If you keep them happy you keep them loyal

External factors over which little control can be exerted will always buffet all business sectors. However, every organisation does have a potentially winning weapon in their armoury namely the opportunity to offer excellent customer service.

Everyone expects ultimate value for their cash be it the corporate customer or the man in the street.

It is a paradox that as trading conditions become tougher and business harder to win the level of service offered by many suppliers is falling very short of acceptable standards.

From the frustrations of automated telephone systems, the failure to deal with legitimate complaints or the inability to meet agreed delivery schedules customers are left feeling that their business is not valued.

Little wonder that they choose to vote with their feet.

Customer service is not a difficult act to pull off – in reality all that is required is to give the customer the feeling that their business is important and they are valued, not just “one of a number” or even worse a nuisance.

Those businesses that focus on customer service will see the benefits in their bottom line results.

 

Sometimes it’s best to walk away

 

In business as in poker there are times when discretion is the better part of valour. Put simply, some of the best business deals are those you turn away.

All organisations operating in today’s climate need to have constant and rigorous focus on their commercial exposure.

Against the current competitive background it is obviously difficult to contemplate turning away business especially from a customer of long standing.

However an objective assessment may well lead to the conclusion that in this instance the business would be left to others.

Reduced turnover will result when stricter controls are in place over such elements as payment terms and credit limits.

However, the reward or such fiscal discipline is obvious. Avoiding defaults by customers not only protects the company’s bottom line but allows focus to be placed on more profitable activities.

Boosting sales performance

There are some basic tactics which you can employ to increase your sales.

Companies that are increasing their sales turnover usually have an attractive staff incentive programme in place. Make sure you keep track of what type of “carrot” your competitors are offering to their sales force.

Upselling is a cost effective way to boost bottom line returns. Essentially, upselling involves adding related products and/or services to your sales portfolio and making it convenient and necessary for customer to buy them. Crucially when upselling the customer has to be persuaded of the benefit.

Give your customers the inside track. Try to stay ahead of the competition by having up to date brand and market information combined with technical back-up. For example if a new product launch is imminent it is better to keep the customer’s interest “warm” rather than push them into a purchase which they shortly will become dissatisfied with.

Differentiate your customers. There should be a clear and obvious difference between your regular customers and others – a difference that your regular customers perceive as showing that you recognise and appreciate their value.

Repeat business is the life blood of any sales force. Loyalty cuts both ways and becomes meaningless if all customers are treated as “someone off the street”.

Sound management principles

 

In order to achieve success all organisations must have effective leadership. It is the responsibility of management to lay down a set of ideas and objectives that are articulated, understood and supported by the workforce .Good people do not like working for organisations whose values are muddled.

 

Managers have to take difficult and unpleasant decisions. These often need to be made swiftly balanced against conflicting demands. It is not always possible to access cast-iron evidence to support the decision making process. This is one of the tests of strong management.

 

A clear and defined vision are essential requirements. Managing a large company, and dealing swiftly with a variety of challenges and issues is a complex task.

 

The desire to succeed which provides the drive and focus on excellence is one of the hallmarks of a good manager.

 

The workforce is the company’s most precious asset. Accordingly the ability to judge people and value their contribution is an essential prerequisite for any manager.

 

To build a talented team requires working with people who may be better at their job than you are at yours, and to guide and motivate them. People learn far more about the art of leadership from a good mentor than from any course or training exercise.

 

The ability to respond quickly will prove invaluable when things go wrong. Surviving a reverse and changing direction is the utmost test of resilience and flexibility.

 

You can’t run a business on cruise control

When assessing the performances of various organisations one observation holds true – whilst there are undoubtedly many businesses where the strategy is fatally flawed there are also many which would benefit from a fresh input.

This is particularly true in the case of SME’s. These companies usually rely on the vision of a small team or even in some cases a patriarchal owner. By definition for these people due to their personal involvement it is not always easy to change direction or take appropriate remedial action.

This is where an “outsider” can be of assistance – an objective appraisal can very often mean the difference between merely drifting as opposed to decisively moving forward.

It is a brutal yet incontrovertible truth that hatchet men perform better when they are brought in from the outside the organisation.

 

A false sense of security

Until such times that they are directly faced with a problem it is the nature of most companies to assume that all is well with their systems and operating procedures. These companies are those that are most likely to be blindsided.

Constant monitoring of counter party risk is the order of the day combined with disciplined inventory control.

Just because a customer has always being reliable in the past is unfortunately no guide as to future performance. Look out for tell tale signs such as unusual
ordering patterns, delays in payments etc.

In truth very few businesses fail overnight and there are usually enough warning signals which should enable a supplier to reduce its risk.

