This page has been set up to act as a summary of all the research – academic and commercial which comes in to Ibis on a regular basis. Please add anything that you think is interesting.
A study in Scandinavia for a lighting company found that the introduction of natural light fittings in over 30 offices considerably increased productivity. The company suggested that the effects of these lights was to diminish the effects of SAD (seasonal affliction disorder).
Comment: Where companies carry out employee satisfaction surveys, factors such as noise, space, temperature and lighting often score highly in areas of dissatisfaction. Some of these can be easily solved with very significant improvements in productivity, but it is obviously vital to know what the areas of concern are.
A survey for a recruitment firm in the UK found that the average time that office employees spend in meetings is 150 hours per year (around 8% of working time). Most of the time the majority of employees are thinking of leisure – such as holidays, meals, rather than the issues in the meeting.
Comment: Introducing standard operating procedures for meetings has the effect of substantially reducing the amount of time spent and overall meeting effectiveness, at practically nil cost to the organisation.
A review by a industrial productivity firm found that the application of time and motion concepts to a range of service sector companies had a major impact in smoothing service delivery and the applications of technology to improve service quality and profitability. In some examples such as hotels, the overall improvement in profitability was in excess of 25%, particularly where multi-tasking could be introduced.
Comment: Organisations develop bad habits over time, and a regular review of why the business does something in a particular fashion will often reveal major opportunities for improvement.
A review by a European venture capital company on start ups in biotechnology, surface chemicals, control systems and environmental engineering, found a substantial difference in the levels of return between those companies based in "cluster" centres and those that were outside. Differences were most marked in control systems with the average difference of 42% return over a five year period. There was also a smaller, but nevertheless significant difference in the rate of business failure – again with clusters providing the better environment.
Comment: Such findings have important implications for the business angel and other investors in high technology start up operations. Support within the network that cluster environments provide appear to lower risk and improve rates of return.
A supplier of customer relationship management (CRM) systems found that those companies that applied investment appraisal approaches to their major customers, which they termed a CIR or customer investment review, achieved higher growth rates than similar companies in the same sectors. The average difference was 8% between those using this approach and those that did not.
Comment: The common finding that 80% of business comes from 20% of the customer base (normally referred to as Pareto's law) supports the concept used in large companies of account management. Applying this approach using investment appraisal enables companies to optimise their profitability with their key customers.
A recruitment company analysed the experience of 38 customers in the software industry concerning the speed and ease with which new employees settled into their posts, a total of 410 employees. They found that one of the key drivers was the company culture in which the employee previously worked. The most difficult transitions were from those companies that were defined by the authors of the survey as "psycopathic" and "feudal".
Comment: Zelig's syndrome is an important determinant of behaviour in companies, with the employee acquiring the attitudes of the group. This survey suggests that employers should not only consider the individual suitability of the potential employee, but whether there will be attitudes developed in the previous company which will make it difficult to integrate the individual into the new culture.
A graduate research thesis evaluated the level of understanding of corporate vision statements in 48 major US corporations by questioning over 3000 employees at various levels within the organisations. Over 60% of the employees were unaware that a vision statement existed; of those that were aware only 7% came close to being able to repeat its contents, and only 4% being able to define what it meant. The majority of those aware of the vision statement came from supervisory grades and above.
Comment: Communication of shared values is one of the significant differences between US and Japanese corporations, and appears to be significantly linked to wages ratios.
A survey of 126 medium to large scale manufacturing companies that had implemented E-commerce platforms in Europe found that just over 50% were either extremely satisfied or satisfied with the results. The main difference between the satisfied and non-satisfied group appeared to be the amount of time and effort that had been invested in identifying key benefits that the customers wished to obtain from the proposed system, rather than applying a "top down" approach.
Comment: A product or service is a bundle of benefits, which include delivery. Companies should always review the marketing implications of any system that they introduce.
Research on the value of "employee of the month" schemes in 43 medium to large service organisations in the United States found that the majority were demotivational for employees – though favoured in all cases by management as a means of improving productivity. The main complaints received were:
- a failure to value work equally (cleaners for example compared with front office staff);
- a limited or non-existent ability to influence outcomes of the scheme directly rather than by group performance;
- an opaque scoring system leading to suspicion of management favouritism;
- unrealistic goals;
- limited or non-existent rewards for superior performance;
- regularly changing rules.
Comment: This supports other research on the regulation of bonus schemes which should not be introduced unless they attempt to follow best practice as they will otherwise be completely counterproductive.
An analysis of diversity in decision making in Spanish firms carried out by a management training company as part of their management development programmes found that the best indicator of diversity was fluency in one or more foreign languages. Those firms with high levels of language fluency were able to respond more effectively to challenging problems than those without.
Comment: This research supports other studies which found that language skills are a key component for building overall skills within organisations, and suggests that firms should look to emphasise language skills in recruitment.
A study of medium sized high growth companies in Switzerland and their approach to budgetting found that those companies that emphasised rigid controls over costs and investment while retaining a high level of free cash flow (FCF) were more successful than those that attempted to rigidly budget for all aspects of company turnover. The authors suggest that the creation of a "Treasury" function within the accounts department to hold surplus cash which is then available for investment has several beneficial effects, including an improved emphasis on project management and investment appraisal.
Comment: The move towards improved project management and investment appraisal should be central to any effective business monitoring system; the addition of a free cash flow element is also a valuable component to add to existing measurements – but it is rarely a KPI.
A survey amongst 84 German firms to identify what corporate behaviour was most damaging to the maintenance of discipline found that the failure to impose rules on senior management and less severe punishments for those considered to be "favoured" throughout the organisation were far more damaging than the lack of clear rules.
Comment: This underlines the need to ensure that corporate governance is both moral and legal throughout the organisation.
A study of a number of identical groups of college students required to brainstorm solutions to the same problems found that their proposed solutions improved as the volume of background information that they were provided with increased. The authors suggested that individuals could only effectively "think outside the box" when they knew what the box was like.
Comment: This study reinforces the view that you cannot find an answer unless you understand what the real question is.
A questionnaire delivered to 500 middle managers in 31 firms in Italy found that the vast majority were only able to provide information on the short term priorities of their work; (task prioritisation) fewer could provide information on departmental or divisional priorities (target prioritisation) and only 3% could provide information on where the emphasis of company direction lay (strategic prioritisation).
Comment: The five stage skills model (novice, advanced beginner, competent, proficient, expert) defines the expert, amongst other things as having the ability to identify what implications specific actions will have on other parts of the organisation. Unless managers are provided with this perspective a considerable amount of effort will be wasted on specific tasks and they will not acquire the knowledge to be able to balance priorities effectively.
A review of medium sized manufacturing companies in Australasia, Singapore and Malaysia for a specialist derivative brokerage found that only 28% had comprehensive hedging policies in place, though a further 18% were actively "considering" such a move with the high levels of commodity fluctuations.
Comment: The creation of an effective contingency plan should include risk reduction in high impact, high probability components.
Research in Scandinavia on firms of similar size (medium to large) operating in the same industrial/ service sectors found that those in which management encouraged an active social calendar had lower labour turnover and reported a far greater informal communication network.
Comment: Yet another bit of supporting evidence for the importance of the firm as a social as well as an economic unit. With the costs of maintaining such a programme being low, the overall benefits and economic payback to any firm encouraging this would be substantial.
Research among middle managers in 62 German companies found that only a limited percentage could identify their most profitable product and/or their most profitable customer.
Comment: Segmentation by customer and product is a key feature of contribution analysis which should be part of a marketing monitoring module. When such an exercise is carried out it is much easier to decide on investment priorities or cost cutting measures to improve overall profitability.
Research on the best timing for analysis and decision making in organisations found that two periods in the year tended to generate higher levels of concentration and commitment. The first was in the new year and the second in mid summer. The authors suggest that this links back to earlier anthropological behaviour where the new year was a time for reflection and harvest the time for review.
Comment: Most companies should operate two detailed planning periods – one for plan creation and one for update and review. Many, whatever their financial year, choose to finalise the plan in the start of the year and update it before the summer break. This common structure would appear to be optimal in the light of the research.
Research in the US found that the most valuable sources of new product development ideas were in customer satisfaction surveys and employee suggestion schemes where they were properly structured and maintained.
Comment: The creation of an SOP for new product development must include a review of idea gathering techniques – starting with the lowest cost route.
