2003 - 6


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2003 - 6

  1. 1. IBIS NEWSLETTER 2003- NUMBER 6 ----------------------------------------------------------------------------------------------------------------------- CONTENTS: EMOTIONAL QUOTIENT (EQ) – A USEFUL CONTRIBUTION TO ASSESSING START UP OPERATIONS? MOVING BACK OFFICE TO FRONT – THE NEED FOR AN URGENT REVIEW IN MANY SME OPERATIONS OF IT MANAGEMENT AND INTEGRATION SIMPLE COST EFFECTIVE TRAINING SOLUTIONS IN KEY ASPECTS OF BUSINESS PLANNING OUTSOURCING – MAKE SURE YOU GET YOUR SOP RIGHT WHY A STRUCTURED APPROACH TO PLAN ANALYSIS, DEVELOPMENT, AND CONTROL? _______________________________________________________________________ IBIS - SPECIALISTS IN BUSINESS PLANNING. 20 YEARS EXPERIENCE AND THE BEST SELLING BOOK, A BUSINESS PLAN (FINANCIAL TIMES PUBLISHED, NATIONAL WESTMINSTER BANK SPONSORED, TRANSLATED, ISBN 0273 63562X. IBIS EMPHASISE A QUANTIFIED AND OBJECTIVE APPROACH TO THE ANALYSIS AND DEVELOPMENT OF BUSINESS PLANS WITH A UNIQUE SCORING SYSTEM (LIMITED VERSION AVAILABLE FREE OF CHARGE AT THEIR WEB SITE). FOR ESTABLISHED COMPANIES IBIS MONITORING MODULES BASED ON OVER 15000 OPERATIONAL BENCHMARKS ACROSS INDUSTRY THROUGHOUT EUROPE ENHANCE PERFORMANCE AND BUILD WORLD CLASS ORGANISATIONS. OVER 60 STANDARD OPERATING PROCEDURES NOW DRIVE THE DEVELOPMENT OF KNOWLEDGE BASED ORGANISATIONS - www.ibisassoc.co.uk The Ibis newsletter now has readers in over 50 countries – WE WELCOME - TUVALU - some of whom have been suggested by colleagues or associates. Should you wish to be removed from the list, let us know. Should you know of anyone who should be added to the list, let us know. Suggestions (hopefully polite) always welcome. Contact: info@ibisassoc.co.uk EMOTIONAL QUOTIENT (EQ) – A USEFUL CONTRIBUTION TO ASSESSING START UP OPERATIONS? A research project in New Zealand reviewed the make up of 27 start up and early stage companies and 61 established companies to identify the contribution that EQ can make to both a successful start up and a high growth established operation. Three significant “clusters” were identified: Low overall EQ levels; Above average EQ levels: High EQ levels Low overall EQ levels were associated with higher rates of failure than the other two groups – and were characterised by smaller management teams; high EQ levels had lower rates of failure but lower rates of growth – and were considered by the authors to be characteristically life style businesses. Above average EQ levels had lower rates of failure
  2. 2. than the low rating group, but higher than the high group; but much faster rates of growth. What does this tell us about analysing the management team in start up operations? Unless one can carry out the assessment (and many management groups are legitimately wary of psychometric testing!) the conclusions are useful in two broad respects: Investors and advisers (and start up companies) should revisit the need for variety in the management team – not just variety in skills, but variety in attitudes; Identifying life style business proposals – a problem faced by many investors - can be made significantly easier by considering whether the management team presented has a high collective EQ.  RR MOVING BACK OFFICE TO FRONT – THE NEED FOR AN URGENT REVIEW IN MANY SME OPERATIONS OF IT MANAGEMENT AND INTEGRATION Background All those working in the business world agree that IT is having a significant impact on working practice and overall productivity – much as advanced manufacturing/ service delivery and inventory control systems had on operational efficiencies in the 1970's and 1980's. For many companies, IT is becoming increasingly central to the way in which they are building competitive advantage in four main areas: Improving the management of information within the organisation (data mining, customer relationship management, knowledge management); Improving productivity in handling and processing information – automating and simplifying a range of business processes; Co-ordinating suppliers, production and customer delivery into a seamless process; Promoting and developing business relationships via web based systems. That is the theory, but Most companies report poor returns from their IT initiatives, with key findings such as: Only 20% of companies in an average of three recent surveys stating that they were highly satisfied or completely satisfied with IT initiatives;  89% of companies surveyed stated that there were problems with either budget, time or specification in their large scale IT projects;  Only 7% of companies considered that they were getting an adequate return from their Web based investments  Only 10% of customers regularly visit their suppliers web site (Ibis research suggests that it is lower – below 5% for the typical SME)  Conversion rates – that is customers switching from traditional means of doing business to e-commerce based systems remain low in many sectors Why should the short term promise not be fulfilled (there is evidence that in the medium term the benefits start to occur – witness recent economic analyses in the US)? The
  3. 3. majority of problems appear to lie in seven areas, each of which have planning and organisational implications. Lack of investment appraisal. Many companies have failed to apply investment appraisal techniques to IT projects, unlike similar investment in plant or premises. This is because the IT programme is often perceived as a “must have” act of faith. This has inevitably led to a failure to set clear output objectives of each IT investment, and an inability to set priorities for IT investment – as no-one knows where the highest returns will be achieved. Limited project planning. Complex IT projects are often outside the expertise of many firms, which has meant that project planning and project leadership has not been as rigorous as in other areas. This accentuated the poor goal setting which is created by the lack of a detailed investment appraisal process. Lack of career path and staff retention. There is the temptation to regard IT personnel as purely technicians with their severely restricted position within the firm. Little attempt is