Recent political events in the Crimea erupted rapidly and appeared to have surprised Western Governments. Hindsight will no doubt show that the Russian annexation was predictable, if the decision makers had heeded the warning signs that were there to be seen. Political events often change quickly and apparently unpredictably, but in fact this is rarely the case, as vigilance in the observation and analysis of indicators can usually predict the likely chain of events. Can the commercial world draw lessons from that of the political?
In the commercial world, change may be regarded as the only constant. Predictable change can be managed, but it is the unpredictable change that usually causes problems. For the commercial manager, responsible for producing profitable income for a business, trying to anticipate the future , will always be difficult. Changes in demand, resulting from fashion or technology are just two of the problems that confront the commercial manager. But there are also events which may not be obviously predictable, but which may give rise to new opportunities or alternatively, produce unexpected threats to the income supply or to business operations in general.
Commercial managers are responsible for producing the necessary profitable income for their business. As managers, they will be assessed on how much income they produce and how efficiently they mange and use their resources in its production. But to be effective and to maximize the opportunities for income , commercial managers need to be aware of the threats and opportunities that continually arise from events and developments in the business environment. Opportunities and threats may arise internally from within the business, as well as externally from the business environment.
Internal changes in a companyâ€™s performance and capability tend to be those over which the commercial manager may have some control or influence. However, the same cannot be said for the majority of threats and opportunities which stem from external factors that directly affect the business environment. Companies may initiate what is called a PEST analysis, to assess the effects that Political, Economic, Social and Technological factors have on business operations. But to be comprehensive, any analysis of the business environment should also include assessments of competitor activity, new competitive products ,as well as the business and financial strength of customers and the customer base as a whole
While business and general media may be a prime source of information that outlines potential threats and opportunities in the wider business environment, some emerging trends in selected internal performance measurements, may also give timely alerts to potential change and development in the organisationâ€™s specific market. Such indicators are likely to be directly related to sales performance and analysis. Variances from projected levels of enquires in terms of number, type, market segment, location and product group may all indicate developments in the business environment providing both threats and opportunities. Similarly, other useful indicators may also be derived from changes in buying patterns from new and existing customers. Ideally, commercial managers should delegate specialists to monitor and analyse the potential threats and opportunities of the organisationâ€™s business environment. However, they must be prepared to make decisions and to act on the advice of specialists and not ignore them.
Producing the business plan, outlining how investment and resources are to be used profitably, is the commercial manager responsibility. As part of the planning process it is prudent to prepare separate contingency plans to cope with various possible eventualities. This is especially important for large organisations, as their size and organization tends to preclude a rapid response to changing conditions. Whereas, smaller companies tend to have greater flexibility, enabling a faster reaction to changed conditions and opportunities.
What actions should the commercial manager undertake to prepare for the â€ťunforeseenâ€ť event?
* Continually analyse the business environment for threats and opportunities.
* View the trends, identifying potential indicators of change.
* Consider the possibilities
* Outline the best and worst scenarios
* Assess the probabilities of particular scenarios
* Prepare contingency plans to meet the scenarios with higher probabilities
* Maintain the necessary resources to meet contingency plans
* Identify the indicators that would initiate particular scenarios.
* Decide which indicators might call for immediate action
* Be prepared to act quickly
In a rapidly changing world, the successful commercial manager must be vigilant in identifying, observing and understanding those indicators that give rise to both opportunities and threats. The timely enacting of contingency plans can mitigate problems and exploit opportunities.
Â© N.C.Watkis, Contract Marketing Service 7 Apr 14
April 14, 2014 Posted in: business development, business efficiency, Business Marketing, business performance improvement, business performance indicators, business performance management, business performance measurement, marketing management, performance management Comments Closed
Have any of your customers been mis-sold any of your products or services? Perhaps the answer depends on what is understood by the term â€śmis-sellingâ€ť.
Mis-selling has recently come to the public notice mainly through problems that have come to light in the financial services industry. In this business sector, it has been shown that many thousands of customers had been mis-sold financial products, which were often insurance packages that were wholly unsuitable for their needs.
So what is mis-selling? Mis-selling may described as encouraging customers to buy products or services by the deliberate or unintentional mis-representation of the benefits and features of a product or service, or through the obscuring of particular terms and conditions in tortuous â€śsmall print.â€ť
For the financial services industry, the exposure of misâ€“selling has had disastrous and very expensive consequences, which have resulted in compensation payments running into millions of pounds. In addition, the subsequent loss of customer confidence and trust in the companies concerned has been seriously damaging their reputations.
For the commercial manager, responsible for producing profitable income for the long term future of the business, understanding how mis-selling can happen, together with its potential consequences is very important if actions are to be taken for its avoidance.
In the financial services industry, mis-selling appears to have taken place extensively in the past two decades involving some of the larger financial service institutions. However, while there appeared to be no evidence of deliberated fraud, mis selling did take place on a wide scale, which resulted in very expensive compensation payments for the companies involved. So why did this happen and what appears to have been the driving factors?
It would seem that in many mis-selling cases, the driving force was the level of commission payments that could be earned by sales staff, which encouraged volume selling. Specialist products were not accurately targeted at specific and identified customer requirements, but at a larger and more generalised market for whom the specialised product was often unsuitable, as the profile of many customers made them ineligible.