A review of 82 start up technology companies with various completion dates, revealed a clear trend of management replacement . In a good proportion of them, the planned start was delayed, with the majority seeing the departure of the CEO/CTO. The results are summarised below.
Over two years late (none identified in the survey)
Over 18 months late (11, with all CEO and CTO dismissed)
Between 12 and 18 months late (15, with some CEO and CTO dismissed)
Between 6 and 12 months late (8, with few CEO and CTO dismissed)
Between due date and 6 months late (19, with few CEO and CTO dismissed)
On time (29, with very few CEO and CTO dismissals)
Comment: The stagegate approach to new product development has many attractions in establishing clear targets for start up companies with the terms written into senior management contracts. Should these not be achieved, it is not unreasonable for the investors to insist that contract terms are implemented and that CEO/CTO should be replaced by individuals better able to manage the implementation plan.
Research on work and stress in Scandinavia found that changes in the environment could make a major contribution to stress reduction. Using volunteers with the same work load, researchers found that the levels of stress hormones were considerably lowered when individuals worked in individual offices with a background of white noise. Further minor reductions could be achieved by the appropriate colours and wall decorations.
Comment: Employee satisfaction surveys continually suggest that the open plan office is contrary to productive work – and that the returns on investment in considering employee work requirements can be considerable.
An evaluation of the value of the administrative expense ratio (AER) in 230 early start up operations found that it was a useful leading indicator of problems. In those operations where the AER consistently trended upwards there was a much higher level of failure than in those where the reverse held true.
Comment: AER levels should decline with increasing turnover. Benchmarking the AER should be part of any review system.
A UK review of budgeting systems and overall performance found that those companies which separated a core maintenance budget from that of free cash flow (FCR) performed better than those that had rigid budgeting systems.
Comment: Most SME operations must be entrepreneurial and reactive to market conditions. In such circumstances the ability to make a case to invest free cash flow in specific opportunities must lead to improvements in performance.
A German study of technology transfer in European universities found that those that had introduced a standard operating procedure (only 18% of the sample) had much higher revenue streams that those that operated on an adhoc basis.
Comment: The use of an SOP in spreading best practice within an organisation and setting clearly defined documented targets has particular revelance in the university environment.
A review of 27 past owners of medium sized operations (E5-10 million) who had successfully managed and completed a management buyout identified the problems of succession planning as being central to the smooth transition, and an area of focus that they would have spent more time on if they had to repeat the programme.
Comment: Building the management team should be central to all operational objectives – integrating the team in planning and monitoring builds wider skills and understanding throughout the organisation.
A review of the use of trading sites in 53 French medium sized manufacturing companies found very considerable difference in the level of usage. 11 companies did not use them at all; 6 just used them to dispose of surplus stock and components; 19 used them for specific but limited purchases, while 17 used them in an integrated way as part of their purchasing standard operating procedures and vendor ranking systems.
Comment: The use of trading rooms is a valuable cost cutting tool when integrated into overall policy.
Research on 31 acquisitions carried out by SME operations (between E8-15 million) found that only 2 could be considered "successful" in meeting the objectives of the acquisition. The remainder were value destructive.
Comment: Acquisition is a very high risk route even for large well resourced companies. Though the exact definition of success is hard to define in these companies, it would appear that around 75% of acquisitions are value destructive rather than constructive over a three year period – though experience of acquisition activity significantly improves the chances of success. For the SME this research provides further support for the view that organic growth is the best option and that the SME does not have the resources to manage acquisitions effectively.
A study by a software training company in Germany on initial training provided to employees found that less than 10% carried out systematic training during the induction period. Most companies concentrated on task specific software (production., logistics, financial management and the like) while general software was neglected. In the 10% of companies with systematic training, the most common structure was as follows:
Communications/ data retrieval (E-mail, video conferencing, research, Intranet)
Comment: With the growing importance of software and its key contribution to productivity, companies will find major returns in creating a standard operating procedure for induction which includes standards of performance on all key software tools including task specific programmes.
A venture capital company found that the introduction of customer specific sales targetting into business plans significantly improved the accuracy of sales forecasting in start up and early stage companies. Each key customer was identified with a three year sales forecast.
Comment: Pareto's law or the 80/20 rule is of vital importance to start up company analysis. The top scoring component in the Ibis business start up analysis is the existence of sales guarantees from clients – it is the key indicator of likely success.
Research on exit planning in France of owner managed enterprises found that the return on investment from MBO and trade sales (measured by value received divided by total investment) declined sharply once the average age of the executive directors passed 62.
Comment: Exit planning takes time. Failing to allow for this will reduce value as potential investors see more and more potential for buying the business at fire sale prices. By contrast, potential purchasers would be wise to consider the potential trade off between not proceeding immediately with a purchase, on the basis that the price might be lowered in the medium term as the owners become more and more disenchanted with the sale process.
A sales training firm reviewed sales management systems and KPI indicators in 72 medium sized Dutch and Belgian companies. They found that those that used CLV (customer life value ) as a measure had significantly higher levels of sales productivity than those that did not.
Comment: Segmentation is a key method of understanding market behaviour. Within industrial markets, the normal segmentation criteria of size, type of technology, type of operation, location, buying behaviour, and price sensitivity are useful in structuring the product/ service benefit, but fail to provide a quantifiable measure of return on capital. Using CLV provides this further analytical resource – and is also obviously very useful in international marketing development as a means of focussing investment on key potential customers.
A training firm reviewing methodologies for cost effective maintenance training in 41 SME operations in the UK, found that in-tray exercises linked with standard operating procedures were the most rapid means of ensuring that core management disciplines were maintained throughout the organisation. (An in-tray exercise is a set of hypothetical problems which the participant has to solve).
Comment: Maintenance training often receives little attention in many firms. This route provides a satisfactory mechanism for ensuring that awareness of the content of standard operating procedures is improved, and best practice transferred within the enterprise.
Research on 31 family based companies in Scandinavia found that there were substantial variations in return according to the exit policy chosen. Using a measure of discounted cash flow on gross investment, the research showed that the best option by far was a trade sale, followed by management buy in (MBI) followed by management buy out (MBO), though the differences between MBI and MBO were relatively insignificant. Worse by far was the transfer of ownership within the family.
Comment: Exit planning must include an objective assessment of what is "value" to the major shareholders and how it is to be maximised. This research suggests that the maximisation of money value will lie outside the transfer of ownership within the family.
Research in the UK on absenteeism suggests that it is a valuable KPI (key performance indicator). Rising levels of absenteeism were a future indicator of lowering productivity, increasing disciplinary activity, and higher rates of labour turnover.
Comment: This KPI would appear to be a very valuable addition to personnel monitoring as once morale within the enterprise is significantly lowered it is very difficult to reverse.
A study on the quality of decision making in various groups found that family based groups achieved some of the lowest scores. The highest scores were obtained within those groups that had been allowed to recruit within a set pool of talent for problem solving.
Comment: This research has interesting implications for family firms. It supports anecdotal evidence that growth and development of family based firms is often restricted by the structure of the management team that recruits from the family and not by setting objective standards for bringing in individuals that have a variety of skills and backgrounds
Research conducted on 58 SME operations in France and Spain found that less than 10% were able to clearly describe their strategy. The majority comments were concerned with "profitable serving of customer base" and "sales and profit growth" without the creation of clear targets in either case.
Comment: When the business concentrates on trying to establish a "golden circle" strategy of a combination of market penetration ( selling more to existing customers), market development (selling to new customers existing products) and product development (selling new products to the existing and new customer base), the revenue streams for the business become clearly established and create easily managed objectives.
A doctoral thesis reviewed the validity of diffusion theory within the SME process control industry in the UK, Eire, and Scandinavia. The research first identified those companies that were considered by their competitors "innovators", or "early adopters". These companies were then analysed in an attempt to define the differences in behaviour between the two groups. The main differences were found to be:
- A substantially higher level of decentralisation of authority and responsibility within the organisation;
- An overall higher level of skills;
- A formalised system of analysing product or service purchases (often including investment appraisal systems with payback calculations)
The research also found that innovators and early adopters had, as might be expected a higher level of "new buy" – from the traditional pattern of a high emphasis on repeat buy and modified repeat buy, characteristic of the late adopters and laggards.
Comment: Building a core competence as an innovator within a particular sector is an increasingly important method of gaining competitive advantage. This research shows that the mechanisms by which an enterprise creates "inward" innovation have substantial similarities to "outward" innovation – that is creating new products and services for the company customer base.
