Business Strategy Consulting

Manufacturing Strategy – Gaining a Competitive Advantage

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In today’s increasingly complex competitive environment, consumers are demanding greater variety, shorter lead times and lower costs. Unfortunately, in many instances corporate strategy is dominated by marketing and finance with little or no input from manufacturing. This often results in manufacturing being simply expected to respond to demand changes, which has contributed to the seemingly endless complaints about the ‘unrealistic’ demands placed on production. Many production managers are faced with overriding pressures to meet day-to-day targets, including scheduling, efficiency, quality, output, inventory reduction and productivity. This, coupled with the highly quantifiable nature of production, has led to a greater focus on operational efficiency (doing things right), rather than being strategically effective (doing the right things).

The lack of understanding by many senior managers towards manufacturing often means that when difficulties do occur, the favoured course of action is to eliminate the problem by sub-contracting the manufacturing tasks either locally or offshore. This unfortunately does not address the root cause of the problem and may even lead to the inability to compete in future markets as critical manufacturing processes and infrastructure is dismantled.

As opposed to being reactive, manufacturing executives should become more proactive and companies need to develop their manufacturing strategy as an integral part of their overall corporate strategy. Manufacturing should choose its processes and design its infrastructure (controls, systems, procedures), in a way that helps products win orders in the market place. A critical element of this process is to determine the value that customers desire (Voice of the Customer), and then for the manufacturer to match the processes and infrastructure to these ‘order winning’ criteria. Finally, the processes and infrastructure should be adaptable to changing market demands.

Although R&D, finance and HR will naturally impact on manufacturing, the link between the marketing and manufacturing strategies is perhaps the most important. Developing a coherent manufacturing strategy should include the following steps that emanate from the corporate objectives:

1. Corporate Objectives

Senior management should set the long-term company objectives including growth, profit, return on investment, target markets, environmental sustainability etc. This will then lead to the formulation of the financial, HR, R&D, marketing and manufacturing strategies.
2. Marketing Strategy
Strategic marketing initiatives include product range, pricing strategy, promotion, market positioning and mix, volumes, leader vs follower strategy, etc
3. Voice of the Customer
This vital step seeks to determine the value actually desired by customers so that the company can ‘win orders’ in the marketplace. Customers value a range of factors including price, quality, brand image, service, design flexibility and customisation, product range, delivery lead time, environmental factors, lot sizes etc.
4. Manufacturing Strategy
Having completed the above 3 steps, a manufacturing strategy can now be formulated that supports the company’s products in the marketplace and assists it to win orders against the competition. This encompasses two aspects:
a. Process Choice. Manufacturing processes to support the strategic objectives can now be chosen after having evaluated available technology, finance, plant capacity, factory layout, the role of inventory, anticipated volumes, sub-contracting etc.
b. Infrastructure Design to support production, including production planning and control systems, quality management systems, support functions, organisational structure and compensation agreements.
Gaining a competitive advantage in today’s global market requires manufacturing to become actively involved in the corporate strategic debate by being able to influence decisions for the overall good of the business.
Marketing Consulting