In consequence, sales executives were incentivised to sell indiscriminately to unsuitable customers through the payment of commission. This situation was compounded by the ineffective oversight of weak management. While the use of commission appears to have encouraged mis-selling, it does not make the payment of commission wrong.
However, the ultimate responsibility for commission driven mis-selling, lies in a failure of effective management at all levels.
The commercial managerâ€™s task is to maximize profitable income while minimizing the level of costs and the use of assets. However, producing profitable income must be for the long term future of the business. If the level of income is increased in the short term through dubious selling practises, it will have serious effects on the flow of income in the longer term.
What actions should the commercial manager take to avoid the inherent dangers
* Ensure that all sales executives fully understand their productâ€™s benefits and features.
* Use training to ensure that all sales staff understand the dangers and potential consequences of mis-selling.
* Use market research to identify and profile potential customers, identifying those factors that make them eligible for the product benefits.
* Prepare a due process to ensure that all aspects of every sale are covered before the customer commits to purchase.
* Maintain oversight of all sales agreements to ensure that due process has been achieved and has been applied correctly. If a sales executive is above average in their results, it pays to understand why they are so successful, so that their successful techniques may help to improve the sales team results in general.
â€śCaveat Emptor â€“ buyer beware,â€ť means that all customers should proceed with caution for any purchase decision, and to be sure that they understand the suitability and detail of any product/price package on offer, before they commit to purchase. However, while the ultimate responsibility for a purchase remains with the customer, that responsibility can never be an excuse for deliberately or unintentionally misleading them to purchase unsuitable products, so that they become a victim of mis-selling. While in the short term, mis-selling will damage the individual customer/supplier relationship, its longer term effects on the trust and integrity of the supplier may be manifest in reducing its level of profitable income in the future.
Â© N.C.Watkis, Contract Marketing Service 05 Mar 14
March 7, 2014 Posted in: business development, business efficiency, Business Marketing, business performance improvement, business performance indicators, business performance management, business performance measurement, marketing management, performance management, Uncategorized Comments Closed
How big is your marketing budget? Does it contain all the activities involved in producing profitable income? How a marketing budget is compiled, largely depends on how â€śmarketingâ€ť is defined..
The Chartered Institute of Marketing (CIM) officially defines marketing as â€śthe management function of those activities which anticipate and satisfy customer demand profitablyâ€ť. However, increasingly both the business press and the media in general have used the term marketing as a popular alternative for the more specific terms of advertising, promotion and selling. Now there are also other terms such as social marketing, and e-marketing, so that the meaning of marketing has become defused, and its use as a professional word devalued.
Just as the term marketing has seemingly lost its previously formal definition, so the clear idea of which elements of a business comprises a marketing budget has also become vague. The purpose of a marketing budget is for the effective allocation and management of the resources and investment necessary for the production of profitable income. For the commercial manager, the preparation of a comprehensive marketing budget is an essential step in the effective management of all the commercial activities involved in producing sustained profitable income.
The objective of every commercial manager is to maximize and maintain the level of profitable income for the long term, while minimizing the level of costs and the use of assets and investment. Thus the commercial manager needs to understand how each activity contributes directly and indirectly to delivering the product or service to the customer who provides the money for the business.
Using the CIM definition of marketing, it is soon apparent that there are many cost centres involved in â€śanticipating and satisfying customer requirements profitablyâ€ť.
Here are just some of them with reasons for their inclusion:
* Warehousing costs – Product is produced for customer demand and has to be stored before it is sold. Thus there are costs for heat, light, power and warehouse wages.
* Distribution costs - Getting the product to the customer involves fuel, postage, freight and associated salaries.
* Advertising cost - Communicating with the market includes media and production costs
* Promotion costs - Promotional schemes, exhibitions and PR expenditure.
* Web-site costs - Includes design, registration and management costs
* Selling costs - The salaries and expenses of all direct sales staff
* Sales office costs Sales admin and marketing salaries, office running costs.
* Discount All discounts on accounts and invoices, because this is a direct cost against income.
* Market research costs Market research is a pre-requisite to anticipate customer requirements.
* Bad debt costs Bad debt results from customer credit management
* IT costs Software costs and licences, hardware rental and lease directly associated with sales and customer support.
* Vehicle costs The cost of vehicles uses specifically for selling and selling support, capital and leasing costs.
In addition, a marketing budget should also include the projected sales income, together with the value of the assets used by the sales organisation, including finished stock, dedicated vehicles and debtors.
The performance of the commercial manager may be judged on the amount of profitable income produced, and the efficiency of its production measured in terms of the level of costs, investment and assets used. The late Peter Drucker, is famously quoted as saying that in business â€śif you canâ€™t measure it, you canâ€™t manage it.â€ť
It is important therefore that performance measurements should be applied to all the components of a marketing budget, to maximise efficiency in producing income.
In practise, the commercial manager may not have oversight for a number of business activities that relate to the customer, such as production, credit control and relevant IT services. However, in such circumstances, the commercial manager still needs to know and understand the costs and output of all the business areas that contribute to producing income, regardless of whether or not he has responsibility.