Research on the effectiveness of new product development within a large engineering company found that a structured approach to the comparison of the early product review with key customers and the eventual sales outcome substantially improved the accuracy of sales forecasting. The company has now added this to the standard operating procedure for new product development.
Comment: Post project reviews are essential for improving rates of success and learning from failure. This is one area where standard operating procedures can provide the developing company with substantial assistance.
A review of management styles and performance criteria within the European optical industry found that those companies with "democratic" management styles substantially outperformed the two other classical management style definitions – bureaucratic and authoritarian. Bureaucratic management styles were found to have the worst returns.
Comment: Company development, particularly in areas of high technology, requires the creation and maintenance of effective teams, coupled with good decision making. This is most easily and rapidly achieved with an inclusive rather than exclusive management style.
A review of 162 medium to high energy intensive SME in Europe by an energy consultancy found that only 54% had created detailed contingency plans for rising energy prices. Within the group that had created such plans, only a small percentage had carried out a step by step analysis of what actions should be taken should energy prices further escalate.
Comment: The concept of the graduated response is crucial to effective contingency planning. Companies should review the actions that should be taken in response to ever increasing levels of problems, particularly in key high probability and high impact events, such as rising energy prices in energy intensive operations.
Recent research on pricing has produced a clear methodology for creating a "best" pricing approach, based on that of the current market leader. This is based on a step by step approach which includes:
- A market discount rate for market share – lowest for strong competitors and highest for weak;
- a discount rate for the length of market presence – new products have high rates of risk which needs to be reflected in the price;
- A discount or premium for quality;
- A discount or premium for share of advertising and promotion in the market.
The research has applied this approach to a range of consumer and industrial goods markets, and found that new entrants into markets are slower than the model suggests in raising prices and thereby fail to generate confidence in their products or services.
Comment: This pricing methodology is extremely useful for any company in creating a target price against which plans can initially be built – though strategic and tax considerations may then have to be integrated.
Research in the European Union on SME distribution methods used for industrial products and services international expansion found that those enterprises that used direct sale methods (either selling from home or establishing sales offices) in their international markets had higher rates of growth, though not always higher levels of profitability.
Comment: The choice of distribution methods should be heavily influenced by the growing market concentration and the need to provide higher levels of service support for an increasingly sophisticated clientele. This suggests that direct approaches rather than using intermediaries should be the exception rather than the rule.
A recruitment company evaluated the comparable output of 58 companies, half of which had used formal recruitment, appraisal, motivation and training methodologies over the previous 8 years and half of which had not. Those companies using formal methodologies had:
- Substantially reduced labour turnovers;
- Higher levels of productivity;
- Higher rates of growth
Comment: The creation and maintenance of standard operating procedures (SOP's) in key personnel functions should be one of the earliest introduced into the growing company. They work and generate highly effective returns.
A European incubator has developed a summary methodology for its monitoring team which creates a "thermometer" measurement for each of the firms in which it has invested. The measurement is a subjective value of the various elements of the business – finance, marketing, production, new product development on a 1 to 10 scale with 1 indicating few problems, and 10 serious and immediate problems. The overall score then provides a trend measurement on a month by month basis. The company has found that early identification of rising "temperatures" significantly reduces failure rates.
Comment: This is an interesting approach to combining monitoring module output into an overall score which can provide an early warning system of developing problems.
An analysis of skills levels within user companies by a European logistics software found that those companies which invested heavily in induction training had a much higher effective usage of software systems and were much more productive.
Comment: The increasing importance and complexity of IT systems in most organisations has the implication that "on the job" training will be slow, cumbersome and likely to create inefficient and ineffective use of software. Increasing the emphasis on induction training with clear objectives and outputs will do much to improve employee effectiveness.
Research by a catering supplier looked at a sample of 82 manufacturing and service firms of similar size and operational characteristics, one group of which provided a canteen and the other did not. Those firms with canteens that provided a "full service" – defined as those canteens that were open throughout the working day/ night – had:
- Significantly lower staff turnovers than those without;
- Slightly lower rates of absenteeism;
- Higher rates of productivity;
- Slightly lower rates of staff illness
- Significantly lower rates of disciplinary problems.
Comment: The role of the enterprise as a social, as well as economic unit, continues to be emphasised by this and other research. Employee satisfaction surveys continually rate a good canteen (as well as a creche) as the two most sought after benefits.
A doctoral thesis on the impact of planning on organisations studied 162 companies with turnovers between 3 million and 10 million euros. The study, amongst other aspects of company behaviour looked at the rigidity of planning from unplanned to the extreme of detailed budgeting and control; management styles, employee involvement in the creation and maintenance of the plan, and overall levels of employee satisfaction. The research found that employee satisfaction rose with improved planning up to a point, and then fell as the planning was regarded as more and more control orientated. There was a strong correlation with management styles, with poorly planned organisations demonstrating an emphasis of authoritarian styles (summarised as chaos, control and conflict by the author), while bureaucratic styles were most often found in rigidly planned enterprises. Involvement in the development and maintenance of plans was also strongly linked to employee satisfaction.
Comment: A popular term in management is empowerment. This study yet again illustrates that where the organisation pays more than lip service to the concept it can generate a significantly higher level of employee satisfaction. With the increasing pressure on firms to involve their workforces – the new EU directive is an example – it makes sense to control rather than react to such legislative pressures.
A study of 75 SME's in Scandinavia reviewed the use of outsourcing in information technology management and its potential effects on information security. They found that those companies which totally outsourced had poorer security procedures than those that had developed specific skills in-house. The worst security was found in those companies that had no specific policy towards the creation and maintenance of information security.
Comment: With the growing reliance that most companies have on digitally maintained data systems, security should be seen as a central part of the management of this key aspect of competitive advantage. Those companies that appoint and develop staff to provide central support in this area appear to be much better placed than others. It is another example of potential problems that can occur with outsourcing unless properly planned – does the outsourcing make the company vulnerable? Does in meet the quality control requirements? Does in provide the necessary flexibility? In many cases the answer in respect of data security will be a resounding NO.
A review of over 1500 employment histories in the Netherlands and Belgium found a striking correlation between how and when the employee was recruited and their length of time in the company. Those individuals recruited from school, or at the beginning (and part) of their technical training, were far less likely to leave their companies than those that were recruited from the existing labour market. The survey also found that recruitment costs were much lower for these individuals, and that induction costs were also lower. There was anecdotal evidence that other training costs were also reduced.
Comment: This is further supporting evidence for the role of the firm in the community. Early recruitment and development builds loyalty and involvement, and employees with links in the community are also less likely to leave and take their valuable skills with them. There is research suggesting that most employees will fall into one of three categories – the "local" (very unwilling to move from the area/ industry), the "gypsy" (individuals with a wanderlust), and the "career minded" (those that will follow career openings, which may involve movement away from the local area, but not if the opportunities exist within the firm or the area). The firm that plans its recruitment and promotion policies can maximise the returns from two out of the three groups – the gypsy is always difficult to manage.
Ibis has introduced the concept of an "ideas day" into a number of their client base. This consists of 8 half hour presentations, followed by questions, either from within the company or from outside, on any topic that the firm considers would improve operational efficiency. One day every three months provides companies with the opportunity to expose staff to new thinking and new operational approaches across a wide range of topics. It has proved successful providing a clearly defined standard operating procedure is followed.
Comment: All firms and groups suffer from becoming subjective – looking at the individual trees rather than from time to time standing outside and looking at the wood. Ibis monitoring modules help to create a more objective atmosphere, especially when linked with benchmarks. The ideas day is a further component in this review process.
A review of employee perceptions of formal appraisal systems found that most long term employees (87%) found that they were either "of no use" or of "limited use". More (91%) agreed with the statement that appraisal was a management tool to gain extra productivity from the employee rather than as a joint system for improving overall performance.
Comment: Appraisal systems should be regularly reviewed to ensure that they are adding to corporate performance rather than distracting from it. The theory is fine – but sadly the systems tend to become rapidly institutionalised.
A review of the understanding of the balanced scorecard concept amongst middle to senior management attending external courses at two training colleges found little understanding and even more limited application of the idea within the respective companies.
Comment: The balanced scorecard is a valuable concept, but must be translated and communicated within the organisation. It is one of a series of findings that both management and staff are normally unclear about the goals and objectives of the organisation.
