Every business faces risk. How companies manage risk will generally determine a company’s profitability, competitiveness and longevity in their markets. Business leaders must assess the risks that their companies face and then manage the risks so that they don’t negatively impact the business. The goal of managing risk is to turn uncertainty to the company’s benefit by constraining threats. There are 4 ½ ways to manage risk.
The 4 ½ ways to manage risk in your business are:
The exposure to the risk may be tolerable without any further action being taken. Even if it is not tolerable, ability to do anything about some risks may be limited or the cost of taking action may be prohibitive. Once you have assessed what the potential financial impact that this risk can have on your business, determine the cost to negate that risk. If the cost to fix or contain the risk is greater than the total impact to the business, then tolerate the risk. This first option is possibly the least expensive solution that your company might have and it should be the first step in deciding how to handle the risk.
This is the way that most risks will be treated. This is where an action is taken to constrain the risk so that the risk is at an acceptable and tolerable level. If you can’t tolerate the risk, then the second option is to take action and spend the capital or deploy the resources to mitigate the risk. Monitor the costs associated with bracketing this risk and then confirm that the measures implemented to treat the risk are effective and responsive.
For some risks the best response it to transfer them. This might be done by conventional insurance or it might be done by paying a third party to take the risk in another way. This is a great method for mitigating financial risks or risks to assets. One of the simplest forms of transferring the risk outside of the insurance solution is to determine if one of your supply chain partners has the capabilities to manage the risk more effectively than your company does. If they do, then consider modifying your agreement or scope of work with them so that they can manage the risk for you. You might end up paying a bit more for their work but the cost could be significantly less than what your company would have had to pay to solve this risk problem.
Some risks will not be treatable, or containable to acceptable levels unless you simply terminating the activity. Therefore, if all other methods are not viable then it is time to cut your losses and terminate the risk.
This option is the ½ option and it falls under the category of the best defense is a good offense. It might also be seen as a hedge. If you see can generate enough capital to weather the risks that your business faces, then consider taking advantage of opportunities to build the hedge that you need to conduct the business and continue taking calculated risks knowing that you have some gas in the tank in the event that things go wrong.
Understanding and applying these 4 ½ ways to manage risk for your business should be a high priority when it comes to leading and managing your business. Take the risks necessary to conduct business. If they are assessed and managed well then they should not threaten your company’s financial or operational stability.
Do you have a PLAN to win…. No seriously. What is your PLAN to win in business during the next year?
years ago I was asked to take over as the head soccer coach for a team of 12-year old boys. This team had finished in last place or second to last place during the previous three seasons. Despite this fact, I gladly accepted the challenge of coaching this team. I had been the assistant coach for this team and I knew that the kids had talent. My goals as the new head coach were to: 1) help the kids develop a love for soccer; 2) help the players improve their individual and team skills; and 3) TO WIN THE POST SEASON TOURNAMENT.
Winning the post season tournament was a BHAG (Big Hairy Audacious Goal). However, with the proper strategy and a full season to train and educate the kids regarding the finer points of the game, I felt that I had a fighting chance of achieving this BHAG. During that season, I taught the kids how to love the sport and how to improve individually and as a team. During that season, when playing the better teams, I also took specific notes regarding the strengths and weaknesses of each of our opponents. I focused particularly on the first place team from the previous seasons.
It was time for the tournament. We made it to the final game and we were playing the number one team in the final championship game. To beat this team, I had to have a winning strategy. My tournament strategy was to abandon some of the conventional ideas regarding the typical positions that each player would play during the match. Instead of lining the kids up into the traditional positions (forwards, midfielders, defenders etc.), I took my two worst players and had them play man to man on the two best players of the other team. Even though my two worst players weren’t great soccer players, they were great athletes and they were able to track the two stars on the opposing team every step of the game. The result, we were able to neutralize the two best players on the other team. Now, I had my 9 BEST players playing the 9 WORST players on each opposing team. With this match up, were able to soundly defeat the number one seeded team and win the tournament. What allowed me to accomplish this goal? I had a strategy to win.