The sole purpose of every business is to make money. Ultimately every aspect of business operations must be seen in terms of its contribution to producing income.
For many businesses the marketing budget is still seen in the narrow terms of advertising, promotion, social marketing and other communication based activities. However, for the commercial manager, as well as the chief executive and the finance director, defining all the constituents of the marketing budget is essential, if assets are to be correctly allocated and managed profitably.
Â© N.C.Watkis, Contract Marketing Service 31 Jan 14
In many companies, the end of the year whether calendar or financial, marks the opportunity for the payments of bonuses. In recent years, reports of high value bonuses being paid to senior executives of large organisations have caused public criticism and adverse comment in the media, at what may be regarded as excessive largess for questionable results and motives.
Bonuses and commission have long been seen as a way of incentivising and rewarding hard work. For the commercial manager, responsible for producing the continuous flow of profitable income for the business, the use of commission and bonuses are well established tools to help achieve the corporate objectives.
Commissions and bonuses are two different things that are used for different purposes.
In most businesses, commission is specifically related to the process of selling. Its purpose is to encourage the sales executive to make sales. The process of selling, involves identifying the needs of a customer, demonstrating the solution and closing the sale, but also requires considerable motivation and enthusiasm to achieve repeated success. While training provides the necessary skills, motivation and enthusiasm need to be encouraged and nurtured, which is the purpose of commission. Maintaining the motivation and enthusiasm of sales executives to actively seek and contact customers is essential if they are to successfully contribute profitable income to the business. Ideally, sales executives are paid a basic but adequate salary, but with the opportunity to increase their income through their own success in the form of commission. Thus they have a vested interest in maximising their sales income by sharing in the financial income they produce.
Commission may be based on various principles, but generally it is based either on a straight percentage of the total sales income or volume achieved by the individual, or alternatively, it might be a variable commission dependent on the products or services sold. Both systems have advantages and disadvantages for the commercial manager. When commission is paid on the total sales as a flat rate, it does not encourage the sales executive to differentiate between the sales of their products and services that may have differing levels of income and profitability. Thus, if all the products in a range have the same amount of commission, sales executives may tend to sell the easier products which may be less profitable, rather than the more difficult products with higher profitability. However, when differing commission is paid on differing products, it may have a negative effect on customers, who may wonder if products were sold to them on the basis of the commission gained rather than their suitability to the customer. This has been the case where people in the financial sector have been accused of miss-selling unsuitable products to customers, because of the high level of commission that they carried, which has resulted in customers and consumers mistrusting the financial industry and its products.
Because selling is fundamental to producing income, the ability to encourage and reward those directly involved in selling to customers is a strong management tool. However, satisfying customer requirements depends on the collective support of employees not involved with selling, for whom bonus payments may be an suitable form of recognition and appreciation.
Commission is generally considered to be part of the recipientâ€™s payment agreement, giving them a benefit from the income that they produce.
By contrast, bonuses are considered to be discretionary rather than contractual, although that is not always the case.
The benefit of paid bonuses, lies in providing recognition and reward for the work, commitment and results that are in excess of that which would normally be expected of an employee. Bonuses should not be used to reward employees who have merely been doing what they are paid to do. In this regard, performance measurement has particular importance in assessing the criteria for consideration for bonus payment, which may be considered both at an individual or organisational level. As such, bonuses can be a very useful management tool for the commercial manager and chief executive officer (CEO), to recognise and reward those staff members for their commitment and contribution to the business objectives. However, the setting and payment of both bonuses and commission are not without potential problems of which CEOs and Commercial Managers should be aware.
* High commission rates on specific products may distort sales and in some circumstances, such as financial products undermine customersâ€™ confidence in their suitability.
* A habitual and routinely paid annual bonus brings an expectancy amongst employees, which in time may cause them to consider the annual bonus as part of their income on which they have come to rely. Should a bonus not be declared, for whatever reason, the resulting disappointment might damage employeesâ€™ commitment and motivation.
* High bonuses to senior well paid executives are often questionable. This is particularly the case when senior executives employed on high salaries, for the achievement of corporate objectives, receive large bonuses for achieving what they were contracted to do. Such bonus payments can appear to be unjustified, resulting often in negative publicity which can be damaging to the corporate image.
Commission payments are a legitimate incentive to encourage sales and produce income, while bonuses recognise and reward commitment and effort over and above what would normally be expected of an employee. Used sensibly, commission and bonuses reward, incentivise and motivate the employees to achieve the corporate objectives, but used casually and carelessly, can de-motivate , and disaffected even the most loyal employees on which the organisation depends.
Â© N.C.Watkis, Contract Marketing Service 31 Dec. 13
January 14, 2014 Tags: Bpm, business development, business efficiency, Business Marketing, business performance improvement, business performance management, marketing audit Posted in: business development, business efficiency, Business Marketing, business performance improvement, business performance indicators, business performance management, business performance measurement, marketing development, marketing management, marketing metrics, marketing performance measurement, marketing ROI, performance management, performance measurement indicators, Uncategorized Comments Closed
The opportunity for a merger or take-over can often be seen as a quick way to make a bigger and therefore stronger company. However, the resulting organisation and its benefits is not the sum of the constituent parts, but may often result in something less.