Research in France, Belgium and the Netherlands in companies with turnovers between 15 and 50 million euros regularly using teams for project development and commercialisation found a significant difference between satisfaction rates according to the method used for team development. Those companies with a standard operating procedure were either "highly satisfied" or "satisfied" with the outcome of their investments in 72% of cases – compared with 39% of those without such a standard procedure.
Comment: The use of a standard operating procedure for team development focusses companies on using a step by step recruitment system for team creation rather than an ad-hoc approach which often creates sub-optimal solutions.
An analysis of 85 start up high technology companies established in Italian and Spanish venture parks found a significant difference in returns between those in which the founder was replaced as the CEO and those in which the founder was the leader of the commercialisation team. The study using CFROI (Cash Flow Return on Investment) as their main measure found a 37% difference between the two groups.
Comment: The suitability of the founder/ IP holder to drive commercialisation has often been debated. Founders tend to have a research bias (rather than action orientation), be unrealistic about the problems and opportunities, have poor people skills, and tend to have unclear perceptions about the market offering. This study suggests that on first principles that the founder should be replaced unless it is overwhelmingly clear that they have the necessary expertise to be in charge of the commercialisation phase.
An analysis of 67 SME's in the UK found that none were able to use the concept of core competence to set quantifiable goals within the enterprise. Core competence was seen to have value as a general tool in identifying overall competences that were required to develop competitive advantage, but had little specific application.
Comment: Ibis has found that customer satisfaction analysis generates quantifiable measures of core competence as it enables enterprises to identify specific strengths and weaknesses and drive improvements of competitive advantage. By contrast core competence is an inward looking technique.
A survey of the rate of innovation and share prices across quoted high technology companies in the US found a strong relationship with share price; the greater the rate of npd, the more the company was valued.
Comment: Research on new product development has typically failed to find a link between rates of innovation and company profitability, but a strong relationship between npd and growth rates. The stock market is typically valuing forward cash flow – generated by new product development, so this research is consistent. All Ibis work supports the view that npd must be driven as a key company objective – it does not happen by itself.
A large survey of the French workforce found that 69% valued working conditions (including team behaviour and management attitudes) more highly than their rate of pay.
Comment: This is further supporting evidence of the importance of the social component in the development of the enterprise, which management often ignores.
A review of the use of investment appraisal techniques in SME operations in Germany, the Netherlands and Belgium found that those companies using them for the development and management of the business plan had a significantly higher rate of return on capital than those that did not – typically returns were 35-45% higher.
Comment: The discipline of investment appraisal forces management to analyse the prospects for alternative expenditure. In Ibis experience it tends to focus investment on improvements in productivity and conservative international and product development policies
Research by energy efficiency consultants in SME manufacturing and service industries in Spain and Italy found that when specific individuals were given the authority and responsibility of reviewing all enterprise activities with the objective of reducing energy consumption (both internal and external) that energy costs could be lowered by an average of 32% over a two year period at the same level of output. The consultants identified over 120 different energy saving initiatives that had been introduced in their target companies.
Comment: With the growing cost of energy, specific cost cutting programmes dedicated to this are increasingly relevant. An Ibis study suggests that rotating managers through cost cutting analysis provides high levels of return (see below).
A study by a supplier of CRM software found that only a small proportion of the companies that had purchased the system were using it effectively. A substantial proportion of the 68 companies studied had not:
- Changed the initial default values of the system even after two years;
- Created a formal methodology to review and take action on the information;
- Analysed the information regularly;
- Integrated the software into company-wide training.
Comment: Business monitoring demands a combination of structure, systems and data all of which need to be well integrated to be effective. The introduction of any new methodology should be planned prior to purchase to ensure that it will fit into the decision framework.
156 venture capital managers returned a questionnaire in the US concerning the funding of SME start up and second/third tier capital provision. In it, they were asked to rank the importance of various presentational elements that the researchers thought were important in improving the chances of detailed review and analysis. The most important elements identified were:
The plan had been sent to the right individual in the organisation who had already been contacted by the company;
- A focused and interesting summary of what the venture capital provider could gain from their investment (management summary/ investment case);
- A well organised management team;
- The plan provided in hard copy format and well laid out;
- A professional web site which clearly laid out the function of the organisation with easy navigation;
- The inclusion of a DVD which illustrated the strengths of the company and its opportunities.
Comment: Anecdotal evidence suggests that the average VC manager spends around 15 minutes on each plan that they receive – which underlines why first impressions are becoming more and more important in a competitive funding environment.
Research on 93 US companies with turnovers between $5 and $15 million found that few carried out anywhere near comprehensive competitive analysis. The researchers looked at fifteen areas of competitive analysis, and found that only in one case did analysis exceed 50% of the sample. Much of what was carried out was informal and ad hoc. The range of issues that were considered important to the researchers included:
- Whether there was an analysis of competitive financials (carried out in 19% of cases);
- Whether there was an analysis of competitive new product development (29%);
- Whether there was an analysis of other competitive operating KPI (12%);
- Whether the company used employees or outside specialists as "mystery shoppers" (9%);
- Whether the company kept catalogues and/or analysis of competitive product ranges (64%);
- Whether the company analysed competitive pricing, discounts and finance (37%);
- Whether the company carried out regular product or service delivery analysis (13%);
- Whether the company analysed market segmentation and the strengths and weaknesses of competition in each of the segments (18%);
- Whether the company measured growth against market and market share of competitors (7%);
- Whether the company included in its customer satisfaction survey a comparison of key competitors (3%).
Comment: Competitive analysis is vital to product development and keeping customers. Monitoring competitive performance is a standard element of Ibis services, and enables the enterprise to build on strengths and eliminate weaknesses. We would take the view that unless the enterprise has a clear idea of the competition and the structure of the market it cannot think strategically or realistically add value to its products and services, thereby gaining competitive advantage.
A survey by a firm providing easy-to-use multimedia software in Europe found that the effectiveness of training was significantly increased by the filming and editing of the training event. This was particularly useful in specific areas such as:
- The installation of new equipment where specialist staff from the manufacturer provided on-site training;
- The ability to record and retain expertise of staff close to retirement;
- The filming and editing of on-site training in management techniques;
- The creation of role-playing examples in key standard operating procedures, where staff provided examples of best practice.
Such material could be used for all three categories of training – induction, maintenance and development. Many of the companies studied were able to build up libraries of material which were available to all staff to use either at their workplace or to take home to use on their own computers.
Comment: Finding cost effective training solutions is always a problem. This technique appears to offer many advantages and few drawbacks – apart from the need to develop expertise within the enterprise in using the technology and editing the material.
Customer satisfaction techniques can provide valuable insights into internal operations. Spanish research looked at the problems that employees perceived in enterprises of between 100 and 200 employees. The most serious were:
- Lack of information on company progress (77% reporting dissatisfaction or serious dissatisfaction);
- Lack of ability to share in company profits (69%);
- Lack of control over work (64%);
- Lack of career development and training (62%);
- Lack of concern and loyalty towards staff from management (61%)
- Lack of recognition of value of work (60%).
The research found that as the firm increased in size within the sample, the acuteness of the problem grew.
Comment: This information is also generated through 360 appraisal techniques. It supports the common finding that as enterprises grow in size, the level of so-called "alienation" increases. Management need to plan to deal with this problem through improved communication and integration, while realising that the firm is a social as well as an economic organisation.
An analysis of two years' results of a middle management course by a European business school found that only 21 percent of managers set a simple project management exercise could establish the critical path and provide an estimate of the likely project variances from the detailed data provided.
Comment: Project management techniques and understanding are one of the cornerstones of effective planning. Creating a standard operating procedure for all projects – which includes presentation and control will substantially improve the ability of the organisation to achieve higher levels of return and more effective monitoring.
A study in Scandinavia of French and German firms found that those that had formal monitoring systems (such as quality circles) built into the reporting systems of the enterprise had a significantly higher level of job satisfaction than similar firms without the such systems.
Comment: Improving internal monitoring has several effects within the organisation. It makes it more aware of what minor changes can be made to enhance productivity and quality; it enhances decision making, improves communication and contributes to the development of teams. This finding supports other similar research on this page.
A research study in Finland separated staff of a range of manufacturing and service companies into two clearly defined groups – "inward" and "outward" looking. Inward looking staff were task driven, reactive and showed little interest in the context of the work – outward looking staff by contrast were most concerned about work rationales and the linkage with other areas of enterprise operation. The research found that those companies with a higher proportion of outward looking employees had higher growth rates, higher overall skills levels and lower employee turnover.
