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Incremental improvement is the key to innovation

5 February 2013Debtor Reduction, Improved Cashflow, Sales Growth

Hunting for silver bullets is a natural tendency when you keep hearing the economy is in poor shape and your business growth is ‘flat-lining’. The problem with this is that you are likely to shoot yourself in the foot when you think you are having one, like a gambler doubling their bets to recover losses, then the money runs out. The key is to recognise that most businesses go through cycles and that is something you can address through innovation. The question really should be, what can you start doing differently from Monday?

In the ‘old days’, innovation meant research and development (R & D), and typically involved science and technology. This was a liner approach to R & D funding in the hope that something major may pop out the other end. Today, innovation has a far broader scope and is far more important to our economic growth. It is what every organisation, regardless of their size and resources, can and must do – ideally before it reaches the stagnation stage of the business cycle. It includes both the creation and refinement of your products and services, marketing methods and everything else about the way you do business. In the process, this should also have a social outcome with growth and employment, GNP and such like.

A key point is that most good idea on how to incrementally grow your business are often so simple that you will be asking yourself “Why didn’t I think about that before?” Or, you’ll be thinking “It isn’t complex enough so maybe I’m only getting half the story and go off to do an MBA!”

Business improvement guru, Darrell Weeks, calls it finding your ‘purple thread’. Innovation to Darrell is about identifying unique attraction factors that have customers wanting to do business with you, in currency they understand and value, rather than attempting to manufacture an outcome. He says one of the easiest ways to start innovating is to see what your competitors say and do – and do things not just better, but differently. Asking yourself basic questions like “What do I want to be famous for?” often helps start the process.

Marketing guru, Jay Abraham, said you should focus on easy action items first and try them – things with minimum time and cost, refining as you go. He suggested you break it into three areas of action, doing several things at once in each, not just one: ways to increase your number of customers; increase their average sale value; and increase their frequency of purchase. He went so far as to say doing small easy things (incremental improvements) could result in a ‘Quantum Leap’ in your business (lots of small silver bullets?).

One avenue that might also help you is Enterprise Connect. This is a Federal Government initiative by the Department of Industry, Innovation, Science, Research and Tertiary Education. They offer dollar for dollar funding for business improvement services in a number of targeted areas and industries like manufacturing, where businesses with revenue over $2 million ($1.5 million in regional areas) are eligible.

Some banks have tools that may also help you. For example, you can Google the ‘nab power of one’ cash flow improvement tool. By entering six key financial numbers, you can see the impact even one per cent of change can make to your business. You can also check your cash margin to ensure it is positive, so if you are about to materially increase in sales, you may need to put better debtors and stock systems in place first, otherwise every $1 in extra revenue could require additional funding rather than generate cash.

You may also want to touch base with your accountant or a business broker, if they offer business advisory services. This is not so much for the actual incremental business improvement ideas, but more to put some structure around your plans. For example, just like doing up a house, a business broker can tell you if envisaged expenditure is going to be reflected in a higher business valuation. An Accountant may help you with a ‘What-If’ analysis tools that enables you to strategise, plus put business plans and cash flow forecasting in place. Also available are business systems scorecards and business improvement guides that can give you good ideas on how to finetune your debtors, stock, expenses, payroll and other systems.

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