Current market conditions will continue to test but undoubtedly there will also be opportunities for those placed to take advantage of less efficiently organised companies.

By far the biggest danger to the welfare of any organisation is complacency.

Do you really know your customers?

 

In a few short years, rapid advances in technology have transformed the way we all conduct business.

Much of business is today conducted in the so-called virtual world of paperless trading. However, we should never forget that essentially commerce is about people trading together.

Whilst Computer “stop loss” mechanisms are the order of the day for “paper trading” the reality of the real world is that goods need to be moved from point of production to point of consumption and obviously this cannot be achieved via a computer terminal.

There is an old adage “know your customer,” this dictate has never been more important than in these uncertain and dangerous times. One of the biggest problems associated with the rise of e-commerce has been the accompanying lack of personal contact between a company and its customers.

Obviously this is not an issue for an online retailers selling products over the net and being paid via a Debit Card or Pay Pal etc.

However, there is an increasing tendency for B2B sales to be concluded by email or even SMS. The personal element has been lost and so has the identity and customer relationship. The surest way to avoid problems is by knowing your customer and understanding their business.

It is not possible to nurture this relationship and mutual understanding thru a key pad and email ordering system.

 

Challenging times for the food industry

As affluent consumers in China and India demand a more Western style diet we are seeing the effects on the price of meat and other foodstuffs. The price of cocoa has been driven to a three-year high with consumers in China and India getting a taste for chocolate.

China will continue to be a major buyer in the international markets in response to demand from its burgeoning middle classes.

By 2020 China’s consumers will be spending an annual £ £3,830 billion and their Indian counterpart’s £2,200 billion contrast this with British consumers who spent £937 billion last year.

A Chinese person born in 2009 will consume 38 times as much over his lifetime compared to one born in 1960.

With a population in excess of 1.3 billion (approximately 20% of the world’s population) imagine the implication for Western consumers should an early morning cup of coffee become the beverage of choice.

Meantime European Food manufacturers find that they are caught in a vice; the buying pattern for many continues to be “just in time” reflecting the need to keep inventories as low as possible.

However without the safeguard of a “buffer stock” they are now more than ever exposed to the harsh reality of having to “pay up” in order to secure the raw materials to keep their facilities in production.

At the same time suppliers will continue to face the problems of operating in the current economic background with buyers seeking to delay payment, renegotiate contracts etc.

 

Opportunity versus risk - the ying and yang of commerce

 

All commercial transactions contains an element of risk, yet at the same time how adequate are the mechanics and systems that are in place to manage these risks?

In recent years we have witnessed just how costly the laissez faire attitude to risk was in many institutions be they large corporations or smaller SME’s.

In the never ending quest for larger profits many of the saner measures of business were jettisoned.

An analysis of the most spectacular flame outs all have one common denominator– the architects of these calamities were oblivious to the risks that their organisations were exposed to.

Counter party and accompanying market risk should be under constant evaluation. All areas of exposure need to be constantly policed.

A forensic analysis of the current Debtors Book might make for uncomfortable reading but like most unpleasant tasks it should not be ducked.

It is always preferable to take remedial action such as a write down whilst you are in control of your own destiny rather than have a third party appointed to do it for you.

 

Don’t ignore the tell tale signs

Inevitably when a problem comes home to roost it prompts a round of head scratching and the standard response “why did that go wrong?”

The answer is all too often glaringly obvious and boils down to companies failing to address problem issues early enough to avoid the oncoming crisis.

The signs of a troubled business are all too apparent – these include lack of controls, lack of strategic vision, a demotivated workforce and obsolete or valueless stocks etc

Instead of grasping these nettles, often the preferred option is to engage in a totally pointless exercise such as a rebranding campaign or the launch of another product range destined to fail for the above reasons.

The operating style of many doomed companies can be compared to Nero’s pastime of fiddling whilst Rome burns.

 

Strategy overhaul

 

When attempting to boost the bottom line there are two obvious courses of action, cut operating costs and generate additional revenue.

Many organisations opt to reduce staffing numbers as a quick fix but there is a danger that in line with reduced personnel there is an accompanying decline in operating standards. In such circumstances customers often choose to vote with their feet.

The sales director only has one shot in his/her armoury namely increase sales. Sales targets can always be raised but a sense of commercial realism also needs to be applied.

If you are marketing a totally unique product or service the task is easier but for the most part there are many companies offering a similar range of products in a broadly similar price range.

In many instances companies would be advised to make customer service their USP but this requires the commitment of a dedicated work force not one that is pre-occupied with the spectre of further redundancies.

21st Century leviathan

 

The recent commissioning of the world’s largest container ship the Maersk's Majestic underscores the competitive nature of international logistics.