Comment: Planning for development requires considerable emphasis to be put on personnel skills and qualities. Looking at attitudes during recruitment – which this survey suggests is important – obviously makes sense, but it is always important to ensure that the organisation has task driven individuals.
860 employees of 36 Australian and New Zealand companies were asked to comment on what was the most useful training that they had received over the past ten years. The ranking provided was consistent across all employee types and organisations:
- Training leading to formal qualifications;
- Short term in-house training on specific topics;
- Internet based training on specific topics;
- External training courses on specific topics;
- Team building exercises.
Comment: This research supports the trend towards more in-house and greater use of Internet training material that is reported in the literature. It has important implications for training needs analysis and development of maintenance and development training programmes.
Research in US/ Canadian 185 SMEs found that there was a strong link between senior management pay and corporate performance, measured on cumulative cash flow on investment (CFROI) over a five year period. The companies investigated had starting sales of between $50 and $280 million.
The researchers separated senior executive pay into five bands based on the ratio of the average remuneration of skilled labour in the sector, including share options and other benefits:
- 1-5 times;
- 6-10 times;
- 10-15 times;
- 16-20 times;
- 21 times +
The study found that there was little correlation between performance and executive pay which fell into the first two categories (1-10 times the average skilled worker pay), but that was an increasing negative correlation between cash flow generation and pay levels in the remaining three categories. The authors suggest that as executive pay increases in relation to that of the skilled employee a growing emphasis is placed on short term performance rather than long term development, and that the senior management team become increasingly divorced from the reality of the majority of their workforce.
Comment: This research is the start of the attempt to define "realistic" pay levels for senior executives. It is striking how much variation there is on a country by country basis – with little reflection in overall performance. This finding supports other research that suggests that the ceiling for profitability is likely to be a multiple of the low teens. It has implications for investors in the SME sector, and may have relevance for larger companies.
Research in the European Union found that the number of companies employing specific "knowledge management" staff had declined by over 60% in five years. The 73 companies investigated commonly reported an inability to implement knowledge management concepts. Most found that knowledge management had tended to increase the flow of data rather than focus management information systems into those areas which staff could use and influence; that knowledge management implementation lacked specific and measurable objectives (i.e. that all knowledge was a "good thing"); that there were poor links with the management of the decision making processes, and that the organisation of knowledge management was more top down rather than bottom up.
Comment: An MIS needs to deliver accurate (specific), useful, and timely data. This demands an approach that understands the requirements of operational departments rather than one that overloads the system. The Ibis approach of introducing specific monitoring modules with quantifiable data which can be influenced within the operational team, and linking these teams into a decision making system is a pragmatic and flexible way to build knowledge management into the organisation, rather than relying on centralised data flows.
Research into business failure in the US of 37 companies with turnovers between $5 and 10 million found that very few (4) attempted to create a formal (or informal) survival plan prior to their collapse, and only 5 changed management in an attempt to redress the underlying problems. The research found that where companies asked for advice they tended to turn to their accountants; few involved other stakeholders. The authors contrasted these failures with analysis of a further 24 companies that had recovered – of these 21 had developed a survival plan, many of which involved management changes the close involvement of stakeholders. The involvement of the widest range of stakeholders appeared to be a fundamental difference between survival and recovery businesses and failed businesses, with the inability to effectively deal with the causes of the problem.
Comment: This survey supports other findings that companies in trouble need a detailed plan to assist their survival and recovery. It suggests that stakeholders should perhaps take a more active role in developing the plan and monitoring its progress.
A European investment group found that over a three year period that supporting the sales and project management function within technology start ups significantly improved both the overall level and rate of return. The group installed a specialist project manager and sales manager with specific expertise in the sector in 60% of their investments, and in two cases a project risk manager as well. Even in the depressed market conditions of recent years, they found that the returns in the "controlled" group far outweighed the "uncontrolled" group, even when taking the costs of additional staff into account.
Comment: This supports the view held by the companies themselves that money is only part of the need for start up companies, that tend to have limited management depth.
German research on awareness of corporate governance found low levels of awareness in all three countries studied – France, Germany and the Netherlands. Using as a basis the OECD guidelines on corporate governance, the study found that corporate governance was overwhelmingly associated with the way in which the board of directors should conduct internal discussions and decisions. There was limited understanding of the need for corporate governance to cover the entire range of stakeholder relations. For example, less that 20% of the respondents were aware of the employee dimension to corporate governance.
Comment: The analysis of a business using the entire range of corporate governance issues provides a valuable "health check" in assessing the depth of integration of stakeholder requirements with company operations and information flow. It can be seen, like contingency planning, as a valuable method of reviewing a wide range of company policies, as they both provide an integrating function within corporate planning.
Research by a Far Eastern security firm in Europe and the United States found that less than 1% of their SME sample of 832 firms had a fully comprehensive contingency plan. Almost all stated that they met legal requirements for employee safety (the authors suggested that this was unlikely in reality) and had some method of maintaining data and data security. Outside these areas there was only limited planning and involvement of staff. Of particular areas to the authors were limited financial controls and dangerously exposed Internet systems. Few had effective contingency plans for either customers or suppliers.
Comment: The development of a comprehensive contingency plan has several very useful components. First is an exercise in risk reduction, attempting to design out failure points in the system; second is the review of the information system to identify whether failure can be identified early and accurately enough to take appropriate action; third is the creation of standard operating procedures to deal with the specific problem or problems, and finally the training and integration of key staff.
Research carried out in three European countries (France, the Netherlands, UK) reviewed the difficulties that different sectors have in achieving high levels of customer satisfaction. The research suggested that it was in complex service areas that the greatest difficulties existed – specifically in hotels and architect practices. This was in the authors' view compounded by the fact that in both of these sectors the overall difference between the initial service expectations and the service outcome was greatest. Simple consumer products such as tinned food were the most simple to achieve high levels of customer satisfaction; as might be expected more complex consumer durables were more difficult to manage.
Comment: Customer satisfaction levels are a key Ibis planning objective. All research supports the view that long run customer satisfaction is linked with profitability – but defining exactly the correct components of the customer satisfaction survey remain a problem that requires detailed and continuing review of both the company operation and competitive performance.
Cost management has become more and more important for the majority of medium sized enterprises as they struggle to remain competitive. The problem with cost management is that it, like logistic management, cuts across many traditional company boundaries. An Ibis project run in three companies with turnovers in excess of 5 million euros, has seen the appointment of existing management on six month rotation specifically with the role to investigate costs within the organisation and present project plans with paybacks and detailed implementation. This type of project management appointment has to date worked well; managers from specific disciplines learn about other areas of the company and how to develop and manage projects with returns averaging many multiples of the salary cost. The returns continue to grow as a central pool of knowledge is created within the company of potential cost saving measures that can be implemented over time. This central knowledge base is more difficult to create when based on a departmental system, as many of the measures cut across departmental barriers.
Comment: This method enables companies to build cost cutting expertise without expensive recruitment and integration costs; it improves employee expertise in project management and overall company understanding; it builds knowledge of new cost cutting techniques over time.
German research on 27 companies separated into two groups; low technology and high technology. The research investigated the total level of training for each company and how the training was split between the three main areas: induction, maintenance and development. It also collected information on labour turnover and profitability measures against industry norms. The link between overall training levels and long run profitability that has been found in other research was confirmed again by this research, but there were significant differences in the pattern of training investment by company type and levels of return. Low technology companies appeared to show the greatest returns in biasing the training towards maintenance; induction spending seemed to have little effect on operating criteria. By contrast, detailed induction programmes had very significant effects in high technology companies, and higher levels of investment in development training was also shown to be effective.
Comment: Detailed analysis of the returns from training programmes should be incorporated into this activity as all others
41 different venture capital managers in the US were asked to rank problems that they had encountered with CEOs and senior managers in the 582 investments that they had been responsible for over the last ten years, and to define the types of character traits that they considered most damaging for the long term profitability and levels of return that the investment had achieved. Not surprisingly, dishonesty ranked as the most important criteria, but there were seven other factors considered as important. The ranking in order of importance was as follows:
- Lack of objectivity
- Lack of relevant technical skills
Comment: This ranking provides some interesting thoughts for the investor and advisor to start up operations – how does the senior management team rank on these criteria?