Positioning Statements

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You have heard of taking a position. Well in the business world, often you have to create a position—a positioning message that is. This message reflects your company’s values and gives customers important information when they are deciding where to spend their money.
Creating a positioning statement can be a difficult and confusing task because many businesses offer the same products and services – but it’s not impossible.
Think of Colgate and Crest toothpaste. Essentially they are the same product and they perform the same functions—preventing cavities and cleaning teeth. Yet Colgate is the number one toothpaste. Why? Because it positions itself as the choice most dentists recommend.
Think about your vision for your company. How do you want people to remember you? Can you surmise it in a concise sentence? Think about brand names that are inseparable from their messages. Burger King is the fast food chain that “does it your way” and lets you customize your “flame broiled” burger. That’s how you know it’s different from McDonald’s and every other burger business. Another example is Subaru which delivers all wheel drive “performance and safety” across its full range of vehicles.
A positioning message:
Distinguishes you from the rest
Reflects your intentions, priorities and values
Communicates concisely how you see your business in the marketplace
Is the center of every marketing effort and corporate communication
To strengthen and clarify your positioning message, you have to know your Ps and Cs:
Product—what exactly are you offering your customers? Are they superior to your competitors’ offerings? Are you able to clearly and quickly articulate the benefits you’re offering? Features describe the product while benefits reinforce what the product does for the consumer. For example, a feature of a car is an airbag, the benefit is increased safety during high impact car accidents.
Price—we do not recommend that you engage in price wars that can ultimately cut you out of business. Instead, find ways in which you can deliver superior quality and customer service so the consumer prefers your company.
Promotion or advertising—do you actively and relentlessly communicate your positioning message? Do you promote the ways in which you deliver superior quality and customer service or are your campaigns mostly centred on discounts, coupons or rebates?
Place (distribution)—do you know how and where your product or service is delivered? Are the ways in which you can use this to differentiate your business? For example, a company could make a positioning statement and a promotional campaign centred on delivering its product in pristine condition within 24 hours or your money back.
Company definition—are you specific about what your company does and how it does it? Companies that try to be too much to too many people often fail because they cannot adequately meet customers’ expectations. Be clear about what you do and how you do it differently and more desirably than anyone else. For example, Joe Boxer is an underwear company like hundreds of other underwear companies but it’s clear that it offers underwear that is fun to wear. So you will never see a pair of plain white briefs in Joe Boxer and whenever you see the packaging, the website or visit a store where Joe Boxer products are sold you will see an element of fun, humour and cheekiness (check out www.joeboxer.com)
Competitors’ identification—do you know your competitors? In order to differentiate yourself from the pack, you will have to analyse your competition. Why might a consumer pick them over you? How can you narrow the gap on them? What do you already do that is superior to their business offering and how can you constantly and consistently communicate that?
Consumer target definition—do you know your customers? Do you have demographic, lifestyle and psychographics information on your best customers? Do you know whom you want to target and who is most likely to purchase from you?
Channels (distribution again)—where and how is your product or service delivered? Are there ways in which you can capitalize on that and make positive distinctions between you and your competitors?
Always remember when creating your positioning message to be truthful about what you can offer so that you do not disappoint your customers. Over-promising and under-delivering are the fastest way to distinguish your business in your customers’ minds—and the fastest way to send them running to your competition.
Business Strategy Consulting

Due Diligence Explained

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In its simplest form due diligence is a comprehensive process that investigates a business to assure the intending purchaser that all facts and financial figures are as stated by the vendor and that there are no unpleasant and unwanted surprises that have been concealed.
This process of due diligence is usually conducted by the purchaser’s accountant, business advisors and legal advisors, who may also call in specialists for matters relating to stock or capital equipment, among other possible areas under examination.
The sale of a retailer, for example, might require an expert in that particular line of goods to gain an accurate valuation of the stock in the business. The purchaser of a manufacturing business would want to be sure that the equipment is in good condition and has been suitably maintained.
Due diligence is a part of every business sale or purchase, regardless of the size of the enterprise. The more complex the business is, the longer the due diligence is likely to take, but today’s purchasers shouldn’t even contemplate buying a business until due diligence has been completed.
Is it a good business to buy?
Due diligence is conducted to answer a number of questions, including whether the timing is appropriate for the purchaser to buy and why the vendor is selling the business. Some businesses have peaked and are starting to slide which might make them affordable but also means they aren’t capable of improvement and represent bad investments for purchasers.Due diligence examines the market for the products sold by the business and determines their positions in the life cycle of each product. It looks at the marketplace to find signs of saturation, or to locate opportunities the new owner can exploit.
The finances of the business
Every business for sale comes with claims of turnover, expenses and profitability, but how can the purchaser know that these are accurate representations? Due diligence inspects the books of the business including tax records for at least the previous three years to validate or challenge claims by the vendor.
Due diligence will also look for details of how capital equipment was acquired to ensure that the ownership status is as claimed and no outstanding loans or charges over the equipment exist.
Who buys from the business?
Many businesses are highly dependent on a small number of large customers. The departure of just one of these can be a serious problem, and the purchaser needs to be certain that existing customers will stay after the sale of the business. Due diligence will examine all existing contracts and sales agreements, and if necessary introduce new agreements to carry customers over to the new owner. It will also verify claimed purchase levels of key customers and evaluate their growth potential if required.
The condition of the premises
The acquisition of most businesses involves taking over premises, usually ones that have been leased by the former owner. The due diligence process looks at the condition of the premises so that the purchaser isn’t stuck with expensive repairs, and investigates the terms of the lease to ensure it’s sufficiently long and the rental amount is appropriate. Another critical factor that relates to the premises is its location. Is it in an area that’s affected by high crime rates or high volumes of heavy transport? Does it permit parking for employees who drive to work, and can customers access the premises easily if they want to?
Compliance with all applicable legislation
Every business requires a number of permits and licenses to operate; issuing authorities can range from local governments to the State and Federal Government. Lack of proper licensing can lead to the closure of the firm or at least to expensive legal action and possible fines. Due diligence will identify all those permits required by the business being offered for sale and ascertain whether the company is in full compliance. It will also examine proposed or pending legislation to ensure that no changes to the regulatory environment will affect the business.
The people
People are essential to most businesses. Due diligence examines the staffing of the enterprise and whether the people now in the business will remain there under the new owner. It also considers any need for redundancies of existing staff and the estimated cost to the business. The process of due diligence can be extended to the preparation of contracts and workplace agreements for staff to keep them with the business after the transfer of ownership.
One of the most important areas of due diligence is to look at the importance of the previous owner to the operation of the business. Is that person essential to the firm’s success? Will the new owner’s skills be sufficient to continue trading as before? Some businesses are so technology dependent that when the former owner departs they will be unable to survive.
Intellectual property
A businesses’ IP can include patents, trademarks, copyrighted materials and even customer lists and sales records. In most transfers of ownership the new owner acquires the rights to this IP and it remains with the business. Due diligence will establish the validity of all intellectual property that is included in the sale and ensure that it is transferred along with the other assets being bought by the purchaser.
The period of transition
Due diligence will establish whether the outgoing owner will remain with the business for a period of time to assist the new owner, and determine a length of time in which the previous owner is ‘locked out’ of competition with their former firm. It can also set a period of time for the incoming owner to run the business on a ‘trial’ basis while all the financials can be checked out and the outgoing owner introduces customers to the new owner. Due diligence is an essential yet flexible process that every purchaser needs to understand and incorporate into the acquisition of a business. It can take place after an offer has been made and accepted, or it can be used to help the purchaser determine the most appropriate price to pay for the business.
Business Strategy Consulting