A.G. Lafley is a business strategist who has been a winner in business throughout his entire career. As the Chairman of the Board, President and Chief Executive Officer of Procter and Gamble, Lafley has proven that he knows how to win in business. Recently, Lafley and Roger Martin have published a book entitled Playing To Win: How Strategy Really Works. In this book, Lafley and Martin have created a set of five essential strategic questions that, when addressed in an integrated way, will move you ahead of your competitors. Martin says he wanted to write it because he was perplexed that people say, “Oh, no, we’ve got to do a strategy exercise — it’s so complicated, so much work, and we’re not sure what we’ll get”. But, according to Martin, it can be simple, fun, and effective. Lafley adds, “I’m surprised by how few people can say what strategy is. So we tried to create a do-it-yourself book for managers and leaders.”
In the book, Lafley and Martin lay out the five questions that every business owner should ask themselves: These questions are:
1) What is our winning aspiration?
2) Where will we play?
3) How will we win?
4) What capabilities must we have in place to win?
5) What management systems are required to support our choices?
How well can you answer these questions regarding your business? Are you confident that you are winning all of the business that you should be? If you can’t clearly answer these questions, then maybe you aren’t winning as much as you could. To learn more about how to win in business check out the summary of A.G. Lafley and Martin’s book at Business Strategy
How much are good and bad habits affecting your life and business? Do you have great habits that allow you to exceed goals and self expectations? Maybe you are trying unsuccessfully to change bad habits that cause you to under perform? Charles Duhigg, a Pulitzer Prize winning author, has good news for you. In his book The Power of Habit: Why we do what we do in life and business (and the video below), Duhigg clearly explains how we can modify our behaviors (change bad habits) to accomplish the goals that we set for ourselves and achieve happiness and satisfaction in life.
Mr. Duhigg has received a number of awards, including the George Polk Award, The Scripps Howard National Journalism Award, a Loeb Award, the Investigative Reporters and Editors’ Medal, the National Academies’ reporting award, the investigative reporting award from the Society of Environmental Journalists, the 2009 Science in Society Journalism Award, and recognition from the American Association for the Advancement of Science, Columbia University the Deadline Awards, and elsewhere.
Before joining the New York Times, Mr. Duhigg was a reporter with The Los Angeles Times. A native of New Mexico, he studied history at Yale and received a Masters in Business Administration from Harvard Business School.
In the TED(x) video below, Duhigg states “Each habit consists of cues and rewards. If you engage in mindfulness where you are aware of what is driving the cues and rewards in your life then you have the ability to change any habit that you have”. In this 15 minute video Duhigg relays strategic findings on habit formation and the psychology and neuroscience that drives changes in behavior. With this knowledge you will learn how to change bad habits and replace them with good habits.
Check out the video and then “change the habits” in our life. You can do it!
Losing a sale can be a painful experience. You identified your potential customer. Then you spent hours, days or weeks engaging the client. Finally, you proposed a solution. All of these efforts consumed time and energy that you could have been spending with another potential customer who would have purchased from you. It just hurts (and costs!) to lose a sale. To avoid future pain and the financial loss that comes with it, consider why you might have lost the sale
You might have seen my first Three Reasons That Customers Don’t Buy blog post on the Xoombi.com website. If you haven’t, then see the link at the bottom of the page to find three additional reasons that your customers might not be purchasing from you.
Improve the clarity of your offer and increase your sales. To see my first post on Three Reasons That Customers Don’t Buy.
Every company must have a Value Proposition (VP) to compete profitably in business. I layout a very specific definition and guideline for building a winning value proposition here. After building your VP test how effective it is by answering the following questions. If you need help revamping the VP then check out the link above to re-engineer your value proposition to increase profitable revenue.
