Governance SME Focus

Governance Challenge: Learn something valuable about your business

In order to succeed in business, it is necessary to first understand what makes successful businesses work. Successful businesses don’t just happen, they are MADE to happen and all effective and profitable businesses share three basic strengths, says Simon Hodges.

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Businesses are established for the principal reason to obtain new customers and meet the needs of existing customers so as to make a profit.  They do this by continually selling more things to more people at a higher profit margin that their competitors. However, it is a fact that many business owners end up being unable to create their expected value in the business and that is a shame.  A large part of the reason for this is that it is really quite difficult to make the transition from managing a successful start up to leading a business that is capable of delivering sustainable growth.

A start-up business requires the owner to oversee every aspect of the operations but as the business grows there reaches a point where to carry on in this way is no longer practical as the enlarged operation requires access to a range of skills to keep it working at the levels of performance to be able to consistently deliver the product or service to its customers.  However, often this aspect of the development is put off until tomorrow as day to day issues come to dominate the thinking of the business leader.

An organisation that is in such a situation can be identified as one where: the CEO is working seven days a week constantly dealing with issues that in their eyes should have been handled by other staff members; performance is inconsistent due to minor issues that continually go wrong; new sales are being achieved but somehow profits stubbornly refuse to grow; and the CEO feels that it is impossible to take their eye off their business even for one day.

If one or more of these scenarios exist within an organisation; then it is likely that the problem lies with the way governance is set up rather than individual shortcomings. In these circumstances, allocating one hour to take an honest look at the way the business works can help identify the points made below.

In order to succeed in business, it is necessary to first understand what makes successful businesses work. Successful businesses don’t just happen, they are MADE to happen and all effective and profitable businesses share three basic strengths:

  1. They are totally sales and profit oriented.
  2. They sell quality products and services that someone actually wants to buy.
  3. They use effective people, processes and methods or in other words they establish appropriate governance systems
Many Business owners end up being unable to create their expected value in the business and that is a shame.It is quite difficult to make the transition from managing a start up to leading a busines.

This means that to be successful a business organisation needs to be set up to support two realities:

REALITY NO 1

Having a ‘great’ product or service alone will not achieve success. A ‘quality’ product or service marketed and delivered in a superior way WILL GUARANTEE short term success.

REALITY NO 2

The KEY to a sustainable and profitable business is to successfully implement effective innovation using systems and processes to deliver reality No 1 on a sustainable basis. The challenge for business owners is therefore to establish governance systems that consistently enable the business to:

• Capture market share by winning new customers • Not lose existing customers by fulfilling their needs to grow customer loyalty.

• Make a consistent and continuous effort towards improving the business.

• Create a business that provides a fun and secure work environment.

• Systemize and develop the business so that it will run and flourish on ‘autopilot’ – resulting in the owner being able to concentrate on the future of the business while maintaining control.

• Ensure that the company complies with laws and regulations.

To provide a focus for this activity it is necessary to put in place a strategy. Leaders often say that it is not necessary to have a strategy as “I know what I am doing.” Please remember a strategy is not for the leadership but for other stakeholders. This is because Increasingly, consumers want to buy/use products and services from companies they trust; suppliers want to form business partnerships with companies they can rely on; employees want to work for companies they respect; and investors want to support businesses that they see as having a realistic plan and that are socially responsible. As such these groups need to understand the business and its aspirations.

Key performance indicators (KPIs’) must be established that encourage employees to act in a way that ensures the objectives in the plan are achieved rather than other a series of unrelated activities.

Finally, for businesses that operate in the Middle East, where many are family owned and often it is not really appropriate to establish formal boards, it is vital that the owner employs someone with the necessary experience and has the gravitas to be able to gain the trust of the family to be in a position to review the plans and performance of the business and be given the remit to constructively challenge the management. This person is not a member of the executive team but will be able to undertake certain tasks such as negotiating a loan or buying a business.

If you genuinely think your organisation is able to have access to the information to answer each of these questions, then everything is fine. If not, perhaps governance is not as irrelevant as was first thought.

About the author

Simon Hodges

Simon Hodges, CEO, Alchemy Network Middle East has recently launched the franchise network in the Middle East.Alchemy Network is a UK­based worldwide network of consultant partners, who work alongside owners and operators of SMEs to help bring them financial success, and eventually introduce them to systems that will relieve them from the mundane day­to­day running of the business,and allow them time to concentrate more on what they do best.

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