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Vroom Vroom!

Tuesday, April 1, 2008 - 10:14

You don't need to be Nostradamus to predict a future of tremendous change for business. Improving performance in all areas will be key to maintaining competitiveness. By Louis White

For the past five years the Royal Bank of Canada has been the top-performing bank in that country. The Royal is serious about their business and their customers, all 15 million of them. Every month, they calculate the economic benefits and profitability of each customer to know who is making them money, and where they should be looking for new ones.

In fact, only the Canadian government has acquired more information on individuals.

If this is the present, it is also a glimpse of the future where techniques using new technologies to individually target customers like never before, change business models and operations, assist employee cultural fit and focus, and reduce environmental impact are used to improve business performance against that of competitors.

Talking to the experts, you get the feeling that everything is in the frame in the continuous drive to improve, although the customer, and understanding them better, remains king.

"I think one of the changes you will see in the future for businesses is a customer-centric focus," says Martin Blake, KPMG Partner in their Business Performance Services Practice.

"A lot of organisations, especially in the financial services arena, have spent millions on customer relationship management systems, but the majority of them are still product focused. What you will see is a change in understanding the value of the customer."

Where to improve?

Blake believes that a lot of organisations are now looking at themselves from the top down, reviewing how they can be more effective and improve performance across the board.

"Most executive teams have largely internal-facing roles," Blake says. "Often there is no accountability in the company. A lot of businesses are now looking at ways to not only acquire new customers but also add differentiated services, which will result in reorientating the business model.

"There will be a trade-off between becoming customer-centric and economies of scale, but what I have noticed is that a lot of CEOs are comfortable with costs growing between 4–5 per cent as long as revenue is increasing between 11–12 per cent."

For John Downes, a partner at Deloittes, human capital is the biggest factor in determining the structure, business model and direction of a business.

"Due to almost full employment, and with the prospect of that continuing in the near future, human capital is going to be the key for any business," Downes says.

"The whole [idea of] recruit, retain and retrain is important now, and will become even more crucial. It is not only imperative to focus on the Y generation, but everyone else as well within the company when it comes to training and opportunities. What also will be important is the ability of an employer to sell themselves to potential employees and become a culturally sensitive workplace.

"Leadership and leadership development will be crucial. For a lot of companies getting to the first $5-10 million is through organic growth, but when you want to get to the next stage of being a $100 million company and beyond, many new challenges begin. What helped a company become a $10 million turnover business won't necessarily get them to $100 million, and an owner/operator, for example, may not be the best person to take them to the next stage."

Performance measures

Here is a problem for many companies as they grow: how to effectively manage change while ensuring that performance measures and an extension of the current culture is established at the same time.

Beyond that, a company will be faced with the challenge of expanding globally and finding the most economic way of undertaking workplace activities.

"Forming global alliances and outsourcing will continue to grow," Blake says. "As you grow from being small and nimble you realise that you can't do it all yourself, and that exporting some of those backroom activities offshore can be very cost-effective.

"Of course this raises all sorts of questions regarding intellectual property and management of work, but I have found a good contract can really make good partners. Once there is a clear understanding of everyone's expectations, the processes tend to fall into place."

Blake also sees IT playing an even more crucial role in the future of business than it does today.

"It will definitely become more sophisticated, cheaper and mandatory to have well-equipped systems that link up globally," he says. "We are seeing the transition now to more sophisticated IT accounting software, and that trend will continue. Businesses will be able to purchase far more sophisticated systems; it will be a matter of cost to each company and what they're prepared to spend."

Of course, any new IT system integration inevitably raises the questions of its potential to succeed. Will it be to budget and timing? How will the organisation obtain a return on investment? These questions will only be answered through research and investigation into what is best for the business.

Better marketing

Naturally, marketing, too, will adapt in the quest to get more bang for the bucks spent on it.

"Marketing will be far more direct as well as being environmentally conscious," says Martin Blake. "Customers are demanding products and services that meet environmental standards.

"With advertising, too, incorporating product innovation will be crucial. If we look at Twenty20 cricket, there's a sport that understands its audience is time-poor, has a shorter attention span and wants something exciting. Twenty20 has delivered on all fronts and marketed the game to new consumers."

Mobile-phone messages look set to outgrow email as a direct form of communication and could lead to you being targeted depending upon where you are, what time of day it is, and your ability to respond.

IBM has been among the leaders in IT hardware for many years and continues to seek best practice within and outside the organisation. They see the next five years as crucial for corporations to undertake change.

"Growth in businesses will occur organically, through acquisitions and innovation," says Matt English, IBM GBS Strategy and Change Practice Leader. "These areas will drive the growth agenda in the next three to five years.

"Innovation will come from products and services, and operations and business models, with the latter undergoing severe change in terms of the whole way you approach the market.