then made to integrate them into the personnel development and succession planning systems within the organisation – leading to higher turnover rates and lower levels of work satisfaction. Outsourcing controls. Most IT projects involve outsourcing; indeed they are often the first time many companies are involved in any major outsourcing deal. Few create the necessary frameworks to manage such arrangements well; recruiting external advisers with experience in the contractual, technical and operational details that are vital to manage often complex programmes. Limited internal integration of IT functions. The growth of IT within many organisations has been haphazard. “Traditional” IT (office systems, network, intranet management) has been added to with web management (the web master often reporting to a separate centre within the company), order processing systems managed by production/ logistics, hr by personnel, and so on. This often means considerable duplication of effort and investment. A failure to develop a strategic approach to systems architecture. Associated with all the other problems is the tendency to bolt on further IT functions for specific departmental requirements, with the result that systems are incompatible; cannot share information, and are cumbersome to operate. Poor monitoring. As different departments operate different systems there is no integrating monitoring information to drive out better performance and focus on those investment areas which will generate the highest level of return. Looking back at solutions from previous decades The most obvious analogy that can be drawn (and one that is useful as well) is the change that happened with manufacturing industry. For those wishing to go back in history, manufacturing industry operated with a series of separate kingdoms. There was a purchasing department, a production department, a transport department, and very often a separate warehouse and storage department. The result was somewhat similar to that which is seen in many company IT operations: order, counter order, disorder. A more competitive environment meant that manufacturing industry was forced to:
  4. 4. Increasing the integration of processes; Create unitary management structures; Monitor and benchmark performances to drive steadily greater productivity; The result is that leading companies within manufacturing industry have continued to see quality, productivity and skills enhancement. Starting with the vital organisational response for IT development The Ibis view is now that the standard structure of the SME in the first decade of the 21 st century should reflect the growing importance of the IT function. Management should accept that IT is no longer a back office function – it is now in the front line in building and maintaining competitive advantage. This must be reflected within the senior management structure of the company. This new organisational approach has obviously already happened within those companies where IT operations are a core competence, but the analysis of trends in the importance of IT as a means of gaining competitive advantage suggest that the senior management structure should reflect this as a normal feature of company governance. Creating clear responsibility and authority Once the strategic decision has been made to re-organise in this fashion, the accompanying new job descriptions and authority for IT management can be clarified. IT senior management now take financial responsibility for project management and delivery; they control outsourcing programmes; they become involved in staff development programmes. Where this has happened, IT performance and returns have already been substantially enhanced. In Ibis experience it is Scandinavia that is leading the way in Europe – reflecting their often more analytical approach to business structures, planning and organisational development. The potential returns throughout all areas of the business have far outweighed the cost of installing a further director/ senior manager in each company reviewed. Building useful monitoring systems What monitoring targets should be introduced? One of the big problems with IT investment in many organisations is the lack of clear measurement. What does IT deliver that we can easily measure? The obvious overall impact is on productivity – but this is derived from a number of separate initiatives within the normal company, many of which are only poorly connected to IT investment. The clearly measurable (and useful) components of an IT monitoring module can be identified in 7 different areas. Some of these need a re-organisation of the typical monitoring module structure which is introduced as part of the Ibis standard programme. This is current Ibis thinking on the relative importance of the monitoring framework – but each organisation will have slightly different criteria. Administration cost ratio (AER). IT is all about delivering productivity gains particularly in back office areas. Concentrating on the AER as a key performance indicator (KPI) for the IT department has substantial implications for training and the particular choice of
  5. 5. systems. Purchasing. The key performance indicator here must be the percentage of purchases made through e-commerce platforms, and the efficiencies of the operation. Sales. Similar key performance indicators can be created for sales, though where the company is involved in web based development the number of criteria will need to be expanded. Logistics costs. Obviously the ability of IT solutions to deliver improved logistic costs is a central feature of IT delivery. Training cost per staff/ day. Where the IT department is involved in sourcing and delivering training evidence has shown continued and substantial reductions in costs. Web functionality. Key measurements on web functionality will need to be included, particularly where web systems are central to operational development. Intranet functionality. Similar measurements of intranet functionality and usage can produce significant changes in the operational performance of the entire organisation. Many of the benchmarks for each of these elements exist, so the creation and management of the monitoring module is a fairly easy exercise. A late building block in the creation of the monitoring programme The introduction of an IT management and monitoring module requires a substantial amount of organisational development to have been completed, and the current experience would suggest that it needs to be a fairly late introduction. For new companies entering the monitoring and development programme this module is now considered to be essential for the creation and maintenance of competitive advantage.  