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Monthly Archive for July, 2009

Ten Minute… Price Review

Published by Business Link on 20 July, 2009 in Finance and Top Tips • 1 Comment

Two steps to getting your price right:  1. Calculate your costs.  2. Get to know your value.

1. Calculate a cost price

List the following: fixed costs, which are incurred regardless of sales volumes, such as rent or salaries; variable costs, which are incurred directly when a product or service is produced and sold, such as raw materials or delivery costs; and any indirect or miscellaneous costs, such as marketing or after sales costs.

Now crunch numbers to estimate a ‘cost price’ for your product or service. To do this you need to apportion a reasonable percentage of fixed and indirect/miscellaneous costs to your per-unit price. For example, if you sell 1,000 products a year and the product’s marketing budget is £1k, your per-unit marketing cost is £1. These calculations can be tricky; over-estimate at first, and seek further assistance to refine your calculations.  

The resulting total represents your cost price, upon which you can add a desired profit margin. But, before you decide on a final price, it is crucial to get to know your value.  

2. Get to know your value

The above ‘cost-plus-profit’ method overlooks some important value factors. For one, your price might be too high or low in comparison to competing products. And importantly, your product or service could be ‘greater than the sum of its parts’, in that it is higher quality than competing products (or you have a superior brand).  

To appreciate value it helps to know your competitors and customers. Compare your product or service’s benefits and features with those of competitors, considering intangible factors such as the perceived status of your company or brand, and the perceived quality of your product. Think about the specific benefits and features your customers value; how much would they pay to receive the unique values and benefits of your product or service? Upon what factors do they make buying decisions?  

Now try to establish an objective ‘valuation’ of your product or service. If you have a premium, high-quality offering, you might be able to set a price above your cost price and competitor prices. If your product or service does not satisfy the key value factors, you may have less scope to inflate prices. Remember to be objective; over-valuations could limit sales, and under-valuations could unnecessarily hurt profit margins.  

The right price

You need a point enough above cost price to be sufficiently profitable. But you also need to ensure your price reflects your value. You will forfeit sales if your price is too high, or forgo profits by failing to charge your worth. Raising low prices later on can also present its own challenges, so it pays to get it right first time. So remember: calculate your cost price; make sure you know your worth; and find a price which sits well in the marketplace and fulfils your long-term profit objectives.

Download the ten minute price review

More info – Price your product or service

Leadership: Defining your vision

Published by Business Link on 20 July, 2009 in Management & Leadership • 0 Comments

Leaders must set a direction, then concentrate everyone’s attention on it.  

So far we have illustrated the impact of bad leadership, and underlined two keywords that business leaders should remember and respect: awareness and judgement. This month we explore the importance of setting a clear vision and inspiring your people to pursue it. 

Influential leadership author, Warren Bennis, asserts that it is crucial for business leaders to set a direction, and “concentrate the attention of everyone in the organisation on it”. This involves defining a vision for the future of your business that is clear and compelling enough for your people to follow.

Defining your vision

Establishing a clear company vision helps to ensure your business goes in the direction you want it to. It gives focus to management, employees, suppliers, collaborators, and even customers. In essence, it defines a roadmap for where your business and its people are heading. So how can you begin to define your vision?  

Strong awareness helps. It pays to know what is going on inside and outside of your organisation, and have access to strong information and intelligence. This means using management, employees and other sources to inform and guide your thinking. Such awareness allows you to make well-judged, forward-thinking decisions. But while others can inform and guide, they should not direct or dictate your vision. As a leader it is your job to look into the unknown and set a direction for the future as you see it.  

Upon sound intelligence you can build an educated view of the future. According to Bennis, a vision needs to provide people with a “bridge to the future”. In the first instance this means defining where you want to be one, three, five, or ten years from now. From these points, leaders must ‘reverse engineer’ to provide specific, practical and achievable plans which detail the key steps required to realise the vision. Sometimes referred to as ‘futurecasting’, the process of visualising and road-mapping the future is an important leadership role.  

