“PIP” Doesn’t Always Mean Profit Improvement Potential

What has the PIP breast implants fiasco got to do with accountancy, you may well ask

Well, there is an illuminating situation arising from comments made by the Chairman of the Harley Street Medical Group, the company responsible for fitting 13,900 women with the notorious cheap industrial silicone breast implants between September 2011 and March 2010 (BBC News report January 11th 2012).

The Chairman of HMG is quoted as saying that the company has neither the resources, the surgeons, nor the operating facilities needed to do the surgery required. He says that the Government must accept “moral responsibility” for replacing the PIP implants.

The published financial information for the Harley Medical Centre Ltd (the perceived operating company carrying out the procedures) shows consistent annual turnover of £30 million per annum and profits before other operating expenses of £14 million.

It therefore seems that very considerable profits have been made from amongst other procedures, the PIP implants. Whilst no precise detail is given, the perception exists that the Chairman and his associates have personally been well rewarded out of these implant procedures.

So where does this all lead us, apart from a massive bill for British taxpayers? For a ‘professional’ business, what are the Harley Medical Groups’ customer care criteria? Where is their aftercare service? Where is there any evidence of the business putting its customers first? Where is the company ethos that if anything goes wrong, they put it right at their cost, without quibble?

It seems to me that the Harley Medical Group has merely taken the considerably substantial sums of money from the mostly insecure and vulnerable ladies, and run. It has absolved itself of any responsibility and is seeking to pass the buck to us taxpayers. Frankly, that just sucks.

What it has failed to recognise is that with this attitude it has damaged its reputation in a way that will probably be more expensive in the long term than if it had at least offered some way of sharing responsibility.

For a ‘professional service business’ it has committed the cardinal sin of blaming everyone else rather than taking any responsibility themselves.

It has however successfully presented us with a classic case study of stupidity and rampant immoral greed.

The Madonna Effect (or try and be positive)

Coming into an uncertain 2012, my attention was recently drawn to a book by Oren Harari called “Break From The Pack: How To Compete in a Copycat Economy”. It is a book worth reading and certainly challenges the idea that the best way to build a great business is to copy what everyone else is doing.

One of the concepts Harari introduced that I particularly liked is what he calls the Madonna Effect. Love her or loathe her, Madonna is a phenomenally successful pop star with a career spanning 25 years at the top of her game in a notoriously difficult and brutal  industry. She has sold more than 140 million albums, her concerts are still sell-outs, she’s starred in and now directed films  (some of them hideous!), written books and created videos. Robbie Williams, himself a gigantic star, says “she’s an absolute legend and makes us all look like amateurs.”

Madonna obviously has unique staying power in a very fickle industry. Her success comes from her extraordinary ability to reinvent herself in anticipation of many fashions. Every couple of years she comes up with a new way of presenting herself and her work. She takes note of what other groups are experimenting with, then in her own creative way she gets in front of the pack and leads her audience there.

The ability to re-invent yourself is a characteristic of great business leadership. Our environment is in a continuous state of change and in such circumstances businesses need to continuously re-think their business model. You need only look at IBM and to all of the “Good to Great” companies documented by Jim Collins to realise that the difference between ordinary and great is a willingness to apply the Madonna Effect. The leaders of all of these companies took a critical look at where they were and made a conscious decision to go to a better place.

If you accept the proposition that winners stay ahead of the pack you should be behaving as a Madonna. Here’s a self test that I have put together that you might like to use to determine how well you are doing at it. When you’ve reviewed each point, decide where you are on a scale of 1 to 10 overall,  where 1 is a resounding NO and 10 is a resounding YES. How does your business stack up?

• No matter how good you are now you know in your heart that change is inevitable and that good today does not mean good forever. You’re therefore constantly looking for better ways of doing things and for different market opportunities.
• You closely monitor trends in your environment and visualise how your business will be taking advantage of a different set of circumstances.
• You are not afraid to walk away from current products, services or customers or if you believe there is a greater opportunity to deploy your resources for greater long term returns elsewhere.
• You constantly experiment with new ideas and you invite your customers to experiment with you and help you find better ways to create value for them.
• You are deliberately provocative. Your ideas may range from the sublime to the ridiculous but you could never be accused of being indifferent.
• You passionately believe in a different future for your business and your ability to prevail but you are still firmly connected to reality.
• You are always upbeat, optimistic and excited about the future and what opportunities it offers your business to break from the pack.