Mergers and acquisitions are never simple. At least 50% fail to meet their initial objectives and expectations â€“ sometimes leading to expensive de-mergers. According to KPMG and Wharton studies, 83% of mergers and acquisitions failed to produce any benefits – and over half actually ended up reducing the value instead of increasing it. Businesses undertake mergers and acquisitions for a number of reasons, but all embark upon the process in the expectation of the benefits that they seek will be achieved. So why do so many fail?
Perhaps more time is spent on arranging a suitable and advantageous deal than is spent on
considering the actions necessary to implement the combination of two separate organisations successfully or its potential consequences
Businesses can be divided into two functional areas which may be described â€śOperationsâ€ť and â€śSupportâ€ť. â€śOperationsâ€ť involves all those areas and activities directly and indirectly related to anticipating and satisfying customer requirements, while â€śsupportâ€ť provides the necessary resources, namely purchasing, finance, IT and personnel.
While the integration of differing and perhaps incompatible IT systems, can be a major problem, it is arguably the integration of the respective â€śoperationsâ€ť areas that result in the success or failure of the resulting combined organisation. The integration of purchasing, finance, and personnel may be difficult, but because these are not customer orientated organisations, the necessary change over may only require a change of procedure rather than a change of culture and attitude.
For the commercial manager responsible for getting and maintaining the income of the business, the merging, integration and consolidation of two previously separate business organisations, is more difficult, due to the variety of activities involved. Mergers and acquisitions produce a number of opportunities, but with potential consequences. The opportunities may include increased income and market share, as well as improved profitability through rationalisation of organisation and costs.
If the merged or acquired company is a competitor, there will be the advantage of having removed a competitor with the opportunity of gaining their previous customers. However, the integration and rationalisation of previously competing products, does not guarantee the retention of all the acquired customer base. While acquisitions and mergers may bring in new customers, there is no guarantee that the loyal customers of the acquired company will move their purchasing to the offered alternative products. With service based companies, their main asset is likely to be their knowledgeable and experienced personnel. If for any reason the personnel leave before or after the merger, then the acquisition may become an expensive â€śhollow oneâ€ť where the desirable â€śassetâ€ť has effectively vanished perhaps taking their customers with them
Success of merger and acquisitions depends largely on the reaction of customers and the respective employees. All customers should be kept informed about how the changes will affect them, especially concerning the continuance of the product and services on which they have come to rely.
Commercial managers need to consider;
* In the new organisation which will be the dominant constituent, for personnel, culture and procedure?
* How are duplicated organisations to be integrated and rationalised? Is there an action plan?
* How should the respective product ranges be merged? – If products are scrapped or rationalised, their existing customers may go elsewhere, diminishing the projected increased customer base and market share.
* If the acquisition supplies a different market which may or may not be related, how is the commercial aspect to be managed? – Will it remain independent but reporting to the Commercial manager, or can part of the support organisation be merged and rationalised to achieve improved profitability and efficiency?
* If the acquired product range is in a wholly different market, then it needs to be evaluated in relation to the demand from its customer base and the market in general in terms of its profitability, its contribution to its profit centre, and the opportunities for profit and market development.
* If the acquired product range exists within the same market, it should be evaluated on its strengths and weaknesses when viewed as competitive products. – How do the acquired products compare with the existing range? Are these products direct competitors, – is so, which if any of them are any of them superior to the existing products, and could be incorporated into the product line? Are any of the acquired products complimentary to the existing products and could therefore be used to expand the existing product range?
* Different organisations have different business cultures and practices, which takes time to change. Sudden and significant change may demoralise staff, and cause resentment leading to distraction and confusion. Maintaining employeeâ€™s morale and commitment is essential to minimise the impact of the reorganisation on both the employees and the customers while maintaining the level of customer service.
* Maintaining the morale and commitment of employees by regular and effective communication helps prevent damaging and destabilising rumours. Customers should also keep aware of changes, to retain their confidence.
The success of a merger or acquisition depends of the clarity of the objectives, in terms of intended synergies and financial results, a clear plan for its execution, and the people from both organisations who implement the process. Thus the effective motivation and management of all staff from both constituent organisations, especially those involved in getting and maintaining business and income, is essential if the merger is to succeed and profitable income maintained and increased.
Â© N.C.Watkis, Contract Marketing Service 29 Nov 13
December 5, 2013 Tags: performance measurement indicators Posted in: business development, business efficiency, Business Marketing, business performance improvement, business performance indicators, business performance management, business performance measurement, marketing development, marketing management, marketing metrics, marketing performance measurement, marketing ROI, performance management, performance measurement indicators, Uncategorized Comments Closed
Why do companies insist on changing the content or specification of their successful products without the consent or request of their customers?
Microsoft made the disastrous product upgrade from the successful, popular and reliable Windows XP to the unpopular and unreliable Vista, which then in turn had to be hurriedly replaced with the successful Windows 7. Kelloggâ€™s altered the recipe for their Special K product and received numerous public complaints by customers because they liked the product as it was and did not want it changed. Fans of Sailor Jerry Spiced Rum in the UK launched an internet campaign to force brand owners First Drinks to change its formula back to the way it was before the productâ€™s re-launch. Then there was Coca Colaâ€™s launch of New Coke, replacing their original product, which then had to be returned following customersâ€™ rejection of New Coke.
