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1. Focus
Recognising and choosing the best opportunities
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2. Agility
Responding to opportunity faster than competition
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3. Cash
Free cash for investing in growth, and tune working capital to reduce cash needed to fund growth
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Getting Focus: The Focused Agile Business (FAB) Program
Focus is the first of the three elements of growth. It is the most strategic element. Focus means having awareness of how change affects your business, which requires perception of external changes, an understanding of what your true added-value is, and how changes affect your competitors (or create new competitors).
An essential concept is relativity. You may see a change as positive for your business, but it doesn't help you much if it benefits your competitors equally.
Change is most interesting when you understand how it affects your business differently to competitors. Change always opens up advantages and disadvantages. Even a negative change affects businesses differently. These differences are the reasons change is a threat or opportunity.
Change is often a threat, but a fast response can leave competitors at a much greater disadvantage. For example, in Indonesia in 1998 the Rupiah depreciated by 17000% during the economic and political crisis. This was devastating for all businesses relying on imported components. However, Philips Lighting moved much more quickly than competitors to increase prices, cut costs and stablise cashflow. Crucial business partners were reassured. Competitors were too slow, and were forced to withdraw from the market. Two years later, Philips had much greater market share than before the crisis, and incredible loyalty from distributors.
The FAB Program shows you how to exploit change to gain advantage over competitors.
The SME FAB program is a lightweight, rapid response business planning approach, using comparative advantage, simplified information and rapid decision making. This approach was developed by the founder of GrowthPath, Tim Richardson, during his career in senior management roles in Asia, Europe and Australia, where he lead manufacturing, retail and online businesses through periods of enormous disruption.
What does the FAB program deliver?
The SME FAB Program turns your business outward and focuses it on the opportunities presented by change. Decision making becomes much faster and more accurate. Information is simplified and moves from accounting numbers to business numbers. There is a strategic planning element to the FAB program, but it is not the slow, cumbersome traditional "waterfall" approach where the final product is out of date before the plan is finished: unlike most approaches, the FAB program is not based on fixed assumptions.
SMEs are very flexible: FAB turns that flexibility into strength. The FAB program doesn't just help a business survive change, it positions the business to win from change.
The program begins with some strategic analysis using the theory of comparative advantage to find the highest priority opportunities.
Next, it moves to simplifying and speeding-up business information.
Finally, it deals with the problem of assumptions. Many SMEs spend too much effort on forecasting one frozen set of assumptions which are wrong the minute the forecast is finished. Realising how futile this is, they stop forecasting altogether, or the forecast becomes a crusade of the finance team which most people ignore because it's not connected to what's really happening.
Who is this service for?
For SMEs facing a changing and uncertain external environment. Examples are:
- Significant changes in the economic environment (eg high AUD, increasing interest rates)
- Innovations affecting the customer base (eg social media, online retail)
- Government regulation (eg carbon trading or carbon price)
What you should know
Why is a 1 watt laser beam so much more powerful than a 100W light bulb? Focus.
For businesses facing change, long term planning is a major distraction: the planning effort can't keep up with what's going on in the real world.
Instead, an organisation should be more tactically focused to take advantage of opportunities caused by change. It awareness through focus, and faster, better decisions through agility. Simplify and increase the relevance of information, move to decision making tools which show how key assumptions and variables will affect outcomes, and understand how external changes affect your business differently to competitors (the business application of the economic concept of Comparative Advantage)
Applying the theory of Comparative Advantage to an SME
In the FAB Program, GrowthPath applies the insights of the theory of Comparative Advantage to increase the competitiveness of our clients. Applied to companies, Comparative Advantage says that the differences in the way two businesses work is important in how they can respond to change. This is based on our European experience, and GrowthPath is one of the few SME consultancies using this approach in Australia.
Consider an example. A certain business takes many steps in delivering products to its customers. This business has a competitor which sells a similar product to a similar group of customers. But no two businesses are exactly the same. Our example business is better than its competitor in some steps (it has access to cheaper suppliers), but the competitor has an advantage in location. Both businesses have pros and cons; the first business has a cheaper but more out-of-the way location, and must compensate by having cheaper products. The result is stable. But in a short space of time, online retail hits the sector. Online retail doesn't need a good real-world location, and low-price is an advantage. The first business can gain an advantage over the second business, because the change plays to its strengths.
To understand how change affects your business, you need to understand the steps through which you create value for your customer. Standard business reports such as the P&L don't provide focus: instead they smudge and blur to produce an averaged-result, like peanut-butter spread on toast.
The four modules of this program
Module 1: Find Comparative Advantages
Your business is a flow of steps which turn inputs into a product or service. Most SMEs don't know which of their steps are truly competitive, and which are passengers carried along by the strong parts of the business. Large changes outside your business don't affect your business evenly: changes have a different effect on different parts of the business. A strong location becomes less important in a world of online retail, but a well known brand can be enhanced with social media. A failure to understand the true strengths means at best a waste of opportunities, and at worst, business failure.
Module 2: Scan and Prioritise Opportunities
The Australian economy is undergoing massive change. The mining boom has pushed the AUD to parity. Consumers have rapidly adopted social media and smart phones -- more and more Australian consumers are online all the time. Online retail is growing fast ... and this is before the National Broadband Network is rolled out.
At some point, greenhouse gas reduction policies will launch. Whether its emissions trading or a carbon tax, it will open new opportunities for some, and cause harm to other businesses.
Which changes and innovations should get focus? That depends on the strengths identified in the first module.
Module 3: Simplified, Accelerated Plans and Reporting
The best business decisions are based on simple, relevant and up-to-date information: a focus on what matters, and the fast, confident decision making needed to move ahead. GrowthPath's Four Pillars Finance Transformation program develops your finance team into a partner for quick respond to opportunities and threats. Read more: the Four Pillars Finance Transformation
Module 4: Decisions Despite Uncertainty
SME business decisions must be made quickly, and without being sure of everything. A finance team must help management know what uncertainties are worth focus, and what the likely range of financial outcomes is: bringing simple 'what-if' modelling to SMEs.
Coaching SME Finance teams to provide faster, better decision support is a specialist area of GrowthPath. You can read more about our approach here.
