Smarter Strategic Thinking

Posted by Chris Hooper on 02.06.14 in Glossary

SMARTER STRATEGIC THINKING

Smarter Strategic Thinking

Smarter Strategic Thinking is a phrase I use to summarise my approach to helping small businesses get better results over the long term. Management information is a treasure trove for any business and now smaller businesses can get in on the action. With innovative software now available at low cost your business can use management information to identify opportunities and areas for improvement.

It is also why it makes more sense than ever before to work with a management accountant. Management accountants are specifically trained to work with this type of data and help you interpret it. Those insights will help you make better everyday decisions and develop a winning strategy.

What Is Strategy?

“Strategy” is a word that is often overused but what does it actually mean? In business jargon the word strategy simply means the medium to long term (in contrast to tactical which reflects the short term). You may not have a strategy written down but I am sure that you have aspirations for where you want your business to get to in the next few years.

So how can your accountant help your business over the long term? You’ll have to read below to find out! But the good news is that even small businesses can now implement a grown up approach to strategy thanks to some inexpensive and powerful software.

Strategic Thinking

Strategic thinking is about making time to analyse your business. It is about constructing a clear view of your long term business objectives and developing a series of plans to achieve them. This means it is also vital to understand how the business is currently performing. Comparing the difference between current business performance and the strategic objective is called “gap analysis”. Gap analysis identifies all of the areas that need to develop in order to achieve the strategic objectives. Once identified a series of co-ordinated plans are developed. As long as the plans are realistic and can be achieved then the business will reach its strategic objectives.

It may sound like hard work but taking the time to plan your strategy will help you meete your objectives a lot faster. It will force you to articulate exactly what you are trying to achieve and figure out the best way to get there.

Planning

The strategic framework above is used by ALL successful organisations that want to achieve a clear objective as efficiently as possible. Strategic planning and forecasting requires an investment of time and a smart approach to using accounting systems. The benefits impact many areas of your business:

  • Smart planning can avoid potential problems before they occur
  • Careful planning helps you prioritise your objectives
  • Planning increases management control:
    • Planning helps communicate company objectives to the team
    • A clear plan co-ordinates activity across the company
    • Explicit targets make managers more accountable
  • Including the team in your planning process helps them understand your plans
  • Understanding the organisation’s plan increases the motivation of the team
  • Planning is cheaper than failing: “FAIL TO PLAN = PLAN TO FAIL!”

How does my accountant help me with this?

Your accountant is a key partner in your planning process because numbers are the best way to measure your strategy. That’s right – numbers are used to measure your strategy. Each part of your plan has an impact on your sales, costs and cash. Your plans are expressed in a financial forecast so you can measure if you’re achieving your objectives.

The numbers in your forecast also help communicate the strategy to your team. Both financial and non-financial numbers hold the key to measuring your business performance and finding ways to improve it.

Let’s take a simple example: “Your business launches a new product and plans to sell 100 units in the first month.”

Immediately there are a huge number of factors that can be accurately measured through numbers.

  • How many units were sold?
  • How quickly were they sold?
  • What price were they sold at?
  • Were they cheaper or more expensive to buy/build?
  • Where were they sold?
  • How many customers were required to sell 100 units?
  • Who was the best customer? Why?
  • Was the marketing approach effective?

By analysing the numbers the questions above can be answered. More importantly you can draw some conclusions about what changes will make the organisation more successful. You will also find out how accurate your forecast was. Once you understand which parts of your forecast were wrong you can either change your forecast or fix those areas. This approach helps you control and fine tune your business to achieve better results.

This all sounds quite simple because the example above is rather crude. In the real world businesses are far more complex. They have different products and services and much less information available. It is also difficult to analyse exactly why a certain product has sold well or badly. The challenges for the management team are rarely clear cut!

I don’t have time for all this planning and forecasting

As a small business owner myself I am no stranger to the demands on the time of the small business owner. Time and budget are premium resources and not to be wasted. The good news is that the new breed of cloud based software means that you can now get fantastic information about your business very cheaply. Just a few years ago this would have been impossible but now small businesses can get the same level information that was previously reserved for the big boys.

Can you help me get Smarter ?

Time to continue our example. Imagine your business has sold its 100 units through the internet. Let’s also image that it used eCommerce software such as Magento. Let’s also imagine that you have recently moved your accounting records onto the Xero cloud based accounting system. That may sound expensive but neither of these products have upfront costs and they are both ready to integrate with each other straight out of the box.

By using the latest technology you can run reports from both systems whenever and wherever you desire. And you can do it instantly. You can find out exactly how many units were sold. You can see if your sales revenue hit target and find out how each business line performed. Suddenly that strategic approach to planning seems a lot easier than you may have imagined. And of course there’s no need for data entry because the systems are doing this automatically for you.

Supplying services instead of products? How about using a time recording system that will help you learn which customers are profitable and which are costing you money. More importantly, benefit from this analysis on an ongoing basis and without having to spend hours analysing the data yourself.

Smarter Strategic Thinking.