Why should companies that have products that are long established, valued by their customers and profitable to their business, seek to â€śimproveâ€ť and change them, not because their customers want them to do so, – but because they can? Is the change to benefit the customer, improve the profitability, or to satisfy the personal achievement aspirations of an ambitious executive?
Unnecessary changes to established brands and image can produce a serious back lash from loyal customers, and seriously damage the business.
The principle task of every business is to make money, by the provision of products and services that are designed to provide the solutions to problems that customers have. Successful businesses have to understand customerâ€™s problems and to adapt to meet their changing needs. Yesterdayâ€™s products were designed to solve yesterdayâ€™s problems and without development, may no longer be the solution to the problem that the customer has today.
While products and their brand image are developed and owned by companies, they are paid for by the customers who buy them. In purchasing the product, the customer expects that the product will satisfy their requirements, whatever they may be. Regular customers expect that the product will deliver to their expectations every time and they come to rely on that expectation. Thus, in a sense, the customer has ownership of the product. Customers have the money, but if the product does not meet their expectation, they do not have to buy it..
Some products are relatively unchanged after many years, because they fully meet customer requirements and there is no benefit to be gained either by the customer or manufacturer in changing them. Other products change and develop to meet evolving customer needs, or improved production methods and materials.
While customers may have an initial resistance to a change in the products that they buy, they generally accept them, if they can be shown how the change actually benefits them. However, simply adding additional features to a product or service that does not clearly benefit the customer, will not increase its value in the customerâ€™s eyes.
For the commercial manager, responsible for producing and maximising profitable income, change is an important factor of business. Making changes to the product or the manner of its delivery may be necessary in order to be more efficient, improve the product or service with additional or improved customer benefits, or perhaps to modernise its appearance, especially with a long established product.
So how should the commercial manager consider the need for change?
Before embarking on any change, however small, the commercial manager should consider several questions, because of the potential consequences.
1. Who is advocating the change â€“ which individuals, what are their reasons?
2. Are changes necessary to meet the changing needs of the customer or the requirement of the product/service provider?
3. If the underlying problems are understood, would a change to the product, its image or the company procedure be an effective answer?
4. A change to a product or service may improve efficiency and profitability, but what would be the effect on the customersâ€™ satisfaction or their perceived image of the business?
5. Who benefits from the proposed change, the customer or the company? â€“ How do they benefit?
6. If the change is cosmetic, how will it benefit the customerâ€™s perceived image of the product and company? How do you know?
For the commercial manager, responsible for the long term income of the business, there is always danger in the possible long term consequences of accepting change that are not customer driven. Many changes that are made by organisations in both the public and private sectors are frequently instigated by executives who â€śwant to make their markâ€ť in the organisation, using it as a stepping stone of achievement to the next job, and moving on before the consequences of their decision making are apparent. All changes to product and service cost money, thus it is important to trial changes wherever possible to ensure that they are acceptable and beneficial to the customer, before committing to irrevocable and expensive investment. Customers provide the business income and it they who decide on the acceptability of change, by maintaining or withholding their custom.
Established and successful products may still need to change over the course of time in order to meet changing conditions and customer requirements. But experience shows that change for the sake of it, especially to satisfy the whims of ambitious executives can easily be damaging to the product and the companyâ€™s fortunes. In the eyes of the customer, the product that is â€śNewâ€ť and â€śimprovedâ€ť may not be as good as the original, in which case, perhaps companies should consider that â€śif it ant broke, donâ€™t fix it.â€ť
Â© N.C.Watkis, Contract Marketing Service 28 Oct 13
October 31, 2013 Tags: business efficiency, business performance indicators, business performance management, business performance measures, Corporate Income development, marketing development, marketing performance measurement, measuring business performance, profit development Posted in: business development, business efficiency, Business Marketing, business performance improvement, business performance indicators, business performance measurement Comments Closed
The Pareto principle, generally known as the 80â€“20 rule, states that, for many events, roughly 80 per cent of the effects come from 20 per cent of the causes. Applying the principle in business analysis can prove to be a very effective business tool, and one of its many areas of application is in that of sales.
It is a common opinion in business; that 80 per cent of an organisationâ€™s sales come from
20 per cent of their clients, thus when applying the 80/20 rule to a customer base, it is often thought that the 20 per cent of the customer base which provide the most profitable income is the area on which the business should concentrate, rather than the 80 per cent which have low profitability.
However, it should be considered that the 80 per cent of the customer base, also contribute to overall income production, but that some customers are more productive than others. Before making any rash decision regarding the customers which constitute the less profitable 80 per cent, it is important to consider how exactly those customers contribute to the interests of the business.
On first glance it might seem that following the application of the 80/20 rule, customers could easily be divided into those which are more profitable, and those which are less so.
This often results in the simplistic idea that it is better to concentrate time and investment where it already shows more profitable results rather than where the results are less profitable. However increasing investment in such a manner and to effectively starve or ignore the less profitable areas without understanding why they are less profitable, can be counterproductive and potentially expensive.
