David Braham, Director, Six Degrees Executive

Welcome to the July issue of Six Degrees Connected - our quarterly e-newsletter, which forms part of our highly successful Thought Leadership Program. 

In this issue, Peter Metcalfe, a partner at Oliver Wight Asia Pacific looks at ways to keep your cash flow healthy and Maria Robbins, CEO of Robbins Group discusses how businesses can manage the changes to workplace relations as a result of the Fair Work Act, which came into effect on 1 July. Kevin Duffy and David Byrum from Kepner Tregoe explore how manufacturers can stay fit in the current economic climate, while Tim Riches from FutureBrand looks at what the economic downturn means for brand owners.

Over the past six months many of the government’s stimulus programs have been rolled out. It remains to be seen if the measures taken by the government have helped lessen the pain of the GFC for businesses. What is pleasing to see however, is that many of our clients, especially in the FMCG and healthcare spaces have been experiencing profitable growth in the first half of this year and are actively recruiting.
 
While some of our clients are sitting tight through the global economic downturn and not making any key decisions, many are recognising the importance of having great people to help grow their businesses, especially during such tough economic times.
 
For those looking to change jobs, the prevailing feeling is still one of caution as we enter the second half of the calendar year, thus making it a very tight candidate market. Positions where there are still skill shortages include engineers, planners, brand marketers and national business managers, making our job more challenging at the moment.
 
The recruitment industry has faced a tough 12 months but we’re delighted to say that we are continuing to grow and have maintained our employee levels in both Sydney and Melbourne. Whilst the duration and magnitude of the global recession is far from certain, we are seeing that corporate profits in the USA are above expectations. The Australian experience seems to confirm that in tough times, quality people make decisions that are mitigating the broader economic affects on corporate earnings. This further emphasises the need to hmailto:aire the best talent, even in difficult times.
 
Our Thought Leadership Breakfasts have also continued to be a great success and we will be holding more breakfasts in the coming months. At our breakfast in June, Nielsen discussed how to maximise competitive advantage in today’s retail environment and at our breakfast in July we had Kepner Tregoe speak on the future of operations improvement and integrated performance management systems – both breakfasts were held in Sydney. At our next breakfast in Melbourne in August, Ben Crowe, co-founder of Gemba will speak on sponsorship in a tight economic market, and in November, Portland Group will discuss the latest trends and challenges in procurement.  
 
We hope you find this issue of Six Degrees Connected enlightening and inspiring. If you have any story ideas or would like to contribute an article yourself please contact Amy Hegvold at: amy@sixdegreesexecutive.com.au.

Peter Metcalfe, partner, Oliver Wight Asia Pacific

The global financial crisis has meant that hundreds of companies are now facing a cash flow crisis. So why are some businesses managing to weather the storm while others are finding themselves in a financially precarious position? Peter Metcalfe, partner at Oliver Wight Asia Pacific says what will distinguish the survivors from the strugglers is a disciplined approach...

Whether you’re a local plumber or a multinational mining conglomerate, access to cash on a regular basis is one of the fundamentals of business continuity. In the past, if you got into a tight spot because sales were down or your debtors were slow to pay, you could usually go to the bank or your shareholders to get a top-up. Not so anymore – the lines of credit we used to rely on have dried up and potential shareholders are considering their investments with a lot more caution.

Ultimately, the amount of ‘free cash flow’ existing in your business will influence the short and medium term future of your company in today’s economic environment. Companies that have strong reserves of cash will be able to sustain the volatility of consumer reaction and maintain their business focus to gain market advantage.

To ensure they have cash flow at every level of business operation, smart operators will follow a process of disciplined integration. Here’s an outline of what you should consider to keep your cash flow integrated…

Cash for strategy

When you initially created your business strategy you had to make choices – choices about your product offering, the markets you wanted to participate in and the customers you wanted to build relationships with. All these decisions required you to ask questions about cash flow, such as how will you pay for business activities, where will the cash come from, and how will you keep your cash flow steady?

Successful companies keep abreast of their cash flow on a monthly basis and always reconcile any deviations against their strategic intent. Most importantly, their strategic horizons cover a minimum two-year period to provide owners, shareholders and key stakeholders with confidence that the business is heading in the right direction.

Cash for products and services

Successful businesses provide a solution for a customer need in the right place, at the right time, quality and price. They also innovate to keep their products relevant. But new product development can be costly so it’s important to have a process for selecting winning ideas. Asking yourself the right questions can help avoid trouble later on, such as do you have a fully costed product development plan that covers the strategic horizon and do you have the cash to support the development?

