Monthly Archive for August, 2008

Top tips - cost-cutting

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Business Link
on 14 August, 2008
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We began compiling a list of practical cost-cutting tips, but quickly realised that any cost-saving measures should be considered prudently, with an objective, forward-thinking frame of mind… With that in mind, here’s our top tips for framing the right mindset for cost-cutting.

Next month we’ll publish our list of practical cost-cutting tips.

In the meantime, if you’d like to share your own practical cost-cutting tips please email us .

Think prudently… Sound judgement and an eye to the future are crucial to effective cost-cutting. Every action has a reaction, so carefully consider what impact cost-saving measures may have later on. Careful, prudent thinking means every penny is spent - or saved - cautiously and confidently.

Waste not want not… Waste is an evil you can do without. It’s often hard to find, and sometimes harder to stamp out. But ultimately: it serves no purpose and it costs you money. Even incredibly wealthy companies (like Google, for example) are obsessed with eliminating waste from their processes and operations. Why? Because it’s the number one most effective way to cut costs without cutting quality. By definition, waste adds nothing, so taking it away is a win-win. Being conscious of this fact when cost-cutting might help you distinguish between valuable and detrimental cost-saving measures.

Cost-cutting equals competitive advantage… Cost cutting might be a necessity now, but learn to do it effectively and it’ll become a competitive advantage in the future. Effective cost-cutting (such as the elimination of waste) lets you offer more competitive prices to customers and helps maximise profits and financial resources for future development. Short term spending curbs may be a necessity now, but think about how you can make sustainable savings that allow your business to become more competitive in the long-term.

Create a positive mindset… Permeating a positive mindset amongst your employees makes cost-cutting an opportunity and not a threat. You might need to cut costs to survive, but look at it another way: you need to cut costs to be more successful. It’s a subtle but valuable distinction. For example, employees might feel more motivated to cut costs if they believe such actions contribute to a company’s long-term competitive advantage and success, rather than just short-term survival.

The cost of not spending… Sometimes, not spending comes at a greater cost than you initially realise. Let’s say you adopt a do-it-yourself approach to marketing to avoid out-sourcing the task to an external agency. It may save money upfront, but at what cost? You run the danger of failing to attract new customers because you’re bad at marketing, thus losing more revenue in the process. In addition, you run the risk of taking your mind off your day job, which might further damage your business. By evaluating the ‘real’ cost of not spending, you can more effectively decide if cost-cutting measures are counter-intuitive. You may still find areas where you can cut costs, but sometimes, the best way to save money is to spend it.

The cost and benefit… Every pound offers a varying degree of benefit depending on how you spend it. £100 spent on a buffet lunch might seem like a waste, unless it bolsters staff morale and productivity during your monthly meeting. But then, that’s £1,200 spent on lunches over the whole year. That money could be spent on an annual away-day which helps foster a more productive team dynamic. Both offer similar benefits, so both are arguably valid costs. But which offers the most benefit? If you can measure the distinct benefits associated with distinct costs, you can begin to make more balanced, cost-effective spending comparisons, and thus more accurately decide where the precious pounds should and should not go.

Think opportunity cost… Every pound you spend denies you interest payments you would have received if you’d left that pound in the bank. Spending a pound on one thing also denies you the opportunity to spend it on something else, that might have delivered more benefits. An appreciation of opportunity cost may help you focus spending decisions in the right places, which will ultimately help you cut costs.

Know your priorities… Every pound you spend either contributes to your priorities or detracts focus away from them. Think back over your key objectives and justify spending and cost-cutting decisions within that context. If cost-cutting is needed, weigh up factors such as cost/benefits, opportunity cost and ‘the cost of not spending’ within the context of your organisational objectives. Doing this helps achieve focus and direction when cost-cutting measures are inevitable.

HR Focus - Changes to tax codes, handling performance discussions, employee redundancies

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on 14 August, 2008
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Tax & Payroll: Changes to Personal Allowance and Basic Rate Limit in September

Changes to the basic personal allowance and basic rate limit will result in new tax codes for many employees in September 2008.

The basic personal allowance for tax year 2008-09 is increasing by £600, from £5,435 to £6,035. The basic rate limit is reducing from £36,000 to £34,800.

As a result, employers may need to make changes to their payroll, on the first payday on or after 7 September 2008.

Tax codes with an L suffix can be changed without notice from HMRC. For example, a 543L tax code becomes 603L. For other tax codes (without an L suffix), you should wait to receive a P6 notice from HMRC. Other codes should remain unchanged unless you receive a P6. Check the HMRC website for a detailed outline of old and new tax codes.

For more information and guidance, please visit the HMRC website

Handling performance discussions

Over the previous two issues of business i we’ve discussed the importance of performance appraisals and outlined the competency framework - a valuable approach for measuring performance and underpinning performance discussions. This month we offer three tips to help handle the performance appraisal conversation with your employees.

Daryll Scott, from personal development company My Noggin, comments that some organisations “gather valuable feedback, and prepare well-structured performance discussions, only to have it made ineffective by the human factor. Many people are caught up in the process and content of ‘what’ they are delivering and oblivious to how much their behaviour is influencing the other person.”.