How do you feel after reading these six questions? Did you grade yourself well? If not, click the link above and get to work. If so, great work. I would love to hear any comments that you have about how to build a strong value proposition or any additional questions that you would use to TEST a value proposition.
Every company and every product or product line within that company needs to have a value proposition. Without a clearly defined (and current) value proposition, your company will have anemic revenue growth. However, for companies that take the time to understand, craft and then engage the market with sharpened and relevant value propositions, success and revenue growth will follow.
Dr. Flint McGlaughlin of www.MECLABS.com does a great job articulating some key facts regarding value propositions. He says:
“A Value Proposition is creating a statement that answers the following question: Why should your prospective customers and (existing) customers purchase the product or service that you offer rather than making that purchase from one of your competitors. It’s that simple.
It is a clear and concise definition of what your company can offer your customer that your competition cannot. All sales and marketing efforts for companies get their greatest returns when they promote the messages that clearly operate on this level.
A good value proposition clearly and efficiently communicates the value of your company and/or their products and services in such a way that the customer is motivated to respond to your call to action.”
Consider the following action items that you should consider completing after reading the quote above. These tasks require WORK but having completed them, you will be ready to craft very effective value propositions for your business and products.
The steps above represent a significant investment of time. However, the return on investment will be high. Would you rather cut down a tree with a sharp ax or a dull one? The work described above IS “sharpening the ax”. Invest the time on these steps and you won’t waste your time bringing a message to the market that is forgettable, non-competitive, non-actionable and costly. Let me know about your successes using this formula.
Now that you have created a value proposition, consider asking yourself the following questions to TEST your Value Proposition.
See more about having a Competitive Advantage in Business.
According to A.G. Lafley, the formerly retired and recently re-instated Chairman of the Board, President and Chief Executive Officer of Proctor and Gamble, most companies have a vision statement and a mission statement but most companies don’t really have a strategy. Companies that have strategies are companies that win in business. A.G. Lafley knows exactly what he is talking about when he makes that statement. Lafley previously served as P&G’s President & CEO from 2000 to 2009. During this time, the Company more than doubled sales and grew its portfolio of billion-dollar brands from 10 to 23 with a focus on consumer-driven innovation and consistent, reliable, sustainable growth. The Company’s market capitalization has made P&G among the 10 most valuable companies in the world.
A.G. Lafley, co-author of the book Playing to win: How Strategy Really Works, answers the following question in his book: What is the Fundamental measure of winning? His answer is summarized in the six questions below. Winning, according to Lafley, is being able to answer the following six questions in a positive manner.
Check out this short video loaded with wisdom and advice for more insight from Lafley regarding how to win in business.
The High Level Summary of this book is:
Winning CEO A.G. Lafley is now back at the helm of consumer goods giant Procter & Gamble. If you want to know the strategy he’ll use to restore P&G to its former dominance—read this book.
Playing to Win, a noted Wall Street Journal and Washington Post bestseller, outlines the strategic approach Lafley, in close partnership with strategic adviser Roger Martin, used to double P&G’s sales, quadruple its profits, and increase its market value by more than $100 billion when Lafley was first CEO (he led the company from 2000 to 2009). The book shows leaders in any type of organization how to guide everyday actions with larger strategic goals built around the clear, essential elements that determine business success—where to play and how to win.
Lafley and Martin have created a set of five essential strategic choices that, when addressed in an integrated way, will move you ahead of your competitors. They are: (1) What is our winning aspiration? (2) Where will we play? (3) How will we win? (4) What capabilities must we have in place to win? and (5) What management systems are required to support our choices? The result is a playbook for winning.
The stories of how P&G repeatedly won by applying this method to iconic brands such as Olay, Bounty, Gillette, Swiffer, and Febreze clearly illustrate how deciding on a strategic approach—and then making the right choices to support it—makes the difference between just playing the game and actually winning.