Businesses exist to make money by anticipating and satisfying customer demand. For the commercial manager responsible for producing a continuous stream of profitable income for the long-term benefit of the organisation, balancing the need to make profitable income against the interests of the customer is paramount. Ultimately it is the customer which has the power, because they have the money. The objective of the commercial manager is to maximize the level of profitable income for the long term while minimizing the use of assets and investment. by managing all resources efficiently and effectively.
Before making any decisions that might adversely affect the customer base, there are a number of questions and actions that the commercial manager should consider:
1. How many customers are there, that constitute the 20 per cent and the 80 per cent? â€“ It is important to know how many customers there are and whether or not the customer base is growing, or shrinking?
Concerning the 80 per cent of the customers, commercial managers should consider:
2. Where are they? â€“ Knowing where customers are geographically located and the potential for growing the customer base in those areas is important when considering transport and delivery opportunities and costs.
3. Is the geographical distribution of customers a factor in their lower profitability? – Are there other potential customers in the vicinity of isolated customers that collectively could be developed to greater profitability?
4. What do these customers buy? How much do they spend? How frequently? â€“ This information may enable changes to be made to the service which would benefit the client and improve the level of profitable income produced.
5. Are all customers being offered the right product mix for them? – Would customers benefit from other products or services that could be provided, – how do you know?
6. Consider what might be done for the smaller customer that would encourage them to increase their level of purchase of their existing orders. â€“ Could their order size be increased with the encouragement of discounts or improved credit facilities as an incentive?
7. Do all customers meet the companyâ€™s trading requirements in size, order size capability, location? Can this be improved by altering conditions or servicing through other methods?
8. Are credit terms suitable or would a change improve cash-flow and profitability?
9. Analyse and establish the real reasons behind low profitability with the customers that comprise the less profitable 80 per cent?
10. Establish if and how the admin/service costs of the 80 per cent might be reduced without affecting the customers? â€“ Ask the workforce how they would improve the administration system that they work with.
All customers contribute to the size of the business in their contribution to its overall market share. That size of the organisation affects its influence in the market, which also affects confidence of potential customers and ultimately their buying decisions.
Allowing the more numerous but less profitable customers to wither by neglect, in order to concentrate investment on the less numerous but more profitable ones increases over reliance on a smaller customer base, which increases an organisationâ€™s financial vulnerability. At the same time, concentrating resources on the more profitable customers is likely to result in the law of diminishing returns, where additional investment may only result in a marginal increase in income, but with reduced profitability.
The advantage of thoughtfully applying the 80/20 rule is that it enables the customer base to be evaluated in terms of its overall contribution to profitable income, costs, geographic coverage, and market share. As such, those customers which might be deemed less profitable, may well be considered as opportunities for potential growth, rather than seen only as sources of cost and low productivity.
Â© N.C.Watkis, Contract Marketing Service 18 Sep 13
October 1, 2013 Tags: Bpm, business analysis, business development, business efficiency, Business Marketing, business performance improvement, business performance indicators, business performance management, business performance measurement, business performance measures, Corporate Income development, improve profit, marketing performance measurement, performance measurement indicators Posted in: business development, business efficiency, Business Marketing, business performance improvement, business performance indicators, business performance management, business performance measurement Comments Closed
Business organisations exist in order to make money for their owners, but also to benefit their employees and their customers. It is the employees that enable the business to operate, and it is the customers who provide the income on which the business survives.
Commercial managers are responsible for producing a flow of profitable income for the long term benefit of the business. The objective of the commercial manager is to maximise profitable income while minimizing costs and the use of assets. To ascertain how well a business operates, it is usual to use a number of management ratios and performance measurements to determine its efficiency.
Performance measurements may show the commercial manager that all appears to be well as confirmed by the results, but could they be better? Are there threats and opportunities that the performance measurements do not cover? Does the commercial operation work as well as it should or could? How do you know?
Performance is measured by results past and present, presented as quantitative data,
but this does not tell the whole story of how well an organisation is operating. Quantitative data can indicate where performance meets, falls short of or exceeds expectations, but while such data might hint at an underlying cause, it cannot illuminate causes which may be qualitative in nature or that originate in employee organisation and management.
How does the method of working and organisation meet the needs of employees and employers? Is the work process efficient and effective? Does the methodology and levels of responsibility motivate or demotivate employees? Do you know what employees actually do or how they contribute to the commercial objectives?
Order processing, dispatch and credit control, are continuous processes which actively contribute to producing business income. But what about other activities, such as planning, market and sales analysis, advertising and promotion? All these activities contribute directly or indirectly to producing income, but many can now be automated. Are all personnel gainfully employed, or have changes in organisation and business technology necessitated a reassessment of the effective use of time and resources? Generally, when employees are fully and constructively occupied, they tend to be well motivated and effective. However, when this is not the case, employees can easily become de-motivated and begin to game the system to their own benefit, rather than that of the organisation
Formal job descriptions are sometimes considered to be too limiting and prescriptive, but clear job description define necessary responsibilities and expectations for the benefit of both employer and employee and also enable employeeâ€™s performances to be assessed. However, the tasks and responsibilities that are written in an employeeâ€™s job description may differ from what the employee perceives to be their tasks and responsibility, and may differ again from what they actually do.
