25/11/2009

By Andrew Lester

Every business needs a strategy that defines what the business is and how it goes about delivering customer and shareholder value. Fine. But the strategy should readily translate into core plans to move the business forward: only some of which directly relate to growth.

These core plans comprise four broad types of action which should always work together to move the business on. These types of action should be lined up against how the business currently performs and is likely to continue to perform in the future. Some parts of any business will provide better returns and be developing faster than others, so it is important to understand which action is most appropriate to each area and to measure the return to the business in broad terms (not just financial).


The core types of action will cover:

Divest — which parts of the business have not been adding value and which use up resources that could be much better used elsewhere. Every business should continually check what it can get rid of to increase shareholder returns and move the business forward. Many owner- run companies find this really difficult. Emotional ties and long standing relationships often lead them to hold onto unprofitable work even when they know it doesn’t make economic sense. Is this wrong? Not necessarily, but the real motivations need to be examined and understood. Divesting is like pruning: cutting back the deadwood to reallocate resources to grow a healthy business.

Hold — this is areas of the business that are unlikely to develop much further. You are efficient and effective in the services and products, providing customer value with only the need for modest refinement and development of closely complementary propositions. For many companies this is the core of the business, representing a significant proportion of revenues with good margins from well managed costs.

Enhance — these plans focus on developing existing core business propositions and moving them to higher margins through product improvement and greater cost control. Enhancement is a major activity in all businesses. It drives continuous improvement and provides a source of new ideas and concepts for emerging sectors.

Add New — with no great surprise this is new business generated in new areas based on the core competencies of the existing organisation supported by new capabilities. This action includes organic growth and mergers and acquisitions. Also there are opportunites available in “micro markets”: high growth small opportunities that take relative limited resources but which provide significant long term potential for financial returns and asset development (people, processes and products). The increasing fragmentation of many sectors and the desire for specific solutions has massively increased the scale of micro markets. Customers increasingly see value as specific solutions to their specific needs. Correctly structured these solutions can give you excellent returns and improve sharehoder value.

When managing the growth of any business these four core types of action will often be used at one and the same time, particularly when customer needs are changing significantly or when new competitors or suppliers enter the market.

Please feel free to email me to comment or ask questions: andrewlester@carr-michael.com.


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