Playing to Win outlines a proven method that has worked for some of today’s most celebrated brands and products. Let this book serve as your new guide to winning, as well.
Also, check out an additional post (and Video) on the subject of business strategy and Competitive Advantage by Rita Gunther McGrath of the Columbia Business School. McGrath is globally recognized expert on strategy in uncertain and volatile markets and she is the author of numerous publications and awards for her scholarship and work.
“Management is doing things right; leadership is doing the right things.”
“The best way to predict your future is to create it”
“The most important thing in communication is to hear what isn’t being said.”
“If you want something new, you have to stop doing something old”
“Unless commitment is made, there are only promises and hopes; but no plans.”
“Efficiency is doing the thing right. Effectiveness is doing the right thing.”
“The purpose of business is to create and keep a customer.”
“Whenever you see a successful business, someone once made a courageous decision.”
“The leaders who work most effectively, it seems to me, never say “I.” And that’s not because they have trained themselves not to say “I.” They don’t think “I.” They think “we”; they think “team.” They understand their job to be to make the team function. They accept responsibility and don’t sidestep it, but “we” gets the credit. This is what creates trust, what enables you to get the task done.”
“No one learns as much about a subject as one who is forced to teach it.”
“Business has only two functions — marketing and innovation.”
“People who don’t take risks generally make about two big mistakes a year. People who do take risks generally make about two big mistakes a year.”
These are some great quotes by Peter Drucker !!!! If you have more that you would like to send to me, that would be great!
It is important for every business to understand what value that they bring to their customers and their markets. Before I share with you a FANTASTIC example of what great value is, let’s review first how Webster’s summarizes the definition of value.
Webster’s definition of value:
: the amount of money that something is worth : the price or cost of something
Webster’s might provide us with the definition of value but id doesn’t clarify how value in a marketplace should be measured and how understanding how to create value will drive business growth.
“To be successful in building a business and establishing year over year growth in your business, you might consider that “business value” is delivering MORE value with your products and services than the price or cost that your customers paid you for those products and/or services.”
Your first thought might be, “won’t we go broke if we deliver MORE than the cost of the product”. Consider this… when determining the cost of the product you not only have to figure the cost of materials, direct labor, overhead etc. into the cost of the product but also the cost of sales. The cost of sales can be a very high percentage of the cost of any product or service. So, if you could create a product where the cost of sales was negligible or zero, then your profitability would increase rather than decrease. How do you do this?
Simple: you create so much VALUE that you don’t create a customer, YOU CREATE A FAN!!! When you create a FAN (not just a customer) that “raves” about your product and tells other people how much they love your company then your cost of sales will go down (possibly to near zero as more people talk up your product and service). When your cost of sales goes down, your gross profit and net profit will go up.
This is exactly what happens when you deliver more value that the cost of the product. You don’t just create a customer you create a FAN. Check out this post from Facebook that I recently read where a friend of mine “RAVED” about a product:
Wendy, a friend of mine, posted this comment about Advanced Auto on Floyd Circle in Dallas, TX. I don’t know how many friends that she has but they ALL now know that Wendy uses Advanced Auto for all of her five cars and that she is absolutely thrilled with their service. How many people will use that company because of Wendy’s endorsement…. Enough to pay for the extra service (and the transmission fluid) they provided her (with great service) when she needed it. If five of Wendy’s friends choose them as their automotive service provider and each person purchases $ 1,000 a year with that company then that business will generate an extra $ 5,000 annually just from Wendy’s recommendation. If Advanced Auto has a 20% gross margin then they will make $ 1,000 from Wendy’s friends. The cost of the labor and the oil was less than $5. The return on investment from the $5 would then be astronomical. This is why creating FANS is the only way to grow your business.
Deliver more value than your product or service costs and create an army of FANS who will promote your business and help you establish year over year growth.
Great Quotes by Peter Drucker
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Great Quotes by Peter Drucker