The vessel is a quarter of a mile long and has the capacity to transport 18,000 20-foot containers.

Manufacturers of electronics and mobile phones are shipping cargo by sea because competition was eroding their profit margins focussing their attention on cutting delivery costs.

Each 20 foot container can hold 13,000 smart phones with a transportation cost from China to Europe of 7 pence per unit and a transit time of approximately 25 days.

Currently there are over 6000 container vessels operating with a significant number engaged in the East to West trade routes.

China’s economic success remains export driven as illustrated by the cost of shipping a container. Inward from China to Europe costs around US$1500 with the reverse journey only commanding a rate of around US$700.

Traffic will continue to moving onto the water because moving goods by air is very energy-intensive and the high cost of jet fuel makes air freight too expensive.

 

Diversification - not a guaranteed silver bullet

 

Without doubt one of the most difficult challenges a business faces is diversification.

Often a company is faced with the dilemma of diminishing revenue returns and a tired business model which is either irrelevant or obsolete.

Diversification is seen as the solution to this dilemma. However, the mechanism for achieving this objective can be particularly difficult.

The first step is examining why the current business model is not working. This requires an honest appraisal from the management in respect of their performance.

Then the areas of diversification have to be closely considered, it is a common mistake for people to plunge into businesses in which they have little knowledge or experience and the results pretty quickly show up these deficiencies.

Thirdly one should always respect geography. It may be very tempting to consider that there are opportunities just waiting to be picked up but to underestimate the advantage of local knowledge and conditions can again prove costly.

In essence diversification can provide the answer to a company’s need for increased revenue but without a clearly defined strategy and executed business plan it can equally provide another drain on an already vulnerable balance sheet.

 

No time for complacency

 

There is a growing trend for companies to bully their suppliers over the question of payment terms. It is not unusual for companies who hitherto had paid on the basis of 30 days to now demand switching their suppliers to 90 day payment terms.

Many companies are seeking to stretch the length of their payment terms by employing a raft of tactics some fair, some foul.

Such extended terms can only be served by larger organisations with adequate cash reserves.

For the small to medium supplier it further ratchets up the pressure as banks are unwilling to increase their credit lines.

As profit margins are further squeezed by increased operating costs the importance of maintaining cash flow is crucial.

Business is hard-won in the current climate, but above all there has to be a commercial raison d’être for any transaction.

Mutual reciprocity has to be the basis for the customer/supplier relationship for it to remain worthwhile.

A question of trust

The integrity and reliability of any organisation’s reporting structure are vital to its long term survival. All too often risk controls are lax or can even be ignored in the pursuit of profits.

It can also prove a false comfort to rely on the findings of the Auditors.

As we have seen some of the financial instruments employed by the banks were so complex that even their own architects could not fully understand the full implications.

Even with the most rigorous reporting procedures any company is still heavily reliant on the calibre of the people operating the business and recording each and every transaction diligently.

A prudent exercise for any organisation is to regularly assess and test the systems in place for monitoring risk both transactional and counter party to judge that they are fit for purpose.

Over reliance on “assurances” can become very costly as in the case of French bank Credit Agricole who this week revealed the damage inflicted by the bailout of Portuguese lender Banco Espirito Santo (BES), as it said profits had almost halved.

Credit Agricole said it has written off £563million – the entire value of its 14.6 per cent stake in BES.

The firm apologised to investors and claimed it had been ‘misled’ as it said profits fell to £770million in the second quarter, from £420million a year earlier.

Portugal is injecting almost £4billion to rescue its largest listed bank, founded by the Espirito Santo family, which last week reported a bigger than expected £2.8billion loss.

This wiped out its capital cushion and caused its shares to plummet by more than 75 per cent before the stock was suspended on Friday. The rescue means shareholders and junior bondholders will be wiped out.

Credit Agricole is the second biggest shareholder after the Espirito Santo parent company, which owns a 20 per cent stake.

The French bank’s chief executive Jean-Paul Chifflet said: ‘We can only regret having been misled by the family with which Credit Agricole was trying to create a true partnership to build the biggest private bank in Portugal.’ Shares in BES have fallen 89 per cent since June.

Caveat emptor

The accusations of suspect accounting at the British technology firm Autonomy before its 2011 acquisition by Hewlett-Packard have taken a fresh turn.

Meg Whitman, the chief executive who took over as the acquisition was being completed, blamed a "wilful effort" to inflate the company's figures, and that they "severely impacted HP management's ability to fairly value Autonomy at the time of the deal".

HP has now filed papers in court accusing both Michael Lynch the founder and former CEO of Autonomy and Sushovan Hussain former CFO of fraud.

HP bought Autonomy in 2011 for £6.6 billion and had to to write down £5.2billion of the company’s value a year later. 

