insight that they sold transport instead of room on trains, they could have kept the strong parts of their business and adapted to new methods of transport. Today, the internet is asking the same question of retailers.
Agility means you can reposition your organisation; like breaking down Lego and using the pieces to make something different. Focus means realising the need early on, then knowing how to respond and adapt to change. View your organisation as a diverse collection of pieces and understand how they fit together. Realise that change will leave some of the parts ready to prosper in the future while others will be left behind.
To M&A experts, this is not really magic. This is what they do. They buy a whole organisation because some parts fit to the target and some parts can be divested to others. What may be a surprise is that this holds true for SMEs, not just for multinationals. The difference is SMEs are in a position to take advantage of their agility. You don’t need to go through M&A to unlock the true value in your organisation, you just need to understand what your company does from the customer point of view.
Please see also: A new mission for the finance team, a key step in building an agile organisation.