lesson-school

What lessons can small and medium sized companies learn from the titans of the business world, asks Mike Lander, from Ensoul?

I was recently having coffee with an ex-client of mine that until recently was GSK president of Europe, Middle east and Africa and then CMO for GSK Consumer Healthcare (>£7bn revenue) and we were discussing how his experience of growing a fast-moving global business can be applied to high growth SMEs.

The key question we ended up discussing was:

Whether a company is big or small, the key issue management teams often face in meeting their growth ambitions is to do with how they reach consensus regarding the real challenges facing them and then making decisions that prevent disaster

Let me explain in a little more detail what we mean before we get into the lessons learned from Roger about how a global giant resolves these challenges.

The typical blockers to achieving our ambitions that I have observed personally and discussed with fellow entrepreneurs include:

  • The CEO/Founder has decided on a course of action, and in spite of all the signs that it is going to fail, his/her positional power forces management to keep going
  • Sales are declining despite increased focused on business development activity, but the collective voice of the customer is ignored because management are told “they only represent a small minority of customers”
  • Finance produce a lot of detailed spreadsheets that seem to indicate a cash squeeze within 6 months but sales are confident that Finance’s forecasts are over-pessimistic
So, Roger, in your experience, what are the underlying reasons that management often fail to act decisively despite early indications that problems lie ahead?

To stop decisions being taken based on positional power or functional one-upmanship, the leader needs to signal a requirement for data transparency and productive challenge. This must be visibly supported by the top team. To make this stick as a cultural norm, there has to be a repeating process, usually monthly, in which all parties review the best quality data available and refresh forecasts in an objective manner by consensus. In this way, the key assumptions of the business are shared and as learning comes into the cycle, rational choices for course correction or doubling down on success become obvious to all. In the initial stages, this may feel cumbersome, but persistence and reviews of the process after each cycle meeting will rapidly improve efficiency. All must contribute and consequences for non-compliance with the process must be seen to be imposed. Once the cycle is running effectively, waste, confusion, story-telling and demotivation start to decline and business performance rises. I have seen these benefits come time after time in countries all around the world. There may be some blockers, people who previously enjoyed independent positional power or who are defensive to constructive peer group challenge need to be identified and engaged in dialogue with the leader; if coaching does not change their behaviour they must leave the team. A strong value of integrity based on use of best facts together with a willingness to accept the process and act as one team to execute the outputs creates, in my experience, an unstoppable competitive force. But without decisive leadership to install these principles and processes, failure is inevitable, sooner or later.

And finally, what are the key lessons SME management teams can apply easily to their businesses to enable them to achieve their growth ambitions?

The key lesson for SMEs is to consider how to use a fact-based approach and a rigorous monthly review cycle to create a truly competitive culture. No matter what size the business, getting the top team to understand all the factors affecting growth, margin and overheads will enable strong team accountability. Many gaps in data are likely to be revealed, such as “do we have a real understanding of marketing return on investment, what is the costs of trade deals, what is our profitability in key customers, what are the marginal costs of manufacture”? The review cycle will force better approaches to data sourcing/accuracy and will drive transparency around the key assumptions which then gives a chance for productive challenge. All this needs the express ownership of the leader and the fully committed support of the team.

In large companies this continuous review cycle can form the basis of a rolling 2-year plan, effectively eliminating the need for a separate annual budget process. The assumptions and numbers are already populated, you just need to stress test them and understand what it would take to drive additional growth or profitability. In my experience, this can avoid those months of presentational toil and storytelling that sap energy and distract from external customer focus.

There is a lot more to this than can be covered here clearly, but, the key message is:

Irrespective of company size, creating a culture of transparency and constructive challenge backed by rigorous data analysis and consistently applied management processes is key to facing up to the reality of what is going on in your business enabling you to re-direct responsively as required

I would like to thank Roger Scarlett-Smith for his support, time and insight in co-writing this article.

Mike Lander, Director and co-founder of www.ensoul.co.uk , business consultant and writer