However, unless periodically reviewed, the tasks engaged in by both managers and staff can expand and following â€śParkinsonâ€™s Lawâ€ť, drift into areas of interest and convenience and away from the planned requirements of the business.
In this situation, there are a number of actions that the commercial manager should routinely and periodically undertake.
1. Consider the business and commercial objectives.
2. Assess the resources available, – are they sufficient for the tasks, are they organized effectively? How do you know?
3. Get all employees to write their own job descriptions, defining what they see as their prime responsibilities, areas of interest and lines of reporting.
4. Compare each employeeâ€™s own job description with their official one, and with others.
5. How do the job descriptions relate to the task? Where do these job descriptions overlap? Are there any gaps in capability? Where are the gaps?
6. Consult with employees to establish where and why there are overlaps and gaps. Seek their suggestions for improvement. Evaluate the answers and adjust tasks and responsibilities accordingly with the cooperation of the staff.
7. Ensure that all job descriptions have clear objectives and responsibilities that are subject to regular progress review.
8. Are personnel sufficiently trained to meet current requirements?
9. What training might they need? What training do they consider they need to be more effective with current business situations?
Following such a review, a reorganisation of tasks and responsibilities to maintain efficiency may be considered necessary, but change for the sake of change is generally expensive and usually counterproductive. Employees are essential but expensive assets, who provide necessary capability and accumulated experience. All commercial managers need to re-assess from time to time how well these assets are used to ensure their effective contribution to income generation. Capability is generally easy to replace as required, but accumulated necessary experience is by definition harder to replace or replicate, but is easy to lose.
Â© N.C.Watkis, Contract Marketing Service 31 Aug 13
September 3, 2013 Posted in: business development, business efficiency, Business Marketing, business performance improvement, business performance indicators, business performance management, business performance measurement, performance management, performance measurement indicators Comments Closed
The Menâ€™s final at Wimbledon demonstrated how both opponents require intense concentration, in order to anticipate their opponentâ€™s moves as well as the trajectory and speed of the ball. Within the confines of the tennis court, each player must â€śkeep their eye on the ballâ€ť constantly monitoring all the variables in the game situation if they are to counter their opponentâ€™s moves and to successfully dominate and win their match.
Although professional tennis is a commercial business, commercial businesses are not tennis, but for the manager charged with producing profitable income for a business, it is essential that they also â€śkeep their eye on the ballâ€ť. However, unlike the tennis player, the commercial manager has more than one ball to keep their eye on. But what does this phrase really mean when applied to producing income?
To maximise the level of profitable income, while minimizing the costs and the use of assets, is the objective of every commercial manger. Producing income requires the involvement of many activities which collectively enable a business to anticipate and satisfy customer requirements profitably. Thus unlike the tennis player who has only one ball to watch, the commercial manager has the equivalent of many balls, having responsibility for many of the activities that are collectively involved in producing income.
How many balls does the Commercial manager face? There are a number of â€śballsâ€ť which may be equated to those distinct activities involved in producing profitable income.
First, there are all those activities involved with defining the product or service provided, such as:
â€˘ Research and development,
â€˘ modification and product differentiation.
Then there are all those activities to do with pricing the product or service, involving;
â€˘ credit and market price.
Satisfying customer requirements involves:
â€˘ customer and market communication,
â€˘ promotions and special offers.
Understanding the market served requires activities to seek and acquire information on:
â€˘ market trends,
â€˘ economic outlook
â€˘ competitor activity.
Commercial managers must therefore â€śkeep an eyeâ€ť on all these subjects in order to anticipate trends in customer demand, prepare responses to change, and react quickly to resolve problems. Unlike the tennis player, who is responsible only for themselves, the commercial manager is responsible for a â€śteamâ€ť of people who collectively work to produce the necessary income, as well as a variety of investment and assets. Thus the commercial manager must first and foremost manage the people involved but also to a greater or lesser extent exhibit necessary â€śleadershipâ€ť to coordinate the various activities to produce the desired result of profitable income which is sustainable for the future.
Within the business organisation, the commercial manager needs to exhibit not only capable managerial qualities, but also some elements of leadership. For while leadership of the business is vested in the Chief Executive Officer (CEO), who sets the objectives and direction of the organisation, the Commercial Manager is responsible for achieving the income objectives set by the CEO and with motivating the staff and managing the resources necessary for that achievement.
It is often forgotten, that those who are directly involved in those activities that impinge on satisfying customer requirements, are frequently best placed to identify where problems arise, and where solutions may be found. Therefore the commercial manager who actively involves operational staff in identifying problems and suggesting solutions will be more effective as a motivating leader and effective manager. Encouraging staff to question processes which they think to be unhelpful or inefficient, does not undermine authority, but helps to ensure that those with practical experience maximise their contribution to the well being of the business. While businesses make profits for the benefit of share holders and owners, the business cannot exist without the skills of the workforce. Thus ensuring that all the staff involved in every aspect related to producing income is fully motivated, tasked, directed, equipped, trained and remunerated is essential if the commercial manager is to achieve the objectives and income targets.