"Take Gillette for instance; they recently gave away their new razor because they wanted people to buy the new razor blades, which is where they make their money. Another area where innovation will have impact is the shape of the industry. Just look at Apple, who has a limited shelf life or stock run for every iPod before they bring out a new, updated model. Virgin Blue, too, changed the airline industry here by bringing a new low-cost airline forcing Qantas to follow suit with Jetstar.

"Finally, in terms of innovation, the reshaped supply chain will change the business model. You only have to look at Procter and Gamble who now have more than 50 per cent of their development done externally. Outsourcing and offshoring will increase."

Brand innovations

There is probably no greater example than Apple when it comes to brand innovation. From a struggling company near the end of the 20th century, Apple turned over $US24 billion ($A26 billion) in 2007, a fivefold increase in the past eight years.

Think of the iconic iPod. Break it down into simple components: it's a beautifully designed and packaged hard drive, with an elegant user interface and wonderful software that makes it work; but at its most fundamental it's a storage device.

Leave it as a commodity and others can easily copy it. Innovate and you end up with a true competitive advantage.

And look at where Apple has leveraged the iPod. They built iTunes, the iTunes Store and a world of accessories. They even formed innovative partnerships with Nike – your shoes can now talk to your iPod – and BMW, Mercedes and quite a few other car manufacturers integrate Apple devices into their cars.

"Innovation comes from external growth," says English. "It is distinct from invention. It is taking good ideas and making them into a commercial reality. There is no reason why you can't incorporate business partners as part of this process.

"Collaboration is important in business growth but it is something CEOs struggle to implement. There is no doubt, for many CEOs, global integration is a significant issue going forward."

Better business planning

Any global integration will obviously involve a change in strategy for a business. Business intelligence, business planning and strategy will undergo rethinking and reform in the future.

"With business planning it needs to challenge both national and international boundaries," English says. "If you look at IBM, we are a multinational company that has changed our practices, so they are now standard no matter where you are in the world. This involves everything from supply chain management to business procedures. It makes it easier for both our employees and our business partners.

"This leads us on to human resource management and how employees will need to learn different skill sets. Organisations will have to be far more flexible in their culture and learning. The reality of life is that people are now contactable 24/7, so the actual working hours have extended dramatically.

"Also, if you are outsourcing business to India, for example, you are more likely, if you are managing that account, to be working, say, 12–8pm, and businesses need to take that into account as well. Outsourcing adds another layer of management and requires a different skill set. Are companies organised for this new challenge?

"IT, too, will lead to more integration of systems [and] making them compatible within different departments of the organisation, making communication more effective and easier."

Overseas initiatives

Phillip Bartlett, a Partner at Response Consulting, believes initiatives from overseas are helping locally- based businesses improve performance.
"If you look at the Japanese and their advances in manufacturing efficiencies through using statistical tools such as Total Quality Management and lean manufacturing, they are being copied around the world," Bartlett says.

"With near full employment today, by using sophisticated and advanced software for analysis, you can make real-time decisions to compensate for not having all the staff you want.

"Especially in the area of manufacturing and supply-chain management, full risk analysis needs to capture real-time data. This makes decisions more accurate and cost-effective. As a result, outsourcing data reworking offshore is becoming more popular given that shared services, if done properly, can save and make you money."

Elsewhere, Bartlett says that while IT infrastructure is improving, inventions such as the BlackBerry are requiring an instantaneous response, which doesn't always mean a positive decision overall.

"Technology is driving expectations of availability and immediate answers," Bartlett continues. "This means that a lot of decision making is being taken away because everyone is available. Therefore, people are rarely acting up in higher positions or taking on more responsibility.

"We are also seeing the rise of the accountants in terms of marketing spend. Research is now far more focused, and product spend more accountable.

"With both HR and OHS we are seeing cultural shifts. With the former you need to ask yourself whether it is adding value to your business and does it have a clear role; with the latter, you ask yourself, ‘Is the company taking responsibility for my safety?'.

"I think HR in the future will be far more focused on trying to influence people's behaviour out of the office to keep it aligned with company values."

Streamlining for improvement

For Carol Roberts, Senior Partner of ABC Business Solutions, it is all about streamlining business for performance improvement.

"The key is to have non-duplication of tasks and roles within an organisation and be prepared to integrate tools to ensure that every [task] is only performed once," Roberts says.

"Supply-chain management and HR are both more important than ever. Businesses have to look beyond the good times now to see if they would still be as successful, with current systems and structures in place, if the economy was to turn.

"They also need to have plans in place to continue with successful business partners should a key employee leave. Information for the new employee on current contracts and relationships has to be easily accessible and understood if businesses want those situations to continue."

Innovation, business remodelling, retraining staff and thinking global seem to be the key areas for business improvement. Implementation of the above is where the real work starts.