Opportunity losses increase as we do more

How many times do you here business people say – “I don’t have enough time to do what I should be doing because of all the paper work” or “I’m not going to delegate that task because no one else does it as well as I can” or “I can’t afford to hire additional help”?

These are all common business issues and ones that managers grapple with daily, but in doing so they are all ignoring the economic theory of comparative advantage which talks about focusing on doing what brings the highest returns rather than what you are good at.

You may be extremely good at sales and very good at office admin, but are you maximising your business potential by doing both? In general the answer is no; if you’re not out selling you’re not building revenues and if your out selling the organisation will start to creek. So decide which activity you should be doing to maximise returns and bring in someone to do the other task.

I used to travel to India a lot on business and was always intrigued to see this theory adopted to the nth degree; irrespective of social standing or wealth everyone seemed to have some form of helper. The theory behind this was very simple; by spending time generating income individuals could afford to hire someone to do those tasks that if they did them would stop them maximising their potential to earn money.

This is such a simple theory yet it is so often ignored.

The knock on effect of ignoring this theory is people work long hours trying to do everything, and because time is limited, performance suffers, errors creep in and everything grinds to a halt.

The first reaction to the suggestion that someone should be hired to fill a particular role is “we can’t afford it” rather than what opportunities will an extra hire create. By seeing the possibilities the decision making criteria becomes revenue versus cost rather than just cost. The opportunity loss may be greater not hiring someone than making the hire.

Businesses don’t have to hire additional staff to be in line with this theory; they can outsource tasks to specialists in those areas so they can focus on core competencies and maximising returns. Business consultants such as ourselves can help by working with the business to understand the business drivers that will lead to increased returns and assist in identifying and implementing solutions to meet this objective.

The important piece is to recognise the trade off between managed costs, opportunity losses and growth.

Businesses will not grow without resources growing. We can’t do everything, so focus on the best course of action to increase returns, trust in others and see both sides of the P&L equation.

Hello Everyone

I wanted to let you know about the offers that The Kent County Show are making on ticket sales for this years show.

If you buy your tickets in advance from the website you can make huge savings and have a great day out for far less. For instance, a family ticket (2 adults and 4 children) would normally pay £80 on the gate on Friday and £60 on the Saturday or Sunday - but pre-paid family tickets are just £35. Makes sense to think ahead, doesn't it?

Also, did you know, that if you are a carer for someone that you bring to the show - you can get in free!

Have a look at at the site for the full details.

KENT COUNTY SHOW TICKETS

As a special thank you to all of our Facebook friends. We will be holding a prize-draw next Saturday 20th May. Three lucky winners will be able to choose one free item from our Cool Britannia Collection. Just in time to celebrate The Diamond Jubilee in style!

All you need to do is visit our Facebook Page below and add it to your liked pages by clicking the "like" button. Good-luck! x

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All opportunities require action

When ever you read a business plan the business opportunities available are always set out to justify the reason for establishing the business or taking a particular course of action. However, after a conversation recently with a client about a lost opportunity, I started to question how often business opportunities are challenged to ensure they are achievable and, more importantly, to make sure they are complete.

In this particular case the client was bemoaning the fact that they had been approached by a national retailer to provide a large quantity of tulips, something for which they had an extremely good reputation but in this case the volumes where just too much for them. Not only couldn’t they supply the volume, if they had tried other customers would have suffered. The problem was more acute because of the seasonal nature of production and the fact that you can not just increase or decrease production of tulips. Also, the risk of over production on the off chance of a large order was too great.

What does this lost opportunity tell us? In the first instance it was the right decision not to take the order as the knock on effect to existing customers would have been detrimental to future business; but on the other side of the coin the prospective customer is now unlikely to make further enquiries as they will perceive that our client can not deal with large orders.