AW OUTSOURCING – MAKE SURE YOU GET YOUR SOP RIGHT Outsourcing continues to be both a problem and an opportunity for the SME. For many companies the experience has not been entirely satisfactory, for a variety of reasons. A review of company outsourcing experience amongst 83 SME operations in Germany found that companies that followed industry best practice and a structured approach to the development and management of outsourcing contracts reported far fewer problems than those that did not. Several key differences were identified that separated the top from the bottom performers. The amount of time that companies were prepared to take in the development of detailed operational outputs; There use of external expertise to both monitor performance of the contract and to ensure that contractual elements were properly established and could be effectively enforced; Sufficient project management expertise within the company;
  6. 6. The requirement to complete a detailed investment appraisal for major outsourcing contracts; The requirement for the board to sign off on the proposal and for an individual board member to take responsibility for the contract. Losses amongst the worst performing firms were substantial – emphasising the risks involved in poor outsourcing decisions. The development and management of an effective portfolio of standard operating procedures is an essential tool for the growing SME to ensure that new challenges are effectively managed.  MK SIMPLE COST EFFECTIVE TRAINING SOLUTIONS IN KEY ASPECTS OF BUSINESS PLANNING Ibis have started a new initiative in the main areas of their operations. They offer a combination of distance learning and in-company seminars for specific aspects of business plan training. They are designed to be tailored to particular company requirements, though each has a series of common components. Because they are delivered in-house, they provide a cost effective introduction for key staff to all the vital elements of the development and management of the business plan. Start up planning The start up training is based around the use of Business Plan Pro software, produced by Palo Alto. Ibis have created a detailed template that is available to run on Business Plan Pro, which provides the content of a comprehensive business plan. The advantage of this approach for the start up company is that management write the plan with the self help template and can use Ibis for on-line review and mentoring whenever they require. This both lowers costs while improving plan quality (all research showing that start ups must write their own plans to both understand and promote the content to potential investors and staff). The training is above flexible; it provides support to the start up company when and how they want it. The introduction to the training can be either on-site to improve overall performance, or at lower cost via the Web. Modular planning for the established company This one day seminar provides a grounding in the techniques of bottom up planning by describing the methodology involved in the creation and maintenance of departmental monitoring modules. Effective modular planning builds profitability and departmental responsibility for the future development of the business. The standard seminar outlines the role of combining current achievement levels,
  7. 7. benchmarking and target setting in key company areas. These include: Financial monitoring and ratio analysis Personnel management IT management Product and competitive management Sales and marketing management Production/ logistics and service supply New product development The course documents include a sample “best practice” plan. Key performance indicators (KPI) The role of the key performance indicator is central to building competitive advantage and a knowledge rich organisation. This one day in-house seminar delivers an understanding of key performance indicators and typical benchmarks within specific industry sectors. It includes: Identifying relevant key performance indicators; Getting to benchmark information; Integrating KPI's into the management information system; The course documentation includes a case study example of KPI integration into the relevant sector; either manufacturing, service or public sector. Standard operating procedures (SOP) Standard operating procedures are important to the growing organisation to speed training, ensure that best practice is met throughout the organisation, and that regulatory requirements are met. This one day seminar looks at the creation and management of standard operating procedures covering topics including: The key standard operating procedures by division; How to write a standard operating procedure; How to ensure that the standard operating procedure is read and used – the role of software; How to ensure that the standard operating procedure is updated – integrating it into the management information system. The course documentation includes two sample standard operating procedures with multiple choice tests which integrate into the software management system.  DB WHY A STRUCTURED APPROACH TO PLAN ANALYSIS, DEVELOPMENT, AND CONTROL? Investors, advisers and business managers are faced with common problems in business
