Best practice, better prospects

15 September 2005
Best practice, better prospects

UK hospitality businesses continue to cling to a long-hours culture, supported by the UK's continued opt-out from the requirements of the Working Time Directive, and there is a widespread strong belief that, to get ahead, you have to work all the hours God sends.

But new research suggests that sending your work-life balance off kilter might not just mess with your personal life, it might also be counter-productive to business.

Its findings stress the importance of working smarter, not harder and longer, to obtain financial success, with the majority of Champion owner-managers (78%) working 35-55 hours per week, while 86% of Statics clock up 45-70 hours per week.

In other words, working longer hours doesn't necessarily equate to better financial results and fast growth.

Develop staff The study also bears out the importance of investing in staff training and development. Most Champions (85%) invested more than 2% of turnover in staff training (60% for Statics), with two-thirds (62%) dedicating formal days to training (36% for Statics).

Champions were also more likely to reward staff with an employee share scheme (59%, versus 32% of Statics) and be more generous to boot, with more than half (52%) giving in excess of 2% of profit, compared with just 9% of Statics.

Tellingly, the quality of employees was cited as the single most important factor affecting the financial performance of Champions, almost all of which (93%) believed that the quality of their employees was among the best in their industry. Among Statics, only half (52%) believed the same. Furthermore, Static companies were more likely to simply fire an employee for underperforming (17%, versus 7% of Champions) and less likely to provide regular appraisal and feedback (30% versus 57%).

"Champions are always passionate and excited about the business," says Chris Lane, a partner at Kingston Smith. "If they are enthusiastic, then the waiting staff and everyone else gets that buzz. And if you're not happy with your staff, you should do something about it."

Follow the rules The study also showed that many business owners were jeopardising the success of their business by not following basic business rules - such as following a business plan, not overextending themselves, exercising financial discipline and being willing to shop around for finance.

Champions are seven times more likely than Static businesses to have a current business plan and follow it, for example - with 45% of Champions "strongly agreeing" that they worked closely to a business plan prepared within the past 12 months, compared with just 6.5% of Static businesses.

In fact, more than half (55%) of the Static businesses didn't work closely to a business plan at all.

Most Champions also "strongly agreed" that they regularly monitored performance against budget (85%, against 15% of Statics).

ighty-seven per cent of Champions monitor financial performance against their budgets, compared with 65% of Statics. As Lane points out, having a business plan and a strategy is of limited value without having a budget that individual performance is measured against.

By design, Champions will also always be on the lookout for new business. As Lane says, all companies lose business over time, often through no fault of their own, so they need to generate new custom to keep going. "If you stand still, you die," Lane adds.

Be flexible Champions are also more flexible and creative when it comes to suppliers and attracting finance. Half (50%) of the Champions said that they sourced from outside the UK, compared with 30% of Static businesses, while three-quarters (77%) of Static businesses relied on just one source of funds, compared with half (48%) of the Champions.

Nearly half the Champions (43%) used two or three sources of funds, compared with 18% of Statics, with 8% drawing on four or five sources, compared with 5% for Static businesses.

While the report's authors note that companies with strong performance will have access to a greater pool of funding sources, they counter that it also remains true that using more sources of funds results in greater flexibility and strong performance.

Know your competition Another key attribute of successful businesses is their willingness to benchmark their performance against that of their rivals. Just over half of the Champions reported that "very little escapes them", compared with 1% for Static businesses. And only 6% of Champions reported knowing the competition but not keeping formal files, compared with 28% of Static businesses, which said they did not formally track competitors' activities.

According to Colin Barrow, a visiting fellow at Cranfield School of Management, "It is surprising just how many businesses think that they can operate in isolation, without knowing anything about their competition. The survey has shown just how crucial it is to keep a close eye on your competitors."

The Internet Static businesses are three times more likely to state that the Internet is not at all important to their business, and two times less likely to state that it would be virtually impossible to operate without it. This indicates that, while some static companies recognise the importance of the Internet, there are many more which do not use this tool to its full potential.

Conclusions Summing up, Lane comments: "People always want to know how people succeed, and there's nothing magic about it - it's just people's attitudes. And often, it's the obvious things that make the difference. It's finding out where you are going wrong and doing something about it. It's never too late to change."

And the tools to make that change may be close to hand. Barrow says: "There are a number of powerful tools well within an owner-manager's control that can significantly enhance the chance that his/her business becomes a fast-growing Champion, rather than a stagnant Static business."


Lessons from the survey

  • Have a business plan and follow it - Champions are seven times more likely than Statics to do so.
  • Keep focused - 65% of Champions stick closely to their core business, with their primary source of growth derived from selling existing products and services to existing markets.
  • Maintain financial flexibility - 77% of Statics rely on just one source of funds for their business, compared with 48% of Champions, which are also more likely to change their banks.
  • Do what you love and love what you do - almost half the Champions strongly agree with the statement: "I am as passionate about the business today as when I first set it up," while only 14% of Static businesses felt this way.
  • Know your competition - the survey shows that Champions keep a much closer watch on the competition, and have a process in place for doing so.
  • Get online - Static businesses are three times more likely to state that the Internet is not at all important to their business, and two times less likely to state that it would be virtually impossible to operate without it.
  • Think globally - fast-growing companies shop around for the best supply sources and are more likely to source internationally.
  • Watch your pennies - Champions are much more likely (89% versus 54%) to produce cash-flow forecasts showing their future cash position, and they are also twice as likely (72% versus 37%) to employ a financial director or controller.
  • Champions are much more likely to have changed banks at least once in the past 10 years (24% compared with 10% of Static businesses).

The survey Kingston Smith and Cranfield polled owner-managers of almost 200 small to medium-sized, independent businesses across Britain in an attempt to establish the differences and similarities between fast-growing, successful businesses (Champions) and those that are treading water or declining (Static businesses).

The poll was split between Champions, which had at least doubled their profit and turnover over a four-year period, and Statics, which had either not grown or had declined in profit and turnover over the four-year period (ending in accounting year 2003/04).

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