This lost opportunity highlights the challenges businesses have in identifying business opportunities and managing limited resources to achieve those opportunities and grow the business. In my client’s situation the opportunity of supplying a large national retailer had not even occurred to them; they were content to work within the local area supplying high quality product to local retailers.

But would they have acted differently if this opportunity had been identified? The answer would have been; it depends. It depends on what the objectives of the business are and whether following this opportunity would have been in line with those objectives.

If the objective is to remain a local supplier of high quality tulips with no desire to expand outside that remit then even if the national retailer made the approach my client could turn them down happy in the knowledge that they had recognised the opportunity but made an informed decision not to enter that sector of the market.

However, if the objective is to expand the business outside the local area and the opportunity to supply a national retailer was identified a strategy is required to reduce the risk of over production yet be able to fulfil the order should it come. My client could not have afforded to run the risk of increasing production without a firm order, but they had no other strategy to fill the order if it materialised.

They could have approached other growers to see if they could help fill the order if it came. This way they could have satisfied the order, started to build a relationship with the buyer and share the revenue with other suppliers. Next year they could increase production and share less with other and therefore start to meet the objective of growing the business.

Capture all opportunities as they arise irrespective of where you are in the business cycle or development plan. If following the opportunity is in line with business objectives plan the next stage. If following the opportunity detracts from business goals either challenge and restate the goals, or set aside the opportunity. It is only a lost opportunity if no action is taken.

Recognise all risks so your focus is on the right ones.

We are all exposed to risk 24/7, asleep or awake. Risk can be internal or external. Some risks can be managed, some can’t. Risk is about danger; the possibility of suffering harm, actual loss or lost opportunities and businesses face all sorts of differing risks, but

1. Do they recognise them?
2. Have they a strategy for reducing exposure and / or
3. Have they a strategy for mitigating losses?

For businesses, risk is about the financial implications of reducing exposure or mitigating losses versus the loss when risk event occur or the opportunities are lost. Businesses need to understand the different risks faced, the probabilities of events occurring and their resulting impacts, and the strategies for reducing or preventing exposure and for mitigating losses.

Fire insurance mitigates the losses of a fire but it does not, in itself, prevent or reduce exposure to fire. Other actions are required to reduce the probability of fire occurring or reducing the damage done. Prevention and mitigation are different aspects of the same discussion but they are not mutually exclusive. You can have more or less of each one depending on the type of risk and the extent to which it can be managed.

Businesses have to consider the knock on effects of an event occurring, not just the immediate loss or opportunity loss. If a business is dependent on a single supplier for a key product or component and that supplier closes there would not just be lost sales but the very real possibility of reputational loss brought about by not being able to fulfil orders, not being able to service new orders and the perception of bad management relying on a single supplier; the heinous crime of dependency on a single point of failure.

All businesses need to have risk management but, as with all things, make the process appropriate to the size of the organisation. The most important thing is to identify each and every risk, asses its significance to the business, the probability of a risk event occurring, the approach to managing the risk and the approach to mitigating losses.

This can be set out in a simple matrix with a traffic light system highlighting significance to the business and probability of occurrence; green for low, red for high. Where significance and probability are both green little effort or attention is required; when they are both red this means the business has to be proactive in managing the exposure and mitigating losses.

Risk is about asset protection, minimising operational failure, reducing the effect of external events and maintaining a financially viable business. It’s not just about having adequate insurance cover; it’s about taking appropriate cost effective action to reduce or prevent exposure and reduce possible losses. Here are just a few areas businesses need to consider that aren’t on the balance sheet.

• People – employees, customers
• Supply chains – production processes, suppliers
• Products, the brand and market position
• Management – key man risk, ethics, culture, corporate governance
• Finance – banks, insurers, shareholders, other lenders, liquidity
• Legal, regulatory, political and economics
• Competitors
• Technology
• Acts of God, social unrest and terrorism
• Utilities and support services

Not all risks need proactive management or mitigation, but unless you have a clear view of the risks that affect your business, you will not know which ones to focus on.