  8. 8. planning and development. What should we concentrate on? What are key issues which drive success and reduce failure? How can we create a framework in which performance is enhanced? Though plans come in all shapes and sizes with different objectives and audiences, certain common ground is easily established. It is clear that start/ up and early stage operations must be separated from established. The focus of attention for start up operations, and their planning, should be on structure – how the organisation is structured to deal with product, market, customer, stakeholder, resource access (money, personnel, production/ service delivery), and implementation. For the established company, the emphasis, and the focus of their planning, must be on operations – how the organisation will drive forward its existing interaction of market, product/ service and organisational delivery. Start up operations Start up and early stage operations have key drivers for success and failure which can be measured and evaluated. Applying these criteria means that: (1) The business does not receive resources until key questions are resolved. (2) That the chances of success are substantially increased once this initial hurdle is completed All studies (not just Ibis) indicate that a disciplined and detailed stage of business development yields enormous benefits. The Ibis model provides one such framework for evaluating start up and early stage plans, which involves an overall view of the organisation outside the financial analysis. This includes a much greater understanding of the risk management environment than is normal. As 50 per cent of businesses fail for non-financial reasons any business plan review methodology should involve this broader assessment. Ibis can mentor plan development – but the plan must retain the conviction of the founding members.  Most start up and early stage companies lack key skills and a broad understanding of the business environment. To make the company successful it will need: (1) Early identification of potential problems in operational as well as financial performance (2) Additional advice and support from the outside Studies support the value of a range of support functions and the potential for improved monitoring to build skills, and reduce the potential for problems. The introduction of Ibis monitoring modules into the growing early stage company provides one such mechanism. By making early stage companies (providing sufficient management is in place) create firm foundations in each area of operation it enables them to focus on key opportunities or problems. The introduction of standard operating procedures (SOP's) is also central to this building programme. SOP's cover the entire range of procedures in the organisation and are continually reviewed to ensure best practice. Established businesses  Established businesses have different success and failure drivers from start up early
  9. 9. stage which can also be evaluated in the plan. Applying these criteria will: (1) Ensure that the business has solid foundations prior to the injection of additional finance (2) Improve the ability of the business to add value in a controlled way Non-financial factors continue to be as important in the established business as the start up. Traditional evaluation methods focus on a small proportion of the key factors. The Ibis model provides one such framework for analysing established business plans. The Ibis approach of building the plan from a bottom up (customer, product, divisional achievements) identifies operational performance in businesses as a basis for project/ expansion finance.  Established businesses need to create targets for performance throughout the organisation so that efficiencies can be maximised, growth enhanced, and problems rapidly resolved. The introduction of Ibis style monitoring modules linked to benchmark targets devolve responsibility within the organisation and set clear realistic goals for performance. Building better than benchmark performance throughout the organisation creates world class companies. Standard operating procedures (SOP's) also help in identifying best practice in entire areas of company operations. The ladder of plan development – stages, milestones and suggested external input Stage Milestone External input Pre -start up Completed concept analysis Personnel analysis Concept analysis Preliminary risk analysis Why? Lower failure, lower Ensure that concepts do not Ibis has templates for investment pass without written clearance evaluating pre-business plan viability Start up Comprehensive business plan Plan review and upgrading Why? Lower failure, better Ensure that plans do not pass Ibis has detailed evaluation returns on investment, faster without full evaluation and methodology for plan analysis growth clearance Early stage Target achievement Non-financial monitoring modules, benchmarking Why? Non-financial monitoring Ensure that targets are closely Ibis has detailed benchmarks provides the longer term control tracked and corrective action across most sectors, experience than financial assessment taken with non-financial monitoring Established Business platform Platform review Plan review and upgrading Why? Creating firm foundations Ensure that plans are not Ibis has evaluation system for is essential to ensuring that accepted without full established business plan progress will occur and risk is evaluation and clearance analysis reduced Expanding Target achievement Non-financial monitoring modules, benchmarking Standard operating procedures Why? Building the knowledge Ensure that targets are closely Ibis has detailed benchmarks based company is the final tracked and corrective action for most European sectors, over
  10. 10. challenge to ensure long term taken 60 standard operating success in an increasingly procedures, extensive non competitive market financial monitoring experience Knowledge centric Full transfer of internal and Information rich organisation external data to appropriate through appropriate HR and IT individuals tools Why? As the organisation grows Ensure that systems build it must structure and use its towards complete integration knowledge of the market, and of external and internal internal resources to achieve knowledge maximum competitive advantage Ibis Tel: ++ 44 (0) 1256 429349 Fax: ++ 44 (0) 1256 429350 E mail: info@ibisassoc.co.uk Web site: www.ibisassoc.co.uk Written by: Alan West (AW) David Brinton (DB) Karyn Prezawcyz (KP) Renuka Rajkumar (RR) Martin Khune (MK) – Ibis Germany Andrew Deenes (AD)