How did you score?  If it’s 7 or less, you are probably losing out to your competitors.

Being The Best is a Journey, Not A Destination

There are two questions every business owner should ask themselves.

• First question: “If you were not already in your business would you enter it today?”
• Second question: “If the answer to the first question is no, what would you do about it?”

By answering these questions you can frame a strategy that could change the face of your business forever.

For example, you could strategise to either be number 1 or number 2 in every industry you’re in, or you could fix, sell or close a business unit.  What I want to signal is the power that asking the right questions has in changing the way we look at things and most importantly, the power of these two questions.  As a leader of your own company these questions should be asked right now.

One customer’s best-in-the-world service provider is not necessarily another customer’s provider of choice. Anyone who is going to hire you, buy from you, recommend you, vote for you, or do what you want them to do is going to wonder if you’re the best choice.

“Best” is subjective.  It’s something your customers decide, not what you decide.  If enough of them decide you are the best you will become number 1.  If enough of them decide you are not their best choice you won’t.  This is an interesting way to look at it because it very clearly gives you the opportunity and permission to strive to be the best irrespective of your starting position. That is, being the best is a journey, not a destination.

What about mediocrity and those service providers who reside in the middle of the bell curve, those who are OK with average? They are the ones who settle for less than they are capable of and will thereby miss out on the abundant opportunities available.

Average/poor customer service (as experienced by us today with the likes of BT Openreach!) sucks resources, capital, focus and energy. And most of all, it teaches people in your company that it’s okay not to be the best in the world.

My old man used to say – “don’t just stand there, do something!”

It took me 30+ years to fully appreciate what my dad meant, but when I did, it was a great lesson.  When any new business starts up, hunger for growth leads to the founder(s) being very active on the marketing front.  They spend a lot of time working ON their business as Mr. Gerber (*The E Myth) says.

Then the IN stuff kicks in, and owner managers get busy doing what the business does.  They take their eye off the ON things and the business stagnates. Growth comes from trying new things, taking risks, getting out there, looking for and taking advantage of opportunities. Just like you did when you started your business.

If you were able to grow your business at 40% a year from start-up and keep that up for 3-5 years,  then you should be able to do that at any time BUT NOT IF YOUR TIME IS TOTALLY CONSUMED WITH DOING WHAT THE BUSINESS DOES.

The reason why  many businesses that were started by the present owner(s) hit a brick wall after a few years is that they start to make enough money to ‘get by’ and are not willing to “risk” what they’ve built up in the pursuit of more growth.  This is rationalised by “I’m too busy servicing my customers to get out and do the things I should be doing to grow the business.” They actually face a much greater risk by standing still and the risk will become even greater in the future because:

(1) Top quality team members will not hang around in slow growth, no opportunity, environments

(2) Business values in the future will increasingly be based on growth prospects (reflected by growth experience), customer and team member quality and loyalty,  service design and margin.  These things typically don’t score highly in slow or no growth firms.

Strategic planning is very important but it can also be very limiting. Take the “limits” away, as the most constraining limit is a mediocre growth target in your plan. If you want to double the size of your business you need to start with that as your goal, then ask yourself “what will it take to do that?”  You won’t achieve that overnight but at just 15% growth a year, you will do it in 5 years.  And if your business revenue has not doubled in the past 5 years then it won’t double in the next 5 unless you start to do some different things. To quote Herb Kelleher, when he was CEO of a very successful Southwest Airlines: “we have a strategic plan, it’s called doing things”

Peter Drucker told us in 1973, “there’s only one purpose of a business – to create a customer. The business has two – and only two – basic functions: marketing and innovation.  Marketing and innovation produce results; all the rest are ‘costs’.”

So what marketing and innovating are you doing?  Those firms that are doing this are stealing the march on the rest. In Michelangelo’s famous words,  “ The greater danger for most of us is not that our aim is too high and we miss it, but that it is too low and we hit it.”

Don’t chase the money, chase what makes you money

For almost 50 years I have been passionate about business profitability. I’ve worked with some fabulously profitable businesses and come across some extraordinarily unprofitable ones. These owners have spent years  putting in just as much effort as the people in highly profitable companies, but they make only a fraction of the income.