Research in the US found a strong negative link between the level of fringe benefits provided to executives and medium term performance; the more fringe benefits that existed, the worse the relative performance. The author of the study suggested that fringe benefits emphasised status within an organisation; they consumed time that could be better spent on productive work, and they often considerably raised the cost base of the organisation.
Comment: The AER (administration expense ratio) is one of the most useful monitoring elements in the Ibis financial monitoring module. In general terms it should decline as the organisation grows; poor benchmark positioning and a deteriorating ratio provide early evidence of actions that need to be taken. Investors should also insist on clean contracts of employment in start up operations and where options are involved that they are fully accounted for within the balance sheet.
Research in the US based on 231 corporations separated those with current business plans and those without. The survey then analysed the main reasons for the differences asking a series of questions on whether the companies strongly agreed with particular statements.
- In those companies without business plans, the main areas of agreement were (multiple responses were possible so overall scores do not add up to 100):
- We cannot use the results in the day to day running of the business (88%)
- No-one currently requires one (84%)
- Creates too much detail (76%)
- Staff unskilled in plan preparation (72%)
- Will reduce decision making speed (63%)
- Causes difficulty with management style (59%)
- Would have to change information systems (41%)
- In those companies with business plans, the main areas of agreement were
- Vital for resource allocation (91%)
- Vital for competitive analysis and strategic choice (87%)
- Important for identifying incremental change (74%)
- Improves stakeholder relations (62%)
- Good for employee training (39%)
Comment: This research and others indicates that whether or not a business plan is initiated and used is very much down to the perceptions of its value amongst senior management. Investors should perhaps review whether a particular company is likely to be "business plan friendly" or not as one of their investment criteria.
Research in Eire on what the best routes for building shared values within the organisation carried out a review of 1250 employees in 58 SME. Employees were asked to rank the value of various personal or company initiatives in order of importance. The overall ranking produced was:
- Lunchtime socialising
- Team work including projects, plan development and monitoring
- In house training sessions
- Evening socialising
- Company parties
- Out of office team building exercises
Comment: The high ranking of team work in projects and plan management underlines one of the substantial values of business plan development and management within the organisation.
1900 advisers on small business were asked to define the main reasons for small business failure in Canada in 2003. The most important reasons given were:
- Too much debt 28%
- Inadequate leadership 17%
- Poor planning 14%
- Failure to change 11%
- Inexperienced management 9%
- Not enough revenue 8%
Comment: For the business advisor, this analysis underlines the need to review key critical success factors in the small business. Yet again it emphasises the need to apply a different set of criteria to start up businesses than those used for established operations – cash flow (the most highly scoring component of the Ibis start up model), organisational skills, and implementation requirements.
Detailed research on 360 decisions the success of which could be clearly identified and tracked over a two year period, suggest that the majority of businesses are applying non-optimal decision making processes. The author separated the decision making options into four alternatives:
- Intervention, which involves the analysis of the problem in relation to what is feasible and the creation of new joint targets;
- Participation, which involves the setting of joint targets through compromise without a detailed reality check;
- Persuasion, which involves management setting new targets without detailed compromise;
- Edict, which sets targets through bureaucratic diktat.
- The most commonly used decision making system, edict, had the lowest rate of success, while intervention, the least used had the highest.
- Edict was used around 50% of the time with a success rate of 37%;
- Persuasion used in 30% of the cases with a success rate of 50%;
- Participation used in around 13% of the cases with a success rate of 80%;
- Intervention used in only 8% of the cases with a success rate of 90%.
Comment: The Ibis monitoring system concentrates (almost entirely) on the intervention model, by defining the key performance indicators, establishing current, benchmark and target levels of achievement. This research supports the clear value of the monitoring methodology.
Canadian research asked successful entrepreneurs to rate the most important qualities in the start up phase of a company.
- 44 per cent rated determination as the most important characteristic;
- 17 per cent love of risk;
- 12 per cent rated leadership;
- 10 per cent rated quality of personality;
- 10 per cent rated love of success;
- and 6 per cent creativity.
The researchers also asked what was the prime motive for starting the business.
- 17 per cent decided that they could seize an opportunity;
- 13 per cent decided on the grounds of need for personal achievement;
- 27 per cent decided on the grounds of either independence, maximising skills or fulfilling a dream;
- 3 per cent decided on the grounds of making a lot of money
Conclusion: This research, as with many other similar analyses, finds that financial returns whilst important, do not rank as highly as other personal goals in start up operations
Large scale research in the US looked at the relationship between the founding group of a start up business and its rate of profit growth. The survey, based on 389 firms that had approached a leading regional bank for finance, provides support for the standard view that a team has far greater chances of success than the individual. The more detailed analysis suggests that the optimum pool for the start up should consist of at least four individuals – marketing and sales, production, finance, operations who should be able to answer the following questions:
- Is there a market out there and can we sell it? – marketing and sales;
- Can we get it to work as a product or service? – production;
- Will we make money from it? – finance;
- Does the whole organisation hold together? – operations.
Very few of the successful companies when interviewed in detail had formed their skilled group from internal contacts; they had gone out to adviser networks to gain access to the additional skills that they lacked. In many cases these additional skills were incorporated in the form of detailed mentoring, with actual time on site limited on a monthly basis.
Conclusion: This research further supports the perspective that the start up company faces structural problems which can be significantly reduced by the right blend of skills, and the creation of this effective team is a priority. It also assists the investor in identifying the minimum mix of skills that should be present in the start up plan.
A survey in France looked at the role of outsourcing in 76 SME's involved in software development, and what it did or did not achieve. 92% of the companies reported "significant problems" with their first major outsourcing contract, which reduced to 25% by the third. The most common problems encountered were:
- Lack of clear development brief
- Poor contracts
- Lack of systems integration between supplier and SME
- Lack of staff expertise in managing outside development work
- Effect on core competence
- Problems with quality control
- Demotivation of staff leading to higher staff turnover.
Conclusion: Significant levels of outsourcing have major implications for the operational performance of the firm. Any organisation considering them must evaluate all the potential impacts, rather than those focused on cost.
A study in the UK looked at the productivity gains through the introduction of software systems such as e-commerce platforms (such as Oracle), shared project platforms (such as Lotus Domino), project management, risk management, and demand forecasting systems, CAD, found that only a small proportion of the relevant staff were using the systems and even then not to their full potential. When the training policies of the firms were linked with the level of utilisation it was found that those companies that planned for the introduction of software showed a much higher level of utilisation; those that incorporated software training into induction and maintenance training programmes had even higher levels of effectiveness. Those firms which had incorporated these demands into standard operating procedures for recruitment and training were achieving a much higher rate of return on their investment
Conclusion: Project planning for software introduction must include a detailed appraisal of training demands; standard operating procedures for recruitment and training need to incorporate planning for productivity.
Objective setting is one of the most difficult tasks facing the business planner. Research in Germany found that profit and customer based targets were most effective in gaining employee acceptance; sales led or market share targets were the least. Conservative target setting was also more effective than aggressive; with a maximum acceptability at around a 6-8 per cent improvement in operating performance for each criteria. Both lower and higher rates of target setting were seen as less acceptable. Lower targets were seen as the firm lacking ambition and not trying to progress; higher targets were too ambitious and de-motivating.
Conclusion: This research supports a balanced scorecard approach with an emphasis on profit and quality coupled with realistic improvement targets.
A survey in France underlined the value of considering locally based equity funding as an option for the growing SME. Almost all the firms investigated stated that the advantages of the route outweighed the disadvantages. The most important advantages were seen as the low cost of finance; the increased local network access that the funding provided, and the ability to use the network for future funding requirements. The main disadvantages were seen to be the need to improve corporate governance; the need to become more transparent and open in financial statements, the need to establish a dividend policy, and the effort involved in creating the local funding network.
Conclusion: Part of the development of an effective plan for the SME must involve the consideration of all possible funding routes to gain access to new capital on the best terms.
Research on the effectiveness of the standard budgeting process has identified it as often a major barrier to corporate development. The analysis concluded that rigid central budgeting had significant deleterious effects on the ability of the company to manage emergent strategies (particularly relevant for the SME), motivation within the company, the standard of corporate governance, and the ability to decentralise decision making processes.