Time to Build the Optimal Organisation?

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New Strategies will drive your Organisation

Two myths are associated with Organisational Structures. The first is that organisational structures enable work to be carried out and achieved in an organisation. The second is that barriers are formed in organisations by the organisational structures.

Why are these commonly held beliefs wrong?

Firstly, work in organisations is achieved through the business processes and procedures not the organisational structure. These are both formal procedures and informal procedures.

Formal procedures are typically documented and are a part of an induction or training program or built into the logic of a computer program. The handling of customer complaints, order entry, warehouse stocktaking are usually formal procedures in many organisations. They have step by step activities, authorisations and approvals.

Informal procedures are essential for organisations to function as they cater for the non-standard demands that fall upon the organisation. These can be associated with a customer’s special requirement, new product development but are typically associated with solving problems and issues with the organisations. Informal procedures rely upon networks which are not defined between divisions and departments; they rely upon personal relationships that have been developed over time and through necessity to achieve the organisations goals.

Secondly, barriers in organisations are more likely to be the result of poor design of formal processes and procedures in organisations. Examples of this could simply be the production department not having the correct authorisations to view customer complaints in the CRM system. The argument that organisational structures can form “silos” which leads to dysfunctional outcomes simply highlights that the procedures are not developed to link the organisational structures to provide the desired outcome. Other barriers in the organisation can be driven from weak strategies, poor application of technology, confusing policies, poor skills or incentive schemes which reward the wrong performance.

So what is the purpose of the organisational structure?

An organisation’s structure enables people to be grouped into entities which have a shared missions and common management as well as providing a reporting structure. These can be grouped by function, geography, market, process line or product line. The emergence of global organisations has lead to a trend in product based organisational structure as country boundaries are no longer as important as they were thirty years and more ago. In addition, organisations are increasing their focus upon their customers’ needs and as a result are forming division which will serve the different customer needs. Banks are structuring their organisation on retail, small business and corporate customer segments.

So what are the drivers of the Optimal Organisation?

The Leaders of organisations have the primary responsibility to interpret the external environment, such as government policy, economic trends, community expectations, shareholders expectations and markets/customers and formulate strategies that will drive their organisation forward. The Optimum Organisation design starts at this strategic level. The Optimal Organisation is the “vehicle” through which the strategy is delivered to the organisation and to the shareholders by way of dividends and growth.