Cash invested in ideas that don’t see the light of day should be avoided. One way to do this is to review your new product pipeline every month and ensure you are investing in winning ideas. Constant monitoring of the current product portfolio via a disciplined management process, will allow you to satisfy market demand with a relevant product range and ensure that no obsolescent products and surplus stock are allowed to tie up precious cash.

Cash for generating demand

Businesses need to ensure all marketing and selling activities deliver a return on investment (ROI), including in-house and out-sourced activities. Often companies focus on discretionary expenditure such as advertising but a major investment of cash is also required for human resources. Make sure you know the role and objectives of all employees and assess their effectiveness regularly.

Remember, making the sale is only part of the equation. You also need to consider your payment terms. How frequently do you review the money your customers owe you? Successful companies review their sales forecasts and their debtors in the same monthly meeting to ensure they are not propping up their short-term sales by selling to bad debtors.

Cash for the supply chain

A huge cost component of all businesses, and one of the most complex areas to manage, is the cost of goods sold. If your planning and control processes are not robust then you risk investing large sums of cash in raw materials, packaging, plant and equipment, labour, storage and distribution, without any immediate return.

Successful companies reconcile the latest consumer demand against their supply capability and invest cash accordingly. They will view the demand for the next two years as a minimum and make tactical and strategic decisions to minimise cash investment and deliver superior customer service.

Are you cashed up?

If water is the essence of human existence then cash is the essence of business viability. Combining the financial outputs of your product management, demand and supply reviews and reconciling them against your business strategy will ensure that you keep a constant monitor on the health of your business and its all-important cash lifeblood.

If your senior executive teams are not engaging in a monthly integrated business management process then you run the risk of wasting cash – and who can afford to do that? Yesterday, money was a commodity – today it is a source of competitive advantage.

Peter Metcalfe is a partner at Oliver Wight Asia Pacific, leading specialists in integrated business management who educate, coach and mentor companies to achieve outstanding performance. Please send any comments or questions you have in relation to this article to: PMetcalfe@oliverwight-ap.com

Maria Robbins, CEO, Robbins Group

From 1 July 2009, employers and employees are subject to a new national workplace relations system under the terms of the Fair Work Act 2009. Maria Robbins, CEO of Robbins Group discusses how you can manage the changes by taking a strong business focus...

It’s a potential nightmare scenario. Without warning, an industrial dispute erupts at one of your business sites. Your company hasn’t had any issues with unions for years – you didn’t even know an issue was brewing!

You investigate and discover that weeks ago a union organiser was granted access to your site so he could inspect the wages and conditions of staff. The team leader, aware that new industrial relations laws were in place but unsure exactly what was required, allowed the union organiser on site. The organiser got talking to other staff and called a meeting which was attended by a large number of staff, issues were raised and now things are getting ugly.

This represents an immediate risk to your business... 

So how can you prepare for the changes required by the Fair Work Act without industrial relations becoming an overwhelming distraction in your business?

Taking a strategic business risk approach to the Fair Work Act will minimise business disruption.

We recommend the following:

1. Review your business strategy, mapping all possible Fair Work Act risks to your current business operations and future business strategies.
2. Conduct a thorough review of your business and HR plans and procedures and identify and resolve any points of risk.
3. Ensure that key personnel such as line managers are trained and confident in exercising their rights and responsibilities.
4. Ensure that you can maintain a strong company culture through proactive people and culture strategies and management practices.

In the meantime, what do you do about your site dispute?

Making sure that you and your line managers understand your requirements as an employer under the Fair Work Act is the important first step.

The most important component of good workplace relations is the strength of leadership at all levels of your company. It is quite possible to maintain optimal business outcomes in a unionised environment. The quicker you can take leadership action to deal with the issues at a local level as part of a direct relationship between the employer and staff, the more effective the outcome will be.

Depending on the nature of your industry and workplace culture, the Fair Work Act may require your company to make many business and operational changes. A strong focus on practical business outcomes will produce the best resolution. 

