Why growing companies should embrace zero-basing

05 February 2016 Consultancy.uk

If you need funds to get your business to the next level – to launch a new product, expand to a new region, serve a new customer segment – you might not need to go hat in hand to a venture capitalist or banker. Instead, look inside your business for all the capital being spent on distractions.

Owners of micro-companies get this. They are always short of cash, trying to figure out how to free up resources from one activity so they can redeploy to a more important activity. But as companies grow, this idea gets lost. It isn’t that growing companies succumb to bureaucratic waste, but rather to a more insidious temptation: the desire to excel in all programs and all capabilities.

In reality, only a few capabilities truly matter to your customers, which means that most capability-building is a waste of time. If a particular capability isn’t the reason that your customers choose you over your competitors, then it is fine – even desirable – to be just “good enough.” If you have the discipline to focus your internal resources on the things that really matter, then you may not need as much external capital as you thought.

Money tree

Changing these behaviours requires that companies “zero-base” everything they do, meaning they regularly examine every process with a fresh eye and ask: “If we could start over, would we want to do it this way?” Some employees find this exercise threatening. But in fact, zero-basing creates opportunity. If the company can figure out how to do something smarter and in a simpler way, it can move people to more difficult and interesting challenges in the highest-potential areas. That keeps everyone stretched.

Want more funds for your company? Pave the way for zero-basing and penalise anyone, especially managers, who traps resources. In most companies, rewards typically flow to people who make internal functions larger and more complex, demanding more resources, the people who say yes to seemingly “clever” ideas. Make it your role to reward those who simplify your company and are brave enough to stop activities altogether.

An article from James Allen, co-leader of the global strategy practice at Bain & Company.

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Late payment culture cripples productivity of SMEs

29 March 2019 Consultancy.uk

UK SMEs are seeing their efforts to grow stifled by late payments, causing thousands to enter insolvency proceedings each year. According to experts from Duff & Phelps, this also has a major impact on the UK’s economy, meaning late payment culture must be tackled if the country is to dodge yet more economic stagnation in the shadow of Brexit.

Small and mid-sized enterprises in the UK face a myriad of pressures at present. Brexit anxieties are keenly felt by SMEs, with more than nine in 10 suggesting recently that economic conditions have worsened in the last 12 months. 66% of SME leaders also expect conditions to further worsen in the coming year.

At the same time, firms are keen to see value for money from investing in external expertise. Consulting fees which weight much more heavily on smaller firms, who spend £60 billion per year on professional services, but feel that more than £12 billion of that figure is wasted on unnecessary or bad advice.

Late payment culture cripples productivity of SMEs

Above all, however, SMEs are extremely vulnerable to late payments, and, according to a new study, the situation is only getting worse at present. According to corporate rescue consultancy Duff & Phelps, small businesses in the UK are facing a collective bill of £6.7 billion per annum due to late payments by other companies, while the average value of each late payment now stands at £6,142. This has risen from £2.6 billion in 2017, illustrating the plight of SMEs, particularly with uncertain economic times ahead.

Indeed, the spike in late payments has already caused significant productivity issues for SMEs, which in turn compromises their financial stability. With staff wasting hours chasing down late payments and businesses becoming preoccupied with short-term cash flow problems, they are less able to concentrate on creating new value for the firm, which in many cases gradually slides toward insolvency.

Small businesses across the UK are facing major cash flow pressure, leading to increased financial instability as a direct result of a late payments culture. This is likely a big driver of the UK’s 20% boom in insolvencies over the last three years, especially as it has a knock-on effect on other SMEs within the supply chain of those struggling firms. Approximately 50,000 small businesses fail each year because of late payments, amounting to a shortfall of more than £2.5 billion for the UK economy. 

Commenting on the findings, Paul Williams, Managing Director, Duff & Phelps, said, “In this modern era of technology, which is designed to enable business agility, late payments are particularly galling as there are no excuses. The day of the ‘cheque is in the post’ is long over!... More can be done to avoid businesses reaching this situation in the first place. SMEs underpin the economy, so prioritising timely payments will help allow business owners to focus their time and energy on providing good quality products and services and adding value to the customer experience, rather than chasing outstanding payments.”

The UK Government currently promotes its voluntary Prompt Payment Code to encourage good practice, but late payments by larger companies remain a common pain point for many SMEs. There may be hope for an end to late payments, however, following an announcement in the Spring Statement from Chancellor Philip Hammond. The Government aims to crack down on the practice, with Hammond stating big companies should hire a Non-Executive Director to be responsible for reducing late payments to small suppliers. The statement also advises that organizations publish payment practices in their annual reports.