Conclusion: The Ibis system of monitoring modules addresses this key budgeting dilemma, by achieving far greater control through decentralised decision making systems, greater co-ordination across functional areas within the company, and develops a supervisory team which incorporates best practice in corporate governance
Research in the United States on the development of sophisticated planning systems (ERP, SCM, MRP) within 55 companies found a similar pattern to earlier research on sophisticated manufacturing systems such as JIT with only a small percentage of companies reporting a fully effective implementation of the systems.
15% of companies reported that they were "fully satisfied with the implementation;
38% reported that they were "moving towards effective implementation"
21% reported "major problems with implementation"
- 26% reported that they were "completing a review of the operational effectiveness of the technology"
The research analysed the differences in operating characteristics between the best and worst case companies. It found these four characteristics most clearly separated the successful from the unsuccessful:
1. The existence of a culture of project management in the successful group
2. A significantly higher level of overall skills within the successful group
3. A history of cross-department participation in company monitoring and project development within the successful group
4. Far fewer operational sites within the successful group than the unsuccessful
Conclusion: The creation of a coherent knowledge management environment within the growing organisation would appear to be a very important component of being able to successfully incorporate sophisticated planning tools.
Research on over 400 start up operations in the US identified the most and least likely qualities for success.
Prior experience of profit and loss management was identified as most important Prior experience of detailed project management was also a key influence in potential success Career path was less important, but the best background was in engineering, followed by operational/ financial, followed by marketing, sales, legal and finally research or science.
The best combination was an engineer with P&L and project management expertise; the worst was a scientist with no P&L or project management background.
Conclusion: The vital elements of a start-up business, implementation, market acceptance and product advantage can most effectively be developed by an individual with the necessary skills set. It underlines the dangers and risks of spin-outs led by individuals without the necessary experience.
French research studied 1376 managers in high technology companies over a three year period to attempt to identify what components of company structure and organisation they regarded as most beneficial to achieving high levels of growth. The survey created a ranking system which identified linkage of earnings with effort as the most important factor; but closely followed by non-compensation components.
Companies which met the majority of the top 7 employee requirements had much higher levels of employee retention as might be expected. They also grew more quickly than companies with lower levels of achievement.
Profit share linked to personal effort not company position 100 Involvement in company planning 95
Access to complete information on company progress 92
High level of control over work direction 87
Pleasant working environment 83
Good working relationships with colleagues 77
Work variety 77
Conclusion: The ability to integrate management into the organisation of the company through combined planning and work direction is shown as having a considerable impact on the viability of the company and its ability to progress more rapidly than its competitors.
Research on 246 senior decision makers found that there were clear categories of "overestimated and "underestimated" factors in evaluating project viability.
Often overestimated were the value of using past examples to the predict the future; the value of hard numbers and numerical forecasts; any information confirming prior beliefs; the short term impact of an action; vivid scenarios relating to hopes and fears.
Often underestimated were potential changes to the competitive landscape; personal and social factors related to the decision; any information opposing prior beliefs; the long term impact of an action; tables and statistics.
Conclusion: Structured approaches to risk management in the development and management – best practice in business planning – is only part of the problem in getting the plan accepted. Understanding the demands of the stage of business development, and emphasised by this research, the requirements of the audience are also vital elements. Risk reduction strategies must include these components.
Research on the transition from start up/ early stage to established companies, found that longer term survival potential could be explained in terms of a "business platform" which when achieved, created the longer term foundations for the business. The eight components of this platform and the minimum levels of achievement are:
Formulation and clarification of the business idea – must be clear both internally and externally
Viable product or service – the product service offering must be accepted by key customers in the market and shown to have value
Definition of market – the firm must be operating in a viable market for long term survival
Development of organisational framework – the firm must be capable of achieving effective internal co-ordination and external relations
Core group expertise – the availability of expertise to develop products/ services and market relations
Commitment of key staff – the active involvement of key individuals in achieving the business goals
Customer relations – the creation of an effective customer base
Networking – the development of effective links with suppliers of information, finance and assistance
Conclusion: The business platform concept is valuable in defining the transition between start up and established companies. It emphasises the point that the drivers of success and failure in early stage operations are very different from the established company – focusing on the requirements of customer acceptance, and implementation effectiveness.
Bank research in the UK found that 49% of businesses which did not have a business plan said that they did not need one; 20% said it was not relevant. Of those that did complete a plan, over 50 per cent of companies spent less than 5% of management time on completing one. Of those completing a plan, 31% used it to monitor business progress, 25% to raise finance and 18% to assess viability.
Conclusion: Only a limited proportion of companies produce plans and of those that do, few spend enough time in developing or monitoring it
Research in the US studied the differences between those companies which considered themselves "lucky" and those which thought themselves "unlucky". The main differences between the two were the quality of the information systems and the skills levels of the staff. "Lucky" companies had much better information systems and more highly skilled staff.
Conclusion: Companies which understand what is happening in the market and are able to deal with the changes are luckier than those that cannot. This suggests that companies manufacture their own luck through effective monitoring and personnel development, both key parts of business planning.
Approximately 50 per cent of businesses fail for non financial reasons (average of 6 banks internal research)
Conclusion: Non financial analysis and controls essential to an effective plan
Top scoring element in existing business plans for funding success and long term survival is that the level of gross profit should be higher than the competition – competitive advantage (Ibis research)
Conclusion: Success drivers do not rest on management alone – an analysis of the plan needs to review other factors
Clear correlation between skills, effective internal structure, shared responsibilities and long term profitability (Swedish research)
Conclusion: Build the skills levels within organisations and use this as a key objective
Only 23 per cent of British managers (38 per cent Dutch) could correctly answer three out of four questions concerning current status of gross profit, return on capital employed skills levels and new product/ service development levels (Ibis research)
Conclusion: Businesses fail to involve management and focus on key success drivers throughout the organisation
Investors who take an active role in their companies achieve substantially higher rates of return than those who merely take a financial stake (Harvard University)
Conclusion: Detailed monitoring of investments and active support should be a fundamental part of investor/ firm relationships
Key success driver in start up businesses is an effective guarantee of substantial sales volumes from prospective customers (Ibis research)
Conclusion: Start up operations have very different dynamics from existing businesses and need different assessment methods
A structured approach to investment opportunity analysis can improve productivity by up to 60 per cent (Bank research). There are major gains in:
Initial contact time
Standard format plan requirement
Structured plan review procedure
Comparison of risk levels in current compared with invested plans
- Identifying specific areas of concern in high growth companies to identify risk
Conclusion: Structured frameworks enable the investor to concentrate effectively on businesses which are investable and understood
Research suggests that for the SME, 14 days planning per annum is the target to achieve effective results, with 12 monthly review days (Dutch research)
Conclusion: That the average SME must incorporate a much higher greater amount of time on planning and monitoring to improve performance.
Italian research reviewed the level of funding which should be included for contingencies across a sample of 320 companies. Large companies with a stable customer base in slowly growing or declining sectors were found to need a 2.5 per cent fund; smaller companies in the same sectors 3.5 to 5 per cent. As the risk in the both the internal and external environment increased, the need for a greater contingency component grew. It reached its extreme in high technology start up operations spun out from universities. The research suggests that a contingency element of 100-120 per cent was necessary in these situations.
Conclusion: That the investor or analyst should look carefully at the contingency element and relate it to the level of risk in both the internal and external environment.
French research identified a significant difference between the inputs provided by venture capital providers and the requirements of their target companies. Venture capital providers saw their important role as providing strategy: the target companies by contrast wanted operational advice and support.
Conclusion: Operational improvements continue to be the single most crucial issue in driving corporate performance.
German research found significant differences in the effectiveness of capital investment in a sample of 257 companies. There was an impact on overall employee productivity in all companies studied, but those with higher skills and better information systems had nearly double the rate of return per euro invested.
Conclusion: Ensuring that the correct framework is present prior to investment is vital to provide an effective return
UK bank research revealed that only 20 per cent of start up companies survived two years which approached the bank direct, compared with 92 per cent completing a structured training and support programme with help in completing a detailed business plan.
Conclusion: Detailed support at the early stage of the business formation process can greatly reduce the potential for business failure.
Of 118 high technology companies studied throughout Europe investing over 3 million euros, only 15 completed a detailed analysis of risk and risk management.
Conclusion: The understanding of risk evaluation needs to be much more widely appreciated to improve control of investments
Research by Standard and Poors', the credit risk agency, found that there was a link between the quality of corporate governance, measured against their scorecard, and the valuation of a company. The better the quality of corporate governance the greater the long term valuation of the company, with differences between the bottom and the top of the scale accounting for over 5 per cent in value.
