Business Insights October 2022

There is a lot of commentary in the media regarding the challenges currently facing NZ business owners.  Much of it is interspersed with political observations on how the NZ economy is being managed, how Covid is responsible for the downfall of many businesses, and our tardiness to return to normality.

As start up business owners, Rob and I have experienced many of the same challenges, so we can empathise.  Anecdotally, for every 5 business owners we talk to, 4 are doing it hard, while the 5th is thriving.

We felt it important to cut through the chaff and understand what the core challenges are so we can best help our clients.  The above graphic depicts the results from the recent LinkedIn survey we undertook.  While international businesses were invited to participate the above reflects the stripped out Kiwi lens only.

The results were perhaps not surprising but somewhat alarming, with the two major categories reflecting two thirds of the responses hence their focus in the remainder of this narrative.

Not surprising, “Sourcing Talent” is the main challenge many business owners face. Essentially this inhibits productivity primarily but is also inflationary as the cost of labour rises as well when demand is high relative to supply.

We hear about input price inflation in the Press in relation to the supermarket commodities, but the impact is far wider than that.  It’s typical in challenging economic times for the intermediaries involved in the various stages of supply chain to retrench and service local customers, so businesses dependent on long and complex supply chains find it much more difficult. Where they can, suppliers price in margin at each stage commensurate with risk, which is passed on to the end customer where they can.

Both “Sourcing Talent” and “Input Price inflation” as issues are alarming as there is no quick and easy fix. Both are systemic, and to a large extent, driven by factors outside the influence of NZ. NZ is a low wage economy compared to other OECD countries, which contributes to the skilled brain drain we are experiencing offshore. We hear about “The Great Resignation”, which if true, will further accentuate this problem.

And of course, being a SME led economy, it is the aspirational small business owners that find it particularly hard to respond, with often slimmer trading margins and the inability to compete on price when attracting people as compared to the large corporates.

While Covid has been attributed by many to the current situation, the key issue now is how businesses respond.  Without doubt it has been a significant “Disruptor” and wake up call to many, however, it highlights the need for all businesses to be able to pivot and operate in an agile way. This should form part of everyone's enterprise risk management and business planning process.  

Before we start, here is a definition we use to describe Business Planning: "the marshalling and prioritisation of resources both within and external to an organisation, to deliver key business outcomes that are aligned with an agreed business strategy."

To explain further:

• Business planning sits below corporate strategy and integrates budgeting & forecasting, as well as a collection of individual business cases, each representing a unique business proposal for change.

• These proposals represent projects that the organisation wishes to embrace as separate from what they are currently doing (which we call “business as usual”).

• A business plan provides context for the business in terms of how much all these desired changes will cost, how the business will benefit, the risks associated with those changes, and the financial rewards they collectively should generate over and above “business as usual”.

• It’s a mechanism for ensuring that all new business activity remains aligned to your agreed strategy. It should explain the why, the how, and the when, and clearly define what the outcomes for the business are on its completion.

• It encourages a more detailed lens on specific strategic outcomes the organisation seeks. For example, growing market share, improving the customer experience, or improving productivity or profitability.

• It encourages organisations to prioritise initiatives so it’s clear on what is the most important through to the least important.

• While the capacity for each business is different, generally no more than 5 projects should be initiated in any financial year as resourcing often becomes an issue.

A business plan is a living and breathing document. It provides a focal point for the business that should be shared with all staff and stakeholders of the business to ensure everyone is on the same value length, supports it and is fully engaged in delivering on it.

Sounds easy and straight forward, yet a lot of business struggle to effectively build it into their ethos.

Big Data Analytics probably means different things to different people, and that's ok as there are a broad range of problems that are looked at, assessed, and ideally solved by this deeper level of analysis.

Rather than accepting the traditional way of reviewing business performance by referring to the P&L and Balance Sheet of a business and assessing the state of that business solely on that level of detail, big data analytics is about digging deeper, it's about looking at different aspects of business activity, how it has been and is performing, and how that compares with your expectations or accepted standards.

In manufacturing for instance, it may be about looking at the volume and quality of output by machine, by product over time; even assessing the number of hours each machine is active to then understand what pace they are working at. That can be compared to current and future production targets, identifying capacity levels and any associated issues. Also, predictive analytics can be used for analysing machine operations, forecasting its future state and preventing major defects.

For customer services, it might mean looking at how quickly orders are entered into your system from the point of customer contact, through to how quickly those orders are processed (invoiced and sent). How often are acceptable standards met or not met, and why aren't they being met. How often are credits raised against those orders, how often are orders classified as back orders because of being out of stock? Does that relate to a specific customer, product or service? It's at this level that business performance can then be fine-tuned to then offer a better customer experience.

Certainly, there are individual business systems out there that can deal with specific areas, e.g. manufacturing, and provide a granular level of performance analysis, but big data analytics is about having the ability to look across multiple areas of the business, all inter-connected, and highlight how specific tasks are being performed – good, bad or indifferent, to then be able to improve deficiencies and visually see how those improvements impact future performance.

The devil is often in the details when it comes to assessing business performance. Generalisation is dangerous as it can and does often hide the real source of the problem. That's what big data analytics is designed to overcome. It instead offers the ability to make commercially intelligent decisions on where faults lay, where standards have slipped and what needs to be done to fix them. This will ultimately improve the customer experience which, in turn, enhances your brand.

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