Red Zebra Business Centre - Management Memos
March 2012 Making Measurably More For Your Business Since 1985! Page 1
MaxProfile
Why is change resisted so strongly?
Max Williams, Principal Consultant

We have seen a number of big employers cut employment in the last few weeks.  Not a good look.  But what does it mean for us as Small and Medium Enterprises?

We can easily view it as a problem just for the corporates - not for those in SME land.

In this column last month, we pleaded for a deeper understanding of the automotive industry’s particular contributions to Australia’s economy.  We argued that a simple review of the return on asset value, and dollar cost per job of government assistance, underplays the broader strategic benefits conferred by that industry.

Strategic issues aside, most industries do stand or fall on the ‘return on assets’ they produce.  As societal and technological change develops and progresses through our community, some industries generate decreasing returns, until they fail altogether. During this process, companies downsize, and employment resources (people) are released for re-deployment in other industries where returns are higher, and/or growing.

It is all very organic and logical.  Until it is our business that is downsizing, our industry shrinking, and until it is us making employees redundant.  Yet this kind of change is happening all the time.

TV and VCR repair companies have all but disappeared.  The cost to repair most such items is now way in excess of their replacement cost, and VCR’s have gone the way of the dinosaur.  If you were running a TV service company, you would have exited long ago - unless you had profoundly re-structured while there was still enough money left to do so.

At the same time, we see a profound reluctance to change in the SME space.

In this month’s main article, we consider the issue of productivity - the measure of output for a unit of input.  In every case, increasing the output per unit of input requires a ‘structural change’ - that is, a basic change in the way things get done.

It’s passť now to consider writing an invoice by hand instead of having it processed and printed by a computer - but accounts offices these days are smaller and have less people than twenty years ago - and cost less to run. Higher productivity!

It’s now thirty years since manufacturing in Australia - once strong - replaced a “one-man-per-machine” factory structure with a “machining cells” structure.  In these cells, just one man operated a number of machines - producing a significant increase in labour productivity.  The further addition of CNC (computer controlled) machining again increased labour productivity.

These were structural changes which resulted in redundancies and staff reductions across all sizes of manufacturing enterprises.  Today, those businesses that depended on manufacturing are facing further  structural change, as manufacturing in any form proves to be financially challenging

So today, when we look at smaller retail and service organisations, (small manufacturing almost having disappeared), why do we see such a reluctance to change?  Perhaps not having been ‘trade exposed’ has made the ‘status quo’ seem easy. it is for a while - then it's too late!

Resistance to change is always fatal in business.

Finding new, more productive ways to operate, and making the changes needed, when they’re needed, is where the future is to be found.




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Productivity Imporvements Need Structural Change

P

roductivity is a word often aligned with union negotiations, political posturing, or corporate announcements, as when a bank off-loads jobs. Small business operators work so hard, the idea of thinking about 'productivity' never occurs to them. It should!

How has your productivity changed? What structural changes have been made to increase your productivity?
Columnist Ross Giitings, (in a recent column in Melbourne’s The Age newspaper) points out the very basic meaning of productivity, and warns against several common misconceptions that cloud our judgement.

Neil Plumridge, Head of Advisory, Oceania, Ernst & Young, comments in his opinion piece a day or two later: “After a decade of declining productivity growth, it is clear that business cannot sit on its hands while it waits for government to pull the magic levers.”

So, how does this discussion about ‘productivity’ affect you, and your SME enterprise?

It is quite clear that manufacturers are struggling with the high dollar, and retailers have been hit by the end of a 30-year period in which consumer spending grew faster than household income. While the data shown in the next column suggests we might be at the end of the pain for some retailers, it isn’t all retailers that are “out of the woods”. For many, globalization via the internet continues to break down established supply lines and reduce trading margins. Greater productivity is required.

Productivity is quite simple to define - it is measured as ‘output per unit of input’. However, it is important to remember, as Gittings points out, that “productivity ..is about comparing quantities, not prices or values."

Put this a different way for small businesses: “productivity improvements are about doing more with less”. That is pretty hard for small enterprises. If the business is a micro business, and employs only five people, doing the same work with only four is just about unthinkable.

At the very least, it means each person has to increase their own output (or productivity) by 25% just to stay as things were, and that leaves nothing for growth, holidays, or sickness. Only a change in the structure of how things are done can bring about such a massive change in productivity!

Perhaps that’s why changing things is so hard. This ‘structural change’ is very hard when you know only one way to do things. The quotation from Dyer at the bottom of this page is symbolic in this situation!

Example:: An enterprise which had rewarded its trades employees well during the ‘good times’ has been left with a very significant overhang of high pay rates now that the market has tightened. There has also been a very significant increase in competition, driving prices down below the total cost for this business. Yet there has been no corresponding change in the way things are done, and no increase in productivity.

Higher pay rates have not translated into higher employee loyalty or higher outputs. Structural change has been needed, but it has not been happening. The future is bleak, and regrettably, this example is not an isolated instance.

Look back over the last ten years. Your sales value should be up about 35% up from ten years ago - without taking any account of growth in activity or change in product mix. Add in the other things you have done to get growth. Have you doubled turnover in the last ten years?

Run this measuring stick over your business, and see if you are a candidate for structural change - so you can increase your productivity.

Survey Shows Small Business Sales In Strong Start to 2012
The January ANZ Small Business Sales Trends report showed small business sales increased in January by 7.5%, measured on a “year on year” basis. This means that overall small business growth has now been positive since May 2011.

While the sector has done well across the board, retail-related small business sales remain flat. Sales in this sector for January were just 3.4% when compared with January of the previous year.

It was clothing and fashion outlets, along with and homewares and furniture that experienced difficult conditions. Sales for 2011 were down 2.8% in clothing and fashion, while homewares and furniture fell 1.1% over the year.

Mining states outperformed the others, with WA small business up by 8.8%, Queensland up by 9.8%, and NT up by 8% - all year-on-year figures. Small business sales growth in NSW and Victoria improved in January, but remain weaker than in the mining-based states.

On a sector-by-sector basis, services and trades sectors again outshone retailers, with automotive up by13.0% and business services up16.9%. Within retail, restaurants retain the highest growth rate for the month at 13.4% growth year-on-year in January.

Interestingly, the gap between metropolitan and regional small businesses is narrowing, with recorded year-on-year growth rates for January of 7.3% in metro areas, and 7.8% in the regionals.

ANZ General Manager Small Business Nick Reade said: "The critical issue for small businesses this year will be to maintain these growth levels as best they can.®  Commenting further on the data, ANZ Senior Economist, Julie Toth said: "January's sales might be starting to show the benefits of two interest rate cuts in November and December 2011. The pick up in small business sales in January is also consistent with a range of other indicators that are pointing to a promising start to 2012s.

These data show a large gap between retail-related small businesses, compared with the non-retail and services businesses. This mixed pattern of growth is expected to continue through 2012 as the increased mining activity increasingly dominates Australia's growth profile.

[Notes on the data sources: The survey data is based on the value of credit, debit and EFTPOS transactions processed through ANZ merchant terminals and all ANZ card transactions processed through other systems for businesses at least two years old with annual turnover less than $5 million. ANZ has approximately 20% market share of all card transactions.]


Painting a light pole
Productively painting a light pole. Structural Change?

"If you change the way you look at things, the things you look at change.” - Dr Wayne Dyer

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