Part story, part plan

Bennis stresses the importance of “giving meaning” to a vision “through communication”. BusinessWeek adds that there should be four components to a vision: “A compelling story, an image, it must be achievable, and it has to be forward-looking.” A vision could be described as part story, part plan. The story must be clear, compelling and easy to communicate, while the plan provides the specifics required to make it happen.

Communication might begin with impassioned speeches, but be sure to follow with practical steps which aim to turn vision into reality; such as building specific goals into management, employee or supplier responsibilities, or conducting regular management meetings and monitoring to ensure your vision is rigorously pursued. More generally, look for opportunities to constantly ‘give meaning’ to your vision through strong communication and management. Tell your story of the future, then inspire, compel and enable others to follow your lead.

More info – The importance of leading and motivating

Leadership development

Published by Business Link on 20 July, 2009 in Management & Leadership • 0 Comments

Many leaders need to get better at something they know little about. 

Leadership author Warren Bennis argues that leaders must constantly seek to develop themselves as individuals. And importantly, he observes that being a manager does not necessarily provide the best training for being a leader. In other words: many leaders need to get better at something they know little about.

Bennis says: “There is a profound difference between management and leadership, and both are important. To manage means to bring about, to accomplish, to have charge of or responsibility for, to conduct. Leading is influencing, guiding in a direction, course, action, opinion. The distinction is crucial.”

In his book, “Learning to Lead: A Workbook on Becoming a Leader”, Bennis illustrates some specific differences between managers and leaders, such as the following paired contrasts:

The manager administers; the leader innovates.
The manager maintains; the leader develops.
The manager focuses on systems and structures; the leader focuses on people.
The manager relies on control; the leader inspires trust.
The manager has a short-range view; the leader has a long-range perspective.
The manager asks how and when; the leader asks what and why.
The manager has his or her eye always on the bottom line; the leader has his or her eye on the horizon.
The manager accepts the status quo; the leader challenges it.
The manager is the classic good soldier; the leader is his or her own person.

Whether or not you agree with every one of these contrasts, it is apparent that clear distinctions can be made between management and leadership. Importantly, this means that leaders must focus on developing entirely new skills and competencies in order to improve. Self-development and training are thus of vital importance to leaders, particularly those coming from management backgrounds.

Leaders must also know their limits. Many may feel pressured to be good at everything, from knowing how to lead to the ins and outs of finance, marketing or operations. On the contrary; Howard Schultz, founder of Starbucks, says that Bennis once told him that leadership relies on “your ability to leave your own ego at the door, and to recognise the skills and traits that you need in order to build a world-class organisation”. This admission helps to identify areas for self-development, and also allows you to surround yourself with people who possess the skills you are lacking. Leadership is thus a journey of self-awareness, self-development and learning. And as Bennis puts it, leaders should possess “the capacity to adapt and change”.

Think about the differences between management and leadership, and list out the things that make leadership different, difficult or challenging. This list could ultimately represent a personal development plan which helps you to become a better leader. And remember: know your strengths and weaknesses, ask for help, and look out for ways to continually learn, adapt and change.

More info – Inspirational leadership assessment tool

More info – Using leadership to create a motivated workforce

Two eyes on Cybercrime

Published by Business Link on 20 July, 2009 in IT & eBusiness • 0 Comments

Due vigilance  and the right security technologies are equally important in the war against cybercrime.  

The 2009 Davos World Economic Forum recently warned that the threat of cybercrime is “rising sharply”, estimating that online theft costs over £620 billion per year, and commenting that too many people do not know how to protect themselves.

The main types of cybercrime defined by Davos could threaten both businesses and consumers. Traditional cybercrime includes fraud or theft by stealing financial details or personal data; tricking people into buying goods or services that do not exist; and identity theft. Increasingly these crimes are executed by large and well-organised criminal gangs, making cybercrime ever more complex and difficult to combat.

Spam and phishing scams are ubiquitous and getting more intricate. Emails that trick readers into providing online banking log-in details are an obvious example, but there are less apparent threats. HMRC recently warned of phishing emails that offer tax rebates, pointing recipients to an HMRC look-alike website which is designed to steal sensitive company details. These details could then be used for corporate identity theft, which according to Companies House occurs between 50-100 times every month. Aside from email and web threats, there are also dangers resulting from insecure business networks, ranging from data theft of business or customer data, to the ‘hijacking’ of computers and networks to be used as ‘bots’ to aid cybercrime activity.