Conclusion: The ability of the company to manage its internal and external relationships by effective information management and stakeholder relationships is a vital element in investment effectiveness
A survey of 120 small businesses in the UK and Ireland that had chosen to raise equity within the local area compared with a similar group that had chosen other funding routes, found that the first group had higher growth rates, lower cost of capital, and higher profitability. The most commonly reported explanation from the local equity group was that the need to generate dividends to keep local shareholders involved focused their activities much more effectively in cash generating investments. Second was that the local shareholders provided them with substantially greater financial headroom.
Comment: This supports other research which suggests that broader equity ownership both within and outside the enterprise improves performance.
A review in France and Germany of those companies that provided low cost or nil cost breakfasts (85) in their canteens showed substantially better time keeping and higher rates of productivity than similar companies that did not.
Comment: Small investments in fringe motivational areas can provide substantial rates of return.
A survey of 150 companies in Scandinavia, the Netherlands, Belgium and Germany found that companies with properly organised internship programmes reported significant advantages, particularly in lower recruitment costs and higher rates of labour retention. Critical to the success of such programmes were three elements – emphasis on a local pool of talent, an open and transparent recruitment programme, and linkage to a formal apprenticeship scheme.
Comment: Regular reviews of recruitment and its costs are essential to minimise what is often a significant burden to many enterprises.
A survey carried out by a firm of solicitors and accountants in the UK of the management of start up enterprises to identify what major changes that they would make if they were starting the company anew showed that the top three would be: a deepening and widening of the management and supervisory team (most start up enterprises realising that they lacked expertise in some key areas), a detailed analysis of the market and individual customer requirements rather than a top down system based on assumptions, and a shareholder agreement which covered more potential eventualities.
Comment: This supports other research on the importance of corporate governance at the earliest stage of enterprise development.
A review of the effectiveness of cloud computing in the US identified the need for the enterprise to separate out mission critical IT from that which did not require immediate and continuous access. Those firms that made that distinction had found their implementation of cloud computing far more successful than those that had tried wider and more general applications.
Comment: Major changes in operational implementation should always be accompanied by a detailed contingency plan which focuses on failure points and the need to design them out. When this logic is followed, the limits to cloud computing will be clear for each enterprise.
A survey of the implementation of IT systems by a leading consultancy company found that those that had the highest rate of E – enablement had a growth rate double that of those with lower rates of IT interactivity.
Comment: This research supports other studies which identifies the E-enablement percentage as a key performance indicator for the IT knowledge centre.
A questionnaire on the use of portfolio analysis techniques in medium sized service and manufacturing companies in France, Spain and Italy showed that the most popular technique was the use of the SWOT analysis (23% of companies studied). Many fewer used the conversion methodology the TOWS matrix to derive strategy (3% of companies studied).
Comment: Few companies use even the most common portfolio analysis techniques or use them to develop strategy, a problem which is mainly a lack of awareness and the lack of formal business planning and review systems.
A review by a health management company of manufacturing and service enterprise policy throughout Europe found that those companies that incorporated a free annual medical checkup as part of the contract of employment requirements had lower absenteeism, fewer sickness days and lower labour turnover than companies without such policies.
Comment: Enterprise losses as a result of ill-health are often very considerable and limited investment in control will often provide high levels of return.
A study of business incubator sites in selected countries in Europe found that average returns for start up enterprises in clusters (15 or more within a defined geographic area) was considerably higher on average than for non clustered firms. The managers of the enterprises identified access to skilled staff, the ability to more easily produce effective management teams, networking with other enterprises in the same sector, better chances of funding and access to suppliers with an understanding of the demands of the sector as all being important.
Comment: This research on clustering and other similar studies has important applications for business investors and the focussing of business assistance.
A study carried out in the United States by a telecoms company found that the biggest source of dissatisfaction in communication for both suppliers and customers was the excessive use of voice mail. Those companies that only permitted voice mail outside office hours and used team approaches to answering telephone enquiries were preferred.
Comment: Speed (TBC) and quality of response are both rated highly in customer satisfaction surveys and enterprises need to concentrate on achieving the best possible result.
A survey in the United States amongst medium to large enterprises found that roughly 11% of working time was spent in meetings, and that in these meetings 50% of staff were not concentrating on the matter in hand.
Comment: A meeting management SOP can significantly improve overall productivity by analysing both the necessity for specific meetings and structuring them properly to ensure effectiveness.
A review of web usage within medium to large scale enterprises found an increasing amount of time being spent by staff on a variety of social networks within office hours. Introducing web management software and clearly stating company policy for private web usage (during the mid-day break) substantially improved productivity.
Comment: The changing information environment requires continual review and re-appraisal during the business planning cycle.
An analysis of cash management within 175 medium sized firms in France and Belgium by an accountancy group found that those emphasising free cash flow (FCF) had higher rates of growth than those that rigidly controlled expenditure through tight budgeting systems. Managers within the FCF enterprises suggested that the reason for this difference was that investment finance for emerging strategies was easily available, enabling the enterprises to take advantage of opportunities in the market place.
Comment: Decisions on the balance between directed and emergent strategies are always an important element in the development of the plan.
A review of software knowledge and usage within 85 enterprises by a software training company found a much higher rate of awareness and usage within those groups that had chosen the application (a bottom up system) rather than those in which it had been imposed (top down). The bottom up group also tended to concentrate on using existing off the shelf systems, substantially lowering overall cost.
Comment: Aligning software systems with knowledge center requirements is a vital component in improving overall productivity and speeding skills acquisition.
A review of medium sized enterprises in both the service and manufacturing sectors throughout Europe found that few were investigating the potential for energy management systems, regardless of their overall energy consumption.
Comment: With rising energy costs, investments in energy management should always be part of knowledge center key performance indicators.
A European wide training agency reviewed the temporary staff ratio in 230 organisations in which it carried out training programmes. The company found that higher temporary staff ratios were associated with lower levels of skills, lower productivity, and higher rates of labour turnover.
Comment: Building skills within the enterprise is contradicted by high and continuing rates of temporary employment.
A financial services company reviewed profitability in 155 comparable medium to large companies and its relationship to the level of share buy backs. They found that there was a negative correlation between share buy backs and improvements in profitability.
Comment: Share buy backs rarely meet investment appraisal hurdle rates and money can be better spent elsewhere for shareholder benefit.
A doctoral thesis on organisational structures analysed the relationship between performance and organisational complexity. Those enterprises with complex structures and large numbers of special units had lower levels of performance than those with simpler structures.
Comment: Anectodal evidence is strong that large numbers of special units damage organisation focus and performance.
A survey by a firm of website developers of 110 European companies found that the greatest returns on the website were perceived in the development of games both for promotion and for recruitment.
Comment: Social media are opening up new routes to build both interest and loyalty to the enterprise.
A study of different bonus systems for senior management within publicly listed companies found a strong link between high levels of equity linked to deferred payment and overall performance.
Comment: Bonus systems must link to balanced scorecard achievement and risk sharing with other stakeholders.
An analysis of survival and recovery plans in 160 companies receiving funding from a US bank identified three groups – a group with no plan of which only 9% survived, a group with an outline or limited plan – 15% survival, and those with a detailed cash flow based plan – 22%.
Comment: This analysis supports other research which emphasises the importance of ensuring that problems are dealt with early in any enterprise, but that once severe difficulties are encountered the only option is detailed and exhaustive cash flow based planning.
An analysis of 205 medium sized companies across Europe by a management development training company found that those enterprises with formal training programmes – a combination of personal development plans and/or apprenticeship schemes achieved higher skills levels, better labour retention and higher growth rates.
Comment: The link between skills levels and growth rates has been established in a number of studies, and this survey suggests mechanisms to support this skills acquisition.
A review of 150 medium sized enterprises by a cost cutting specialist organisation in the UK found that less that 30% had a formal cost cutting programme supported by senior management which was continually active. The remainder achieved cost savings through adhoc programmes.
Comment: The use of golden circle concepts within the enterprise to assist in strategic development emphasises continuous cost management or consolidation to improve cash flow so that growth investment can be optimised.
A software security firm reported that attempts to breach their clients (380 throughout Europe) systems had risen an average 50% over the past two years. They suggested that apart from the obvious security precautions that enterprises should maintain critical information off-line to prevent sensitive data loss.
Comment: Putting the information technology knowledge center in charge of security is a vital part of their operational importance.
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