Get ahead of the curve by being in touch with leading indicators and early warning signals. In a rapidly changing environment one must be on top of things and be faster to recognize the winds of change quickly or be left behind by their competitors. Sometimes you are the one causing change to happen; this is a proactive consequence of your activities. Other times you are just impacted by change coming from somewhere else, while you may be a passive observer. Everyone is seeking an advantage in the marketplace. That advantage translates to winning over prospects as well as retaining ones own clients. Just look at what has happened in the dynamic world of smart phones and in just the last few years we have seen iphone become #1, only to see the Android replace them while Blackberry after cutting 40% of their workforce just announced it’s being sold to a private investment group for a 93% decline from its high a few years ago. The early warning signals to Blackberry were the limited number of apps that were being developed for them. And while there are legions of dedicated iphone users, the market response to their 5S was less then stellar.

Admittedly few products and services are as hotly contested as the smart phone market since it is so huge and growing so rapidly, that every 1% change in market share translated to millions upon millions of dollars. But everyone should be concerned about which indicators and signals that will impact them. The first step is to identify which these are. For some companies it is the economy or more specifically their local economy and the buying power their customers have. For others it might be legislative changes that will impact their ability to do business, for others it is changes in technology that will affect their business model.

So first identify what are the things that you need to keep you eye on. Then find a way to gain access to that information, in some instances it is freely available if you know where to look. Then develop a game plan to determine how you will respond to change, the earlier the better when change comes swiftly. Then have a system in place to measure how well you are doing as changes occurs, are you winning or losing the battle? As you are getting a handle on your key indicators and signals you should be modifying whatever existing game plan you have to incorporate this new information. As you do this, if your actions are paying off you should see positive results, if not you need to retool and try another initiative. The more dynamic your business the faster you have to move. Conversely those who though that they were immune, paid no attention to what was going on around them and were blindsided by events. For example, outsourcing took many by total surprise as they simply considered their competition to be local or domestic, only to find they went bankrupt within a year.

We will next talk about finding out what motivated your staff and match that with people that meet your goals.

We welcome your questions as to the challenges you face in order to grow.

To see all articles in this series please go to http://optimal-mgt.com/blog.

Optimal Management is the premier management consulting company to the staffing industry. We act as mentors to owners and managers to maximize their sales, profits and value of their company. We become an extension of our clients operations and are there for all of their staffing and business needs, from sales, marketing and compensation plans, to finance, M&A, general management and everything in between.

“How Do Small and Mid Sized Firms Grow” ….. by capitalizing on what’s happening in their market.

The old axiom of knowledge is power has never been more true in a dynamic market. In fact the rate of change has never been higher then it is today and one must know the market forces that are at work to properly position themselves fro not only growth but sometime their very own survival. So how does one stay on top of things in their market? They are involved. They read, attend meeting, speak to other inside and outside their company as well as their comfort zone. They accept the fact that they do not know everything and should not exit is their own private bubble with people that reinforce their own thinking. They need to recognize that just that because they may be doing well today they may not always continue to do well.

If you are like most companies, they operate in market that is changing as their competitors are trying to gain market share through innovation or any other means. The so called new normal economy is rather different then the old one, with generally lower growth, but notable exceptions such as oil and gas, staffing, healthcare/biotech, information technology and pockets of high growth usually geographically centered around those cities with a healthy dose of these industries, such as the San Francisco Bay Area, Austin Texas, the Research Triangle in North Carolina, the oil/gas patch in several states, etc. In fact, high tech employment centers have grown 25 times faster in the country as a whole. And it’s not just the techie jobs that benefit from this growth, but it’s all the secondary and tertiary jobs and industries what feed off of them. For example, every new tech job creates 5 non tech jobs, from cab driver, manicurists and busboy to attorneys, physiologists and teachers. On top of this the wages for these other jobs go up as well, as supply and demand become out of balance due to the additional disposable income and service need from the expanding nucleus of the well paid job creators.

And the much maligned new normal economy has added stability to the market. In the past every 8-10 years we went from boom to bust, again and again. Sooner or later growth reached 5% or more for a year or two going back to the 1950’s and wages growth and shortages of goods and services lead to a business cycle bust and down we went, until things cooled down enough to start a recovery. We are now in 2 to 2

In this discussion of: “How Small and Mid Sized Firms Grow” we will discuss good hiring practices and dealing with non performers.