My research clearly shows that many unprofitable companies have close to 50% or more of customers who are unprofitable to service. The “solution” is simple: deploy the right people, on the right tasks for the right customers at the right price and everything will take care of itself. What is “right” in each case is the hard part in practice. If I was allowed to keep just one thing I have learned about business profitability it is this: CUSTOMER SELECTION IS PARAMOUNT.  

When you get that right and stick to it, most other things will fall into place. The customers you choose will influence what services you can provide. That will determine what prices you can charge, who your “competitors” are and where you sit on the industry ‘value curve’.

In turn, that will decide what type of people you need and can attract, and that will show you  the basis of your strategic options. Profitable companies know exactly how to add value to the customer franchise they have chosen to work with. That’s the effectiveness aspect of their execution. They deploy the right people and systems to deliver that value in a way that they are able to capture a good share of the market and make a decent profit. That’s also the efficiency aspect of their execution. Unprofitable businesses have no clear strategy or implementations in this regard.

My thoughts on the importance of customer selection are neither new nor original and it surprises me why so many people ignore it. I think a major factor  is the pursuit of “money” in the short term rather than having a clear strategic plan and sticking to it. I have often urged our customers to rid themselves of unprofitable and difficult customers and without exception, those who have followed my advice have been pleasantly surprised by how much more money they make!

What Are the Top Tactics of an ‘Idea Killer’?

Ideas are the lifeblood of your business. Every great business was once an idea in someone’s mind. That idea was its source and it’s the continual stream of ideas that keep a business vibrant and gives it a sustainable competitive advantage.

People often say, “I don’t know what else we could do to improve this business” or “We have tried lots of things and we’ve found that what we do now is the only way for this business to operate properly.”

You will know people who are always saying that they have run out of ideas, and when you look at the performance of most businesses you’d have to agree that there’s little evidence of anything new happening.

And yet when people are exposed to new ideas they are often more likely to reject them than to consider them. How do you receive ideas from your team or colleagues, do you encourage them or kill them………

Top Tactics of an Idea Killer:

1. Point out all the reasons it won’t work, this will ensure that the reasons it might work will not need to be addressed.
2. Say you’ll look into an idea, and then just sit on it.
3. Laugh hysterically and ignore the suggestion. You’ll find that this tactic will effectively prevent you from again being subjected to ideas.
4. Remind the proponent that his last idea was a total failure or, on a similar theme, remind him what happened to the last person who came up with a failed idea.
5. Tell the proponent that they don’t understand the broader issues. That will remind them that good ideas only come from people at the top.
6. Ask for a report containing a detailed analysis that you know the proponent is not capable of doing or will require a lot of time, and at the same time give the proponent five other tasks to perform so that further analysis of the idea gets pushed to the bottom of the list of priorities.
7. Change the subject (i.e. ask the proponent how his current project is going). That will be a reminder that team members are paid to work not to think.
8. Attack any holes in the suggestion – that’s a great way to make someone feel stupid for even raising it.
9. Ask for all the details to be outlined immediately. That usually makes the proponent realize that the idea has not been thought through fully, and sloppy thinking will not be tolerated.
10. Say we have already thought of that. That will remind the proponent that he is no smarter than people who have been there for some time and that as a newcomer he is not yet qualified to make suggestions.
11. Say that we have already agreed to go with some other idea. The presumption being that the “new” suggestion is not acceptable, and the consequence is that once a decision has been made, change will not be entertained.
12. Say we’ve tried that before. The implication here is that the idea did not work and that the proponent would have been better off not to raise it.
13. Say we’ve done it this way for 50 years and there’s no reason to change now.

As I said at the beginning – ideas are the lifeblood of your business and will help ensure that you maintain that competitive advantage.

Sometimes it’s the simple solutions that stare us in the face

I’m not sure whether this is myth or real but it’s interesting nonetheless.

When the US first got into space exploration and they launched people into space they discovered that ball point pens did not work in zero gravity so NASA approved a research project to find a solution. 

The research was to take a decade and cost $120 million.  The outcome was a sensational pen that could write in any conditions, on any surface, upside down, under water and in temperatures ranging from below freezing to 300 degrees C. An amazing innovation to say the least.

Not long after the release of this incredible product NASA learned the Russians used a pencil.

Red-tape Reduction for Small Businesses

“A reduction in EU red tape for Britain’s small businesses could save firms as much as £300 million a year”, UK Business Minister Ed Davey has said.