This lack of focus on establishing a positive human dynamic during the performance appraisal conversation could undermine the hard work done leading up to that point.

Daryll offers his top three tips for effectively handling performance discussions:

1. Set it up… Take time to set up the discussion in a way that is agreeable and cooperative. Make it conversational, and take time to have a conversation about the conversation you are about to have. Check what the perceptions and assumptions are, and clear them up so that you start positively. By investing time at the start you will provide less opportunity for misunderstanding.

2. Is the boot on the right foot? The most destructive communication takes place when the individual refutes their feedback and then takes an argumentative stance. In many cases the line manager somehow makes it their problem to prove it, providing evidence to convince them of the validity of the feedback. Elicit their self-awareness rather than battering them with documented evidence. Consider the difference between: a) “Your numbers are down this quarter.” and b) “Have you had a chance to look at your numbers for this quarter?” The former is accusatory, the latter is conversational. For a performance discussion to really work, the recipient needs to be taking responsibility for the effectiveness of the conversation, not the line manager.

3. Shooting the messenger… The most effective way of getting out of the firing line so that the meeting can remain productive is to separate your intention for the meeting from the content of the meeting. Most people assume that others are aware of their positive intentions and this assumption is typically wrong. For example: If I say, “My intention is that you fully understand this feedback so that I can provide any support you need to make any changes you want.” Now if the feedback is grizzly, I’m not necessarily grizzly for delivering it. I’m on your side! If you want the individual to make a change, you are far more influential if you are coaching them, rather than pointing your finger at them.

Employee redundancies

A redundancy arises when there has or is going to be: a) a cessation of business, b) a cessation of business at an employee’s place of work (which could be due to relocation of business activities), or c) a cessation or reduction of work.

Redundancy is a traumatic experience for both employer and redundant employee. It can also adversely impact the morale and productivity of remaining workers, not just those directly affected. For these reasons, it’s vital to effectively manage redundancies with due diligence and sensitivity.

There are two key obligations when handling redundancies. First, you must undertake a fair redundancy dismissal procedure. Second, you must keep affected employees (and potentially their representatives) adequately informed during the process.

Fore more information, see our guide: Making an employee redundant

Negotiation

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on 14 August, 2008
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Two ways to negotiate a bigger and better slice of the pie…

Understand your opponent

It’s long been said that understanding one’s opponent is key to effective negotiations. Getting to know your adversary helps identify what they want, but also what they are willing to give.

Recent research supports this assertion, but argues that successfully understanding your opponent means getting to know the head, and not the heart.

The research, led by psychologist Adam Galinsky of US-based Kellogg School of Management, draws its findings from three case studies examining the relationship between successful negotiations and a negotiator’s approach to understanding his opponent. In its findings, the study makes a clear distinction between two approaches: perspective taking and empathising. The former approach fosters more effective outcomes for both parties, while the latter tends to hinder mutually beneficial negotiations, the study argues.

The research defines perspective takers as “able to step outside the constraints of their own immediate, biased frames of reference”. Perspective taking focusses on unbiased, objective and rational judgements about an opponents interests, thoughts and likely behaviours. Showing empathy “leads individuals to violate norms of equity and equality and to provide preferential treatments”. Empathising permits greater sympathy and compassion, and creates an overbearing desire to make an opponent happy.

The study’s author, Adam Galinsky, concludes: “Negotiators give themselves an advantage by thinking about what is motivating the other party, by getting inside their head… Perspective-taking gives you insights into how to structure a deal that can benefit both parties. But unfortunately in negotiations, empathising makes you more concerned about making the other party happy, which can sometimes come at your own expense.”

The difference between both approaches is subtle, but crucial. In essence, it’s about distinguishing between what an opponent is thinking and feeling. Wandering too far towards an opponent’s emotional needs serves only to weaken your position in negotiations, resulting in a one-sided outcome. Perspective taking is more objective, and helps deliver more mutually beneficial outcomes.

Size up the pie

In a negotiation, each participant has a “bottom line”. This represents, for example, the most a party is willing to pay for something or the least they are willing to sell something for. The space between the bottom line of each opponent in negotiations is often referred to as the “bargaining zone” or “pie”. It represents the range of value available to negotiate over.

Knowing your opponent’s bottom line lets you size up the pie. Your negotiations can then focus on finding a optimum negotiating point which gives you a good or fair slice of that pie. The challenge: your opponent won’t reveal their bottom line, so sizing up the pie is a matter of judgement or guesswork.

Herein lies the danger, so says recent research by professor George Wu (University of Chicago School of Business) and Richard P. Larrick (Duke University). Wu and Larrick argue that costly mistakes can be made when sizing up the pie; mistakes which are hard to detect, and therefore hard to learn from.

Misjudging an opponent’s bottom line poses varying degrees of danger depending on how far off your guess is. Modestly ambitious expectations are likely to be naturally corrected during the negotiation process, but wildly ambitious demands may be aggressively opposed and could irreparably damage negotiations. As a consequence, Wu and Karrick argue, we tend to make less ambitious demands in the first place - reducing the size of the pie to begin with. To avoid being perceived as greedy or unreasonably demanding, we make modest assumptions about an opponent’s bottom line, and thus the size of the pie available.