As mentioned at the outset, the business processes and procedures of an organisation will deliver the outcomes of the organisation. Therefore the Optimal Organisation must meld strategy and organisational processes in such a way as to maximise the efficient delivery of the strategy. In order to achieve this efficiency, the Optimal Organisation should be designed upon the following elements:

  • Clarity in those business processes which are critical to the success of the strategy
  • The human capabilities and skills required
  • Information and Knowledge management
  • Goals and measures which will drive the step by step progress towards achieving the strategy
  • The necessary culture required by the organisation to succeed.

The Optimal Organisation is totally focussed and driven by the strategic direction of the business. Alignment at all levels of the organisations as to the strategic goals is essential to ensure that dysfunctional distractions do not emerge over time, resulting in resources being focussed on non-strategic issues.

The Optimal Organisation must be a key consideration in the annual review of strategic direction. Most organisation neglect the organisational structure during strategic reviews. The result being, they have an “evergreen” strategy but the organisation is in capable of responding the meet the new business challenges. This outcome result in expectations not being met, internal frustration and over time highly dissatisfied customer, shareholders and employees.

Finally, there is no prescriptive optimal organisation, no “flavour of the month organisational fad” but rather a design that effectively and efficiently ensures that a direct and tangible links are achieved between strategy, business processes and the people within the organisation.

Business Strategy Consulting

Tips from a “Gen Y” Entrepreneur

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Wow, what an inspirational day.

Gen Y has received a lot of criticism from those in my generation. “They expect it all, have a poor work ethic, if they can’t see immediate advancement opportunities they move on” – and the list goes on.

But then every once in a while you meet someone, see something or are told of something that changes that stereotype. With 4 kids aged from 29 – 13, it has happened to me a lot, but today was one of those special days. I had the pleasure of being at the Annual Lunch of the Penrith BEC (Business Enterprise Centre) – always a fun day and great to catch up with business colleagues and friends. When they announced the guest speaker was a ‘young entrepreneur’, I must admit there were a few raised eyebrows among the business ‘boomers’.

But what a surprise. Not yet 30, Jack Delosa has over 6 years experience running his own successful businesses (and one not so successful, but that’s another story). His latest venture, “The Entourage” looks at addressing the problem of ageing business ownership in Australia and the apparent lack of interest from ‘his generation’ in family succession. He sees both the threat and the opportunity and through The Entourage he aims to inspire and develop entrepreneurs to start, build and exit high growth ventures so that we can develop the social entrepreneurs of tomorrow, and effect real change for good.

Sound all too altruistic? Well think about this. The vast majority of Australian businesses are owned by Baby Boomers who will be looking to exit over the next 10 years. Opportunity for those want to acquire a business? Threat for those looking to exit?. Jack shared his thoughts on the risks facing business owners and what to do to minimise that risk. Like all good advice, it looks pretty obvious and simple. I’ll share it with you here.

So what were Jack’s Risk Factors facing business owners looking to get out?

  1. Key person risk – the businesses reliance on one individual.
  2. Management risk – the business has an inexperienced management team or board.
  3. Lack of systems – poor automation, no documented policies and procedures.
  4. Costly and/or time consuming revenue generation – lack of leverage and scalability.
  5. Documents & Reporting – key contracts missing, poor reporting.
  6. Financial risk – inconsistent cash flow, low profit margin.

All of the above risks will have a negative impact on your ability to dispose of a business for it’s full potential (average sale price of Australian businesses is 1.5 times earnings). But all of the above can be addressed with proper planning use of mentors, seeking outside advice and developing advisory boards.

On the ‘flip side’, Jack spoke of the Growth Factors that he looks to instil in a business and that will add value to your asset:

  1. Scalability – you business needs to be easily scalable. Think systems and processes.
  2. Good contracts – long term, high value clients = security of revenue.
  3. Management – the business runs under management, not an individual and doesn’t require specialist skills. Think McDonald’s – a ‘restaurant’ run by 16 year olds.
  4. Database – Make sure you have client details and a good relationship with them. A marketing friend of mine once said “he who has the biggest database wins”. Don’t think Microsoft invested into Facebook for it’s social network (valuing it at around $15bn when it was losing over $1m/mth) – Microsoft bought a database for advertising.
  5. Leveraged Approach – key relationships that deliver consistent business.
  6. Financials – the opposite of the Risk Factor.
  7. Brand – its a barrier to competition.

So all of this from a “Gen Y’er”. Not bad eh? It is said inside every old man there is a young one wondering what happened – I don’t think this will be true of Jack Delosa.