He was speaking this week after EU ministers, meeting in Brussels, agreed on simpler accounting rules to cut the amount of bureaucracy confronting the smallest “micro-firms” – those with a turnover of less than £430,000 a year, or fewer then 10 staff.

Under the deal, which comes into force after final approval from MEPs, the smallest firms will be exempt from a series of accounting requirements applicable to larger businesses, drastically cutting their administrative costs.

I do wonder whether Mr Davey has consulted with HMRC over this issue? In my experience it is not the statutory accounting issues that trouble small businesses but the pernicious intrusion into their accounting records by HMRC that cause the most anguish. There is absolutely no point in relaxing the statutory reporting rules if HMRC are going to demand more and more detail in the record keeping.

Their current “initiatives” involve targeting certain trades (plumbers, electricians and nail bars for example) where HMRC’s sole objective is to “break the records” so that they can issue outrageous and unreasonable assessments, leaving the businessman to prove his innocence at a not insubstantial cost. This is the area that is crying out for red-tape reduction.

I also wonder where Mr Davey got his savings figure of £300 million from – looks to me like a typical politician’s dreamt-up figure which has little foundation in substance but makes a good headline.

The Economy – A Letter to David Cameron and George Osborne

I sent this letter to Prime Minister David Cameron and Chancellor of the Exchequer George Osborne last week. I will let you know if I get a response from either of them.

7 March, 2011

Rt Honourable David Cameron PM
10 Downing Street
London
SW1A 2AA

Hello Prime Minister

Really good to read your week-end comments concerning encouragement for the small to medium sized enterprises. My firm specialises in servicing this sector. Any Government ought to have, as one of it’s prime objectives, the creation of a climate of supreme business confidence where the barriers to being in business are removed and where a truly entrepreneurial spirit can flourish. All Governments have been notorious for ineffectually handling and dissipating business wealth. Instead, empower business people to manage that wealth and create excitingly dynamic local economies by removing the monolithic, wasteful and frustrating layers of central Government. Allow entrepreneurs to keep more of what they earn so that they can re-invest the extra cash in growing their businesses and employing more people. Specifically this could be achieved by :

1. Exempt all businesses with a turnover below £500k pa from having to register for VAT

2. Exempt all businesses employing less than 15 people from having to pay employers NIC

3. Exempt all businesses employing less than 25 people from the ludicrous raft of employment regulations

4. Limit the tax rate on the first £100k of profits/earnings of business owners to 10%

5. Actively encourage exporting by removing the ludicrous “audits” by Government Officials when export licences are required.

6. Set up a bank to provide “good old fashioned” banking services that relied on people not machines and that would provide business loans/overdrafts only on the basis that proper financial controls were in place and monitored at the borrower and have these staffed by people who understand how to lend to small businesses.

7. Encourage owner managers to develop their own leadership and management capability through providing a voucher to be spent on development of the owner manager’s own choice and leave the market to decide which providers are “good”.

These are radical ideas but it will be from only radical changes that progress can be made. I commend them to you as they will provide substance to your desired outcomes.

Warmest best wishes

Peter Cox
Owner – Thomas Cox & Co

What will you do in 2011?

Hello and Happy New Year.

There are a multitude of messages that are continually talking about ‘the new’.

In 2010, it was all about the new decade, the new social media trends in business, and even the New YOU – resolutions were everywhere.

Now it’s all about the New Year. . . Last year was a tough year on a macro level. Front page news events will give the textbooks and economic theorists plenty to study in the years to come.

But on a micro level, on a community and personal level, it was (and still is) a year filled with great opportunity.

In 2010, opportunities were created (and many were taken advantage of). And, like every year, many were missed. Many people knuckled down and did their job or did what they were told or did what they thought they were supposed to, and just about everyone got very little as a result.

Those that saw results were the people that saw the opportunities for good business, good service and built robust strategies to achieve both. These people were the ones who networked, shared their message, set about a course of education and personal development. They made themselves highly visible in a time when most were hiding.

How will you respond? Consider what Tom Peters has to say on this. ‘The problem isn’t the problem but the response to the problem is almost always the real problem. People (be they Politicians or business people) got into trouble not for what they did, but for their response to the things that they did.

‘Whatever your responses are for our challenges in 2011, make these positive, quick and overwhelming. ’

Peter