Is Your Business Focused on Efficiency or Resilience?
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the state or quality of being efficient.
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(of a person or animal) able to withstand or recover quickly from difficult conditions.
Efficiency and Profit
Creating or focusing on profit has generally been achieved by creating ever more efficiency. Cutting ad hock costs, outsourcing to reduce labour costs, just-in-time manufacturing, focus on the best channels to market, optimising of marketing, optimising of IT etc.
So, profits will have gone up because now the business is hyper efficient and with little cash tied up, we can all celebrate our brilliance!
Brilliant that is until something unexpected happens, like a once in a lifetime flood or was it twice in a lifetime! A key member of staff is taken ill, and so vital was the job they were doing, you are now stuck. Or perhaps a little virus pops up and in the space of a couple of months destroys your business, your employees have lost jobs, your customers or clients are nowhere to be seen.
To some extent I can understand why you are tempted to extract as much profit as you can. A shareholder wants the best return on capital, a manager who is measured on profit will do all they can to ensure they get their bonus and hit targets.
Keep staff costs as low as you can because that leaves more for reinvestment and dividends.
But there're several problems with the thrust to get more profit. In my view the biggest of which is, greater efficiencies lead to less resilience.
With less resilience we end up in a mess and quite quickly.
Resilience with IT
In the good old days of the 1970s and 1980s we would discuss the benefits of redundancy with IT systems. If a hard drive failed it would switch over to another hard drive. If all IT systems failed, we had good old-fashioned paper and card indexes.
With our newer internet and SaaS, cloud-based offerings, we assume it will always be there. But what happen if the internet falls over, your normally trusty Wi-Fi fails, or your SaaS service gets taken over or goes out of business?
You are stuck.
The alternative scenario is to plan for some of these eventualities. I don’t think it’s possible to plan for every scenario, but even smaller businesses need a continuity plan of some description.
According to Enisa - https://www.enisa.europa.eu/topics/threat-risk-management/risk-management/current-risk/bcm-resilience/bc-plan/it-service-continuity-plan
“The Information Technology Service Continuity Plan is the collection of policies, standards, procedures and tools through which organisations not only improve their ability to respond when major system failures occur, but also improve their resilience to major incidents, ensuring that critical systems and services do not fail or that failures are recovered within acceptable process RTO limits”.
Resilience with Channels to Market
My presumption is you will have a way to reach your market and hopefully you will have more than one way to reach your market and vice versa.
If your business has only one main way to reach your market, then you have a potential problem!
Businesses of all types have occasionally suffered with a diving board mentality. What does a diving board mentality mean?
Imagine a diving board and then imagine the tower which supports it. The diving board is out across the water and it looks solid. Now imagine what would happen if the tower collapsed, no more diving board!
Now imagine the tower supporting your diving board is your route to market. Its collapse means you now have no easy way in which to communicate with your potential customers.
If you are a retailer and people are not visiting your location as often, you will be in trouble. If you employ a direct sales team and they decide to leave for any reason or your competitors are smarter, you will be in trouble.
If you rely on Google Ads, Facebook Ads, LinkedIn, and things change with the platform or with legislation you will be in trouble.
My advice is to beef up your marketing resilience and ensure you have multiple routes to market.
Imagine instead of one tower supporting your board you have several. This means if anyone fails, you have others to fall back on.
From a marketing perspective, you could explore.
A bricks and mortar business could create an online experience, perhaps a joint venture, or public relations, a Facebook page which is regularly updated.
If you have a sales team, perhaps you could explore other strategies along similar lines. Direct Mail, Websites which engage and educate.
Direct sales has changed since the development of the internet. Gone are the days when a prospect would talk to a salesperson and make a decision.
What happens now,
- A person identifies a problem,
- They research it online, then,
- They also conduct further research to discover all potential solutions,
- They reach out to friends for recommendations, and check what others say about a solution on social media, forums, and other online sources,
- They Google this solution and read online reviews,
- During the sales process, they might also click an ad offering a solution, finally,
- Based on all information make a buying decision, and only then
- They might reach out to the company to complete the sale.
Companies which sell direct or business to business have plenty of opportunities to embark on other strategies.
Perhaps a simple joint venture, develop a LinkedIn strategy, work with marketing and agree a more joined up approach.
Outsourcing and Resilience
It has been quite the thing, a natural desire to increase profits by reducing costs and using labour from another country. To name a few, it’s been done with call centres, software development, manufacturing, across different sectors.
Whilst it looks easy to use outsourcing, I think there are costs associated with this activity which don’t appear until after setting it up. Key amongst these costs is the loss of control, service and product quality will often suffer. Your outsource partner will want to ensure they are profitable and will be looking at shaving their own costs and this will end up affecting your clients or customers.
Resilience in Business and Cash-Flow
There are of course many areas of the efficiency vs resilience equation to consider but I wanted to end with this final point.
Almost every business will need to ensure it has enough cash to survive and thrive in hiccups whilst trading. I say almost every business because a government backed business is not necessarily constrained. I’ll leave the reasons why for another article.
Hiccups occur from time to time and it’s not just the dreaded Covid-19 virus which will thwart you.
Every business needs a cushion of cash to call upon when an emergency presents itself. I believe some businesses have overstretched themselves due to being highly geared. They have borrowed so much that overall profitability and viability is stretched to breaking point.
When the downturn happens, assets are sold to create enough cash in which to survive. These assets are often sold in a rush and the price accepted is not as good as it could be.
I believe every business should aim to create a buffer of cash of at least 1 to 3 months’ worth of bills where sales or turnover is zero.
I know some of you reading this will not have these cash reserves nor have the capability to build them up. In this case, I’d suggest looking at your business model and your vision for the business.
Your vision in moving the business forward is the key to creating new thinking and new strategies. It may mean you need to pivot towards a slightly different business but if it brings you comfort over the long run, then surely its worth the effort now.
Your comments and views are very welcome, please post them below.