Business Risk Plans should cover off, amongst other things, the following aspects of the Act:

• Unions have a right of entry under a set of new provisions to inspect suspected breaches of workplace laws. Since entry provisions will be defined by a union’s eligibility to represent the members in a workplace, multiple unions may be able to operate in one workplace.
• Business stakeholders are now required to meet a test of bargaining in good faith when negotiating an Enterprise Agreement. 
• New rules around Bargaining Representatives enable multiple bargaining representatives, including multiple unions to negotiate an Enterprise Agreement. 
• The entitlement to claim unfair dismissal changes, enabling staff with 6 months service in organisations with greater than 15 full time staff, and with 12 months service for smaller organisations to make a claim of unfair dismissal.
• Redundancies will be able to be enacted only after all redeployment options are considered.  From 1 January 2010 there will be a requirement for minimum severance pay entitlements.
• New National Employment Standards and national awards will come into play in January 2010. All employment arrangements, including individual contracts will need to comply.
• From January 2010, Enterprise Agreements will have to face the ‘better off overall’ or BOOT test.

Maria Robbins is CEO of Robbins Group, an HR consultancy that activates business performance. Robbins Group works with Sarah Ralph, a partner at the Australian law firm Deacons, to deliver “Fair Work Fitness,” a strategic, practical and pragmatic response to the Fair Work Act 2009. Robbins Group also delivers commercial outcomes to companies for business performance, HR and Industrial Relations issues. For further information about Robbins Group visit: www.robbinsgroup.com.au. Please send any comments or questions you have in relation to this article to: maria.robbins@robbinsgroup.com.au

Kevin Duffy, partner, Kepner Tregoe and David Byrum, managing partner, Kepner Tregoe Australia

Most manufacturing organisations, like most humans, want to be leaner, meaner and in better physical shape. So what do manufacturers do to stay fit in the current economic climate? Kevin Duffy, partner and head of the Global Operations Excellence practice at Kepner Tregoe and David Byrum, managing partner at Kepner Tregoe Australia explore how manufacturers can stay fit and healthy without losing too much weight…

Just as humans have dabbled in a range of diets from low-carb diets, to fruit, protein, and calorie-counting diets, manufacturing companies have tried their own range of weight-loss programs. Beginning in the 1980s with Total Quality Management (TQM) and continuing through Total Preventive Maintenance (TPM), Just In Time (JIT), Kanban and Six Sigma, to today's diet of the moment, LEAN, manufacturers continue to devote huge expenditure to gain advantage in an increasingly competitive market or to extend longevity in the face of global competition.

When a human diet does not produce results, personal trainers are sought for direction and motivation. When an organisational diet is not producing results, a consulting company is engaged. If results remain slow the program is often put aside. Then, just as the organisation becomes resigned to being ‘overweight’ forever, a new miracle cure is presented and once again the organisation’s leaders are inspired to commence a new journey towards its goal.

So what can manufacturing companies do to ensure their diet is a success? Here are some tips that might help make your journey successful…

In manufacturing, weight and shape (i.e. cost base and organisational structure) is determined by the range of suppliers, products and customers. Unless significant changes are made to the activities carried out in these areas, no major reduction in the mass (or cost structure) of the organisation will result.

Organisations, particularly in economic down cycles, are sometimes forced to lose weight quickly (or reduce their cost base) through across-the-board reductions in labour. These efforts often produce the desired weight loss but deplete the organisation’s resources, leaving weaknesses that may hinder long-term market recovery.

Because no fundamental lifestyle changes have occurred, the weight (or cost) eventually creeps back and the process continues.

For long-term cost reduction to be achieved, a business style change is required. It is best to begin that change with a detailed assessment of the current state of affairs.

Organisations often carry excessive cost structures simply because they have too much complexity – a condition that exists when a business performs too many low-value activities. In other words, low-value activities are responsible for a significant part of the company's costs but contribute little or nothing to its profit.

The good news is, that the signs of complexity are easily recognised – such things as increasing stock keeping units [SKUs), falling margins, increasing set-up times and falling customer service KPIs are signs that your business has become too complex.

To review your organisation's level of complexity ask your accounts department to run a profile of product SKU sales with a cumulative column. Draw a line halfway down the products list. What value do products below this line contribute to your business? Our research shows it is often less than 5%.

So why do some organisations continue to manufacture products and deal with suppliers and customers that contribute little value to their overall success?

The root cause of this problem is usually the standard cost system, which prevents the company knowing the true cost of manufacturing its products or servicing its customers. The standard cost system treats all products equally when allocating overheads. This makes low-volume, often complex products and customers seem far more attractive than they really are.