Being aware of the risks and accepting that cybercrime could threaten your business are important realisations in the war against cybercrime. It is important to be ever-watchful of potential threats. As HMRC points out, their communications policy would prohibit using email to advise of tax-rebates; thus it is also important to learn how legitimate companies tend to communicate. Similarly, if you communicate with customers electronically or hold customer data on computer networks or websites, providing customers with information on how you communicate and use data can help customers to spot unsafe communications. Training to educate your employees on the common types of cybercrime can also help to minimise risks to your company and its computer networks. In short, instilling awareness and vigilance in yourself, your employees and customers are important steps which could help to avoid cybercrime.

Keeping one eye on cybercrime is not enough, however. Security software, tools and technologies are an equally fundamental part of combating the threats. For example, tools such as spam, phishing, virus and spyware filters can help to stop email threats reaching your networks or users. Efforts must also be made to secure computer networks and data, through the use of firewalls and security filters such as those found in advanced web browsers, and taking steps such as keeping passwords secure and performing regular updates of operating systems and software applications.

Due vigilance and security technologies must work together. Because of the complexity and organisation of the threat, cybercrime can sometimes overtake the security industry, creating weaknesses that can only be plugged by being vigilant. While security measures should always be implemented, it is equally important to instil due vigilance in yourself, your employees, and even customers.  Keep two eyes on cybercrime.

More info – Read our guide to avoiding scams

More info – Guide to help keep your systems and data secure

Collaboration, Cooperation, “Coopetition”

Published by Business Link on 20 July, 2009 in Creative • 0 Comments

Three Cs… Three ways of collaborating to create new ideas and customer offerings, or improve efficiencies.

Collaboration

The traditional collaborative relationship, with third parties such as business partners, suppliers, consultants, specialists, designers, wholesalers, distributors, and so on. Research suggests that many companies work closely with and source innovative ideas from such entities, and often find great success in doing so.

In previous innovation articles we have outlined several fundamentals for making collaborations work, including: a positive attitude towards collaboration; clear objectives and boundaries to ensure the aims and scope of collaborations are understood on both sides; and commitment – particularly from business leaders – to ensuring any barriers to collaboration are removed, and to making sure collaborations are provided with sufficient resources to develop. When nurtured, collaborations can conjure up innovative new ideas, improve on or create new customer offerings, and increase efficiencies.

Cooperation

Similar to traditional collaborations, but less obvious in nature and scope. Such relationships aim to unite brands in the creation of jointly-branded product or service ‘packages’, or seek to bring companies together with the mutual aim of improving business practices, processes or efficiencies.

Examples include: A gym and specialist running shop collaborating to offer running advice or training courses. Two companies with distinct customer bases employing and sharing one salesperson. Packaging complementary products or services together – such as locally sourced ‘healthy lunch packs’; or a marketing, PR and web design company uniting to offer a comprehensive range of integrated services. Whatever their nature, such co-operative partnerships go beyond the classic ‘client and supplier’ relationship, and often involve the creation of innovative new offerings or approaches.

Coopetition

Wikipedia says coopetition occurs when competing companies “work together for parts of their business where they do not believe they have competitive advantage, and where they believe they can share common costs.” The objectives being to save money and improve efficiencies in areas where there is no benefit to competing.

Local restaurants might collaborate to bulk-buy fresh ingredients. This may lower prices, could allow them to reduce waste by sharing unneeded supplies, and might offer logistical benefits to the supplier. The restaurants would then compete by putting the ingredients together better than their rivals. Similarly, a group of local web design companies might collaborate to build a data centre to power their increasing computing needs. Or finally, a handful of small retailers could come together to share a large high-street retail location.

As long as no competitive value is lost, coopetition could provide real benefits at minimal cost. Working agreements and boundaries must be present, but with that proviso, such collaborations can work.

More info – Use innovation to grow your business

More info – Spotting market opportunities