Effective communication with customers in particular and the market in general is essential in being able to anticipate customer and market demand. Keeping aware of economic trends, and the effect they may have on customerâ€™s demand help to maintain a clearer understanding of the market environment in which the commercial manager operates.
Commercial managers will ultimately be measured on their results, – how much income they produce and how efficiently in terms of costs and investment. Performance measurements are a prime tool of management control, and when interpreted correctly, may provide an indication of performance relative to the planned requirement. Over time, such measurements can highlight trends in performance as well as identifying areas where underperformance may indicate problems. But performance measurements are only indicators of past and present performance, and do not give guidance regarding how the performance should be maintained and improved in the dynamic of the commercial market where there are many variables over which the commercial manager has little or no control or influence.
Producing a steady stream of profitable income for any business is a complex process. Commercial managers have to keep their eyes on many subjects at the same time, without letting their concentration be distracted and allowing important â€śballsâ€ť slip past unnoticed, which may adversely affect their results.
Â© N.C.Watkis, Contract Marketing Service 26 Jul 13
The purpose of all businesses is to make money in the form of profits. Even so called â€śnot for profitâ€ť organisations have to make money, which is re-invested. Profits are derived from income and income originates from the sales of goods and services to customers.
Customers buy products that give them benefits. But the way that businesses react with customers often guides customers into how they make their purchasing decisions.
All products whether goods or services, have an element of support from the provider which facilitates the sale of the product to the customer. The size and importance of the support element varies according to the requirement of the customer and the nature of the product provided.
The quality of the customer support is dependent on sales people, and account managers, as well as a host of others involved in call centres, delivery and credit control, who collectively both directly and indirectly support total package that the customer purchases.
People cost money, so when organisations are looking for efficiencies and cost reduction, manpower is often the first target to be cut. The contribution of those people who indirectly help satisfy customer requirements is often undervalued because its importance in the satisfaction of customer requirements is often not understood. Unfortunately because their contribution is under appreciated they can often be seen as an easy target for cost reduction through reduced manning. But while it is often easy to make a case for reducing the costs, reductions in experienced manpower can have a profound and negative effect on the quality of service as perceived by the customer.
When it comes to reducing manpower as a cost reduction exercise, commercial organizations and public bodies frequently retain or even increase the numbers of managers and administrators at the expense of those who supply and support the service. This is not only a false economy, but tends to perpetuate â€ślittle empiresâ€ť, and encourage bureaucratic inefficiencies. Frequently it is those personnel involved in providing direct and indirect product support to the customer, who retain the corporate knowledge and experience which is essential in maintaining customer satisfaction. Where competition amongst suppliers is high and where product differentiation is low, the quality of customer support can be the principle deciding factor that maintains customer loyalty to the product and supplier.
Organisations often under appreciate the importance of the unseen but essential part, played by those elements that provide the product support package that the customer buys. If, in an effort to reduce its manpower costs, a business loses its knowledgeable sales people and specialists, the quality of the customer support may be reduced, thus undermining the customerâ€™s confidence, to the detriment of sales and income. It is essential, therefore, that the wide nature of what constitutes the product support that the customer seeks is fully understood. If that network of support is damaged or reduced the client may go elsewhere.
There are many elements which go to make up support to the product, which may include:
* Ease of access to the Web-site, especially in finding named contacts, the ability to file questions and complaints, and the speed and accuracy of response.
* The ability for customers to access sales contacts, and account managers who understand their business and requirements can be of major importance to them.
* Dehumanising customer contact by the use of automated telephone systems, or referral to web-sites may be cost efficient, but it can be counter-productive if it starts to alienate customers, by making direct contact difficult.
Commercial managers responsible for producing profitable income need to able to:
* Identify all those activities that are directly and indirectly related to customer support
E.g. sales personnel, technicians, consultants, customer advisors, credit controllers, delivery systems etc.
* Assess the efficiency and effectiveness of these elements through performance measurement, and understand their contribution to the overall customer service.
* Understand why the customer comes to them, what makes them return, as well as the customerâ€™s perception and value that the business or organisation provides to them.
Every business organization requires a minimum number of sales people and specialist providers who collectively provide the service support for the product/ service package. Below that number the product/ service package that the customer buys is compromised and altered from that which the customer bought. It then becomes something different that the customer may not accept.
Commercial managers need to remember that while they have overall responsibility for producing profitable income efficiently, it is those people who directly and indirectly have customer contact, that have the experience, corporate and customer knowledge, that collectively gains and maintains customer loyalty that secures the flow of income. If you cut the support, you may lose the sale.
Â© N.C.Watkis, Contract Marketing Service 24 June 13
June 26, 2013 Tags: Bpm, business analysis, business development, business efficiency, Business Marketing, business performance improvement, business performance management, business performance measures, Corporate Income development, marketing audit, marketing budget, marketing business development, marketing development, marketing performance, marketing performance measurement, performance improvement, performance management, performance measurement indicators, profit development Posted in: business development, business efficiency, Business Marketing, business performance improvement, business performance indicators, business performance management, business performance measurement Comments Closed