One in seven businesses won’t last the year. A further 25 per cent won’t last four. Only a quarter saw an increase in their profits and new analysis is showing that firms are 10 times more likely to shrink then grow.
What separates the successful from the unsuccessful? How do we know which firms will survive, increase their profits and grow their business?
One explanation is management. For a long time now, we’ve known that management matters. One study estimates that management competency can explain as much of a third of the difference in firm performance.
We’ve also suspected that there’s a wide variance in the quality of Australian managers. New ABS data on management capability (Management Capability Survey, MCS) is helping us to understand just how much of a variance exists and how much that matters.
Below is a list of seven rules to help ensure a business succeeds. It’s been lifted from a creatively titled website called “7 Ways to Help Ensure Your Business Succeeds”. There’s nothing particularly special about this list — it’s just the first that turned up in a google search. Everything in it seems pretty straight forward and sensible, the kind of thing you’d learn during week one of business school.
Let’s see how well Australian businesses measure up.
1. Have a written plan
Failing to plan is planning to fail. According to the MCS, only 10.3 per cent of firms have a written plan. A further 30.4 per cent say that they have a plan, but it’s not written down. Small businesses are (of course) worse (6.1 per cent of firms with less than 4 employees), which is a problem, because most of our businesses are small. Unsurprisingly, innovative firms are much more likely to have a written plan than non-innovative firms (more than four time more likely in fact).
2. Don’t marry your plan.
We like to think of firms being nimble and responsive, but the MCS paints them as anything but. For example, the proportion of firms that reported not using data to: help design new products, was 56.7 per cent; forecast demand, 55.4 per cent; and manage supply chains, 65.1 per cent. Amongst the firms that identified factors affecting their supply chains,
38 per cent did nothing to respond to them.
3. Keep your ego in check and listen to others
The main source of “data” that informs decision making in a firm comes from managers themselves. (Actually, that’s not true, the main source of data used to inform decisions is source at all — see step 4.) About 40 per cent of firms say that they use data form external sources in their decision making at least once a quarter, and roughly the same amount
use feedback from employees.
4. Keep track of everything, and manage by the numbers
By and large firms aren’t monitoring their performance. Only one in two firms monitor any KPIs. Worse than that, fewer than 10 per cent of firms track more than 5 KPIs, with the majority tracking only one or two.
The use of data is an important means for separating out the cream. Managers in innovative firms (79.3 per cent) are much more likely to be involved in determining which data the business will collect and monitor than are managers in non-innovative firms (50.2).
5. Delegate to employees and avoid micromanaging them
The prevalence of managerial skills increases with firm size. Whereas 31.7 per cent of very small firms (0-4 employees) list management/business as additional business skills held by the principal manager, in large businesses (200+ employees) it’s the case for 84 per cent of firms.
6. Use the Internet
All but a very small minority of firms have internet access (95.3 per cent). But only half have a website, and 40 per cent are active on social media. Few firms, however, use the Internet to assess their products (35.8 per cent), develop new products (23.5), monitor competitors (27.3) or identify market trends (22.5).
7. Reinvent your business
What counts as innovation in the Business Characteristics Survey is a pretty low bar, yet only about a fifth of firms report introducing “any new or significantly improved” good or service. About the same again that reported introducing “any new or significantly improved” operational process.
A number of reoccurring themes emerge from this exercise. The first is that a simple Google of “how to manage a business successfully” would seemingly teach Australian managers quite a bit. The second, is that there is a distinct capability gap between small and large firms. And third, there seems to be an (causal?) association between firms that invest in good management practices, and those that report being innovation-active.
Obviously there is more to running a business then just Management 101. But the extent to which the basics haven’t been adopted suggests that there are some easy gains to be had.
Post script: Last week I was a bit too quick to get smarmy regarding McKinsey’s Industry Digitization Index. Earlier this year they produced an Australian version, and its available here.
TALES FROM THE LONG TAIL 
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