All well managed companies measure their key performance indicators and their key financial indications or metrics. Although KPI and KFI metrics vary from industry to industry the basic concept is the same, to have an analytical measure of performance to go with a subjective determination of how one is performing. This allows both the manager and the individual to find our where one is doing well and where improvement is needed. They should be measured on an ongoing basis as just one snapshot in time is not enough. Almost every function in a company has metrics that can and should be measured. All well managed larger companies have their own KPI’s and KFI’s that they rely on, although the data must be valid or the conclusions will be worthless. It’s the garbage in and garbage out (GIGO) scenario.

Key performance indicators for a sales person typically includes such things as the number of telemarketing conversations (TC) and the number of job orders (or contracts) one has received, assuming that TC is the way one obtains job orders. Metrics can determine both productivity and efficiency levels. Productivity would measure the number of TC’s one has made. The efficiency is the conversion of job orders or contracts one has obtained as a fraction of their TC’s. This can then be used to compare these values to others with similar responsibilities to determine how they stack up as well as if their trends are moving up or down over time.

Let’s assume one made 100 TM in a week on average and this rose from 80 to 120 over some period of time and their conversion ratio was that for every 4 conversations 1 job order was obtained that would be a 25% conversion ratio that has fallen from 28% to 22% over the same period. One would then compare this to like people and if those people averaged 80 TC’s and this was fairly constant, this person’s productivity was higher then average and improving as well. On the other hand if the group’s conversion ratio was 30% and rose from 28% to 32% during this same period we might conclude that our sales rep was not only below par but trending down while the group was moving up. This would zero in on the problem as one of efficiency and not productivity.

Similarly KFI measures might include things like sales, margin rates, fixed costs, profit, rates of return (ROS), debt/equity, etc. Thus sales might be rising but if margin rate and ROS was falling we would be seeing growing sales but falling profitability and ROS. This is not what one would like to see and a game plan for remedial action should be undertaken.

In our next discussion we will discuss the concept of opportunity loss.

We welcome your questions as to the challenges you face in order to grow.

To see all articles in this series please go to http://optimal-mgt.com/blog.

Optimal Management is the premier management consulting company to the staffing industry. We act as mentors to owners and managers to maximize their sales, profits and value of their company. We become an extension of our clients operations and are there for all of their staffing and business needs, from sales, marketing and compensation plans, to finance, M&A, general management and everything in between.

In this discussion of: “How Small and Mid Sized Firms Grow” we will talk about the concept of opportunity loss.

Did you ever take a job that was not up to par and made little money on it, or after you filled an order you said that if you only waited a bit longer you could have used your resources more wisely, or you didn’t take an order thinking a better one would come your way but it didn’t, or quoted a low price when you could have negotiated up after a bit more thought and kick yourself for being too eager?

These are some examples of opportunity loss. It is what you could have done better, considering other options. It is lost potential profit that was not realized if another course of action was taken leaving money on the table. It is the difference in not following a better course of action. Opportunity loss is not using ones resources more efficiently.

As an illustration, you are operating at 90% of capacity, be that services or production and have received an order that would fill your remaining 10% and therefore should be at capacity in 10 months based on your long term growth of 1% per month. Your revenue is $1 million, with a 25% margin. Company X then gives you an order that would last 10 months at 17% margin. This is a 32% reduction in margin rates, which is rather high, but if you were to take that order you would add $170,000 in margin during that period. If you continued to grow at your normal rate in 10 more months you would add $137,500 as you build up volume incrementally ($5,000 in month 1, $10,000 in month 2 and so on). You would in fact have made an additional $32,500 in profit by taking this order. The opportunity loss here would not be taking the order and growing at your historical 1%, provided that this new business at a steep discount did not set a precedent that would lower your overall margin rate if other customers wanted lower rates as well and there were no other extraneous factors that could impact this situation.

After further analysis of your growth rate, you found out that more recent gains were running at 2% per month and was sustainable. That would mean that in just 5 more months you would be at capacity and after 10 months you would have generated $197,500 in additional margin which would change everything. If that were the case, your decision as you should be to hold out for adding business at a 25% margin and not taking the order. This would yield $60,000 in higher profit. You could then to ask for a 20% margin rate from Company X and if that were not accepted passing on it if that would not fly. What you then do when you reach capacity opens up another set of decisions.

The bottom line is to do the math and check your assumptions to make sure you have considered the alternative and avoid opportunity loss.

We will discuss how to determine what is happening in your marketplace.

We welcome your questions as to the challenges you face in order to grow.

To see all articles in this series please go to http://optimal-mgt.com/blog.

Optimal Management is the premier management consulting company to the staffing industry. We act as mentors to owners and managers to maximize their sales, profits and value of their company. We become an extension of our clients operations and are there for all of their staffing and business needs, from sales, marketing and compensation plans, to finance, M&A, general management and everything in between.