Previously Deloitte who audited Autonomy’s accounts said “it accepted decisions of management” to recognise hardware sales in its accounts as “sales and marketing”.

Hewlett-Packard says that this was a mechanism of covering up hardware sales and that Autonomy booked revenues before they were received and used a number of acquisitions to inflate the company’s value before the turnover.

Currently the FBI and the Serious Fraud Office continue to trawl through some 75,000 emails.

Meanwhile the US$ 5 billion battle continues, begging the questions that during the due diligence process how many Auditors examined the validity of the reported accounts.

This is not an isolated event, think of the Japanese camera giant Olympus, the company admitted to hiding losses on securities investments for decades.

To conduct this $1.7 billion fraud Olympus executives secretly liquidated hundreds of millions of dollars of Olympus investments, and then lied to auditors by certifying that the investments still existed.

Ultimately the validity of a company’s accounts reflects the integrity of the company which is being audited.

If the company’s results are misrepresented through fraud, deviousness or sheer incompetence then the fall-out will be disastrous.

 

Telling you what you want to hear

One recurring theme from the analysis of losses made in the financial sector is that the management were totally unaware of the risks which their institutions were running.

To be effective, risk management and risk controls rely on the people operating them.

As has been well documented all too often the corporate culture is dominated by fear and greed and these together make for a toxic combination.

When strategies fail and trading positions spiral out of control these two elements come very much to the fore.

Fear can often lead to individuals embarking on an even more reckless course of action in the misguided belief that it will all come right – the gambler’s doubling up mentality.

At the same time recklessness is often driven by greed; the larger the risk the greater the reward should it prove to be a successful course of action.

Against this background it is incumbent on the management to ask the uncomfortable questions and not merely rely on the assurance that all is well and going to plan.

Unfortunately many managers duck the issue rather than risk receiving unpalatable truths.

Avoid becoming an unsecured creditor

 

From a supplier’s perspective the most important part of any transaction is to ensure prompt and satisfactory receipt of funds for goods or services provided.

When a company oversteps the mark by abusing agreed payment terms they are in fact using the seller’s tolerance as means of providing an unsecured overdraft.

It would seem absurd to exchange a promise from your buyer for prompt settlement conditional on your company providing the upfront funds enabling them to do so.

In reality by continuing to supply a persistent late paying account this is exactly what is happening.

It is a question of commercial judgment. In these present trading conditions business is hard won but if the transaction carries a disproportionate risk then it isn’t really worthwhile.

The time and effort spent chasing a recalcitrant account could be better spent elsewhere.

The crowds are baying for blood.

 

As the Bank of England mulls over the mechanisms to claw back bonus payments from bankers and the prospects of criminal charges for alleged financial wrong doing there is a growing sense that those perceived responsible for financial shenanigans should be held to account.

As the various banking disasters unfolded we heard how “mega profits” were being generated and that nobody thought that this seemed too good to be true.

When an individual or group of individuals are labelled “star traders” the culture of these financial institutions is such that it is virtually impossible for anyone to check or challenge them.

There are few prizes for killing the golden goose.

Even more ludicrous is the lack of independent controls which left many of the traders to self-police their own portfolio.

Whether by design or delusion what trader facing enormous losses is willingly going to face up to the reality of the situation?

The preferred course of action is to continue betting more heavily in a forlorn hope to recoup the losses. It is an all too familiar tale.

The regulatory authorities may pursue some of these irresponsible traders in an effort to appease those who think that the bankers “got away with it”.

In due course a few of them may end up going to prison but the vast majority will have nothing to fear.

In reality the really guilty parties are those who were operating at the very highest levels in the banking communities.

Whilst not directly responsible for the specific transactions they oversaw the deeply flawed system. Whether driven by greed for increased profits or fear of not keeping pace with their competitors they presided over the ultimate train crash whilst being rewarded handsomely.

 

Short termism a dangerous path

 

Former Institute of Directors boss Sir George Cox has produced a report citing that the pressure to deliver quick results to the potential detriment of the longer-term development of a company had "become an entrenched feature of the UK business environment".

He said almost three-fifths of the senior business leaders he had consulted believed short-term thinking was a major or a significant impediment to economic growth.

Sir George said: "Short-termism curtails ambition, inhibits long-term thinking and provides a disincentive to invest in research, new capabilities, products, training, recruitment and skills."

There is no doubt that the main reason which precipitated the financial meltdown was the slavish following of short terms goals which hitherto had been labelled “get rich quick” schemes but have been shown to be the very opposite.

The problem facing the business community now is as companies struggle with funding issues and the spectre of more corporate failures it becomes increasingly difficult to focus on long term objectives as opposed to satisfying the immediate requirements of the shareholders.