Recent programs such as activity-based costing have tried to establish the true cost of product manufacturing. While robust in principle, these programs consume huge resources and often fail to produce results within an acceptable timeframe.

This has led Kepner Tregoe to develop a rigorous analysis process called ‘volume adjusted costing’. Our costing program provides accurate product and activity costs much more quickly than other programs and helps organisations carefully challenge long-standing organisational paradigms and perceived sources of competitive advantage. It also outlines the steps that must be taken to improve the contributions that low-value activities make to the business. Ultimately, if your low-value activities are not making a profit they must be cut, along with the cost structures that support them.
 
And just imagine the cost structure and profit level of your organisation without its low-value products and the engineering, technical and sales support they demand? Imagine if these costs were refocused on enhancing higher margin goods and developing new products?

Like most effective programs, our program requires effort, focus, and robust data and processes, and three basic guidelines for success:

1. Do it because you need to do it and not because it is in vogue.
2. Results will only come with consistent daily discipline and lifestyle (business system) changes.
3. Choose a consultant you can work with and trust.

Kevin Duffy is a partner and head of the Global Operations Excellence practice at Kepner Tregoe. David Byrum is the managing partner for Kepner Tregoe Australia. Kepner Tregoe are specialists in operational and service troubleshooting using proprietary tools and processes recognised by the world’s leading companies and regulatory bodies as “the Gold Standard”. Please send any comments or questions you have in relation to this article to: dbyrum@kepner-tregoe.com

Tim Riches, chief growth officer, Asia Pacific, FutureBrand

The current economic downturn has led to a shift in consumer behaviour. So what does this mean for brand owners and managers? Tim Riches, chief growth officer, Asia Pacific at FutureBrand says now is a good time to put your brand under the microscope…

There is no doubt that during tough economic times customers pay much closer attention to their purchasing choices, turning a high level of scrutiny to the value proposition offered by every brand. The ‘established order’ will be upset in many categories as a result.

So at FutureBrand, we believe now is a good time to re-assess your brand strategy. We suggest that there are three key questions that can help refine your brand strategy to address the challenges and opportunities of the global financial crisis:

1. Is your current view of customer segmentation still relevant?

Many companies spend lots of time and effort on market analysis and segmentation, distinguishing between types of customers to more accurately target product development and communication. The problem is, many of these segmentation models are based on the customer’s mindset when ‘times are good’ and that mindset has changed as a result of the global economic downturn.

An important task now is to look at how your customers assess value. A simple exercise might be to ask what each customer segment is likely to be trying to do in the current economic climate. Are they:

• trying to be more effective? (i.e. get more for the same money);
• trying to be more efficient? (i.e. get the same for less money); or   
• trying to downsize? (i.e. spend less and get less).

This type of analysis specifically addresses the cost-benefit trade-off of your brand, and can offer a simple and actionable way to explore what your customers are currently trying to achieve when shopping in your category. If you know what your customers value, then your brand can respond to this in a positive way.

2. Is your brand compelling in terms of cost?

Cost covers not only the dollar price of your brand but also the cost in terms of the effort required to buy and use, and the risk, say to your customer’s self-image. So asking yourself whether your brand offers value in terms of its dollar price, effort and risk can guide you to come up with initiatives that make your brand easier to purchase or use, or ways of decreasing the sense of personal compromise that your customer may feel by trading down to a ‘lesser’ brand.

To maximise long-term value, brands should look for distinctive ways to address the cost side of the value equation. One example may be aggressively communicating the quality of your brand, ideally by comparing the quality of your brand with its higher priced competitors.  

3. Are the benefits of your brand robust?

Now is no time to rest on your laurels. During times of economic uncertainty it is important to scrutinise the benefits your brand is supposed to offer and ask yourself the tough questions. What are you really famous for? Why should customers prefer your brand to others? Are your brand’s attributes still relevant and differentiable in today’s market? How would customers choose if they were first time customers to your category and had full information about every option?  

Although most businesses are facing a lot of pressure as a result of the global financial downturn, it is important not to ignore the fact that consumer decision-making and preferences are shifting. If you’re serious about making your brand customer-centric, then putting your brand’s value proposition under the microscope isn’t just a nice idea, it’s mandatory, because let’s face it – that’s what your customers are doing.

Tim Riches is CEO Singapore and chief growth officer Asia Pacific at FutureBrand. FutureBrand helps companies create powerful brands in an ever-changing world. Please send any comments or questions you have in relation to this article to: TRiches@FutureBrand.com