This approach helps avoid the dangers of overestimating an opponent’s bottom line, but as a consequence you end up negotiating over a smaller pie. Your opponent may concede a larger slice of that smaller pie, but that slice may ultimately be less than you could have negotiated, had you judged the pie to be bigger.

Sizing up the pie is a complex challenge for negotiators, and it’s not an exact science. Experience and learning from previous mistakes counts for a lot. But ultimately it’s down to sound judgement, which cannot easily be taught. Of course, judgement can easily be strengthened with adequate, well-reasoned preparation. As discussed earlier: getting inside your opponent’s head (and not their heart) helps identify their key motivations and wants, which could allow you to better judge their bottom line, and thus the size of the pie available.

More info - Developing a negotiating strategy

Measure your Carbon Footprint… Today

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on 14 August, 2008
in Environment, Management & Leadership and Strategy & Operations
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Research from the Carbon Trust, published this Spring, indicates that 46 per cent of FTSE companies have measured their carbon footprints, compared to 15 percent of large companies and 12 per cent of medium sized companies. Overall, only 1 per cent of the general business community knows their carbon footprint. The research concludes that whilst overall carbon awareness is increasing, there is “an enormous gap between the ways in which larger and smaller companies are responding to the issues”.

Measuring and reducing carbon emissions are gradually becoming strategic objectives for large and medium-sized business, motivated not just by environmental concerns, but by the significant cost-savings associated with minimising carbon usage. Meanwhile, the majority of smaller businesses are lagging behind.

The Carbon Trust explains that smaller businesses struggle with “a lack of time and expertise” to measure and reduce carbon emissions. In addition, they claim that many SMEs underestimate their “collective role” in cutting carbon emissions; according to their research, over a third of SMEs underestimate their contribution to carbon emissions by 50 per cent.

Unfortunately, these two dynamics don’t play nicely together. After all, it’s easier to dismiss the task as time consuming and difficult if you believe the net result of your efforts won’t make much of a difference.

It’s true that the process of reducing carbon emissions can demand time and expertise. But that doesn’t explain why so many businesses haven’t yet measured their carbon footprint. Working out a rough estimate of your carbon usage takes ten seconds using the Carbon Trust’s online indicator. And with a bit more information to hand - such as fuel, electricity and travel usage data - you can immediately build a more accurate picture of your carbon footprint using the Carbon Trust’s online calculator. These tools are a quick and easy, and crucially - they are designed to guide you towards making your next steps and finding the expertise you may need.

Only when you know your carbon footprint can you objectively determine how much time and expertise is needed to reduce it. So finding out is a good start.

It’s also important to remember that measuring and reducing your carbon footprint is not simply a philanthropic pastime. There are very real opportunities to save money by saving energy. These cost-savings could more than offset the initial cost and effort of reducing your carbon footprint. And again: you won’t know where those potential cost saving are until you make a start.

Now to the question: how is cutting the carbon emissions of one small business going to make a difference to a global issue?

July ‘08 figures from The Department for Business, Enterprise and Regulatory Reform indicate that small and medium-sized enterprises (SMEs) together accounted for 99.9 per cent of all enterprises. That equates to over four and a half million businesses.

And as we’ve already learnt, it’s this group that are the least responsive to measuring or reducing their carbon footprint. In addition, it’s this group that tends to underestimate the level of its contribution to carbon emissions. In other words, the large majority of UK businesses are doing little to act on carbon emissions, and many are producing more carbon emissions then they realise.

All of these businesses can take steps to reduce their carbon footprint. And the sum total of those individually small reductions does - collectively - add up to a significant difference.

At the moment, there’s a distinct lack of action amongst SMEs in the fight to reduce carbon emissions. Many see the process as important, but challenging. And many underestimate the extent of their “collective role” in reducing emissions. The good news: these many, the four million or so, can make start on the task… Today.

Start today by measuring your carbon footprint on the Carbon Trust Website

Interactive tool - Identify where you can save money by going green

More resources - Improving your environmental performance

Managing cashflow: the basics

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on 14 August, 2008
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UK companies are facing ever-increasing liquidity pressures as both available credit and cashflow falls.

Figures from the Bank of England indicate that the amount of cash companies had in available, unused credit facilities dropped by over 13 per cent in the 12 months to June 2008. May alone saw the biggest drop in available credit since records began in the late ’80s. This comes alongside falling levels of cash and bank deposits; two factors which are combining to adversely impact the liquidity of UK firms.

This news may not come as a complete surprise, but it serves as a timely reminder of the importance of effective and regular cashflow management.

A dwindling availability of both credit and cash has obvious implications for business liquidity. Identifying such downward trends as early as possible is crucial to planning measures to prevent such issues threatening a business’s current operational ability and its future survival and profitability.

Effective cashflow management should be high on any business’s agenda, whatever the economic climate. But now more than ever, as economic conditions are putting additional pressures not just on cash income but availability of credit, businesses must pay extra attention to the task.

Read our guide - Cashflow management: the basics