This is not going to be another blog on the momentous events of 2016. Irrespective of your politics
This is not going to be another blog on the momentous events of 2016. Irrespective of your politics and global outlook I think we have heard enough analysis for now.
A couple of year's back I read a book by Donald Rumsfeld, a fascination read. His now infamous quote "There are known knowns. These are things we know that we know. There are also known unknowns. That is to say, there are things that we know we don't know. But there are also unknown unknowns. There are things we don't know we don't know." Given the year that is 2016 his last sentence seems to me to be most appropriate as we head in to 2017.
For those of us in business, expecting the unexpected is what we try and allow for. Yes we have our vision, which shapes our strategy which demands a plan and ends up with a budget. But how many forecasts can we end up doing during a year as reality kicks in.
So 2016, from a trading perspective, has been uncertain and in some cases difficult. It has also had many successes. Some decisions seem to have been on permanent hold and yet trading has continued and if the statistics are correct we have seen some modest growth in GDP. For retail, a bellwether apparently of how we are all doing, 2016 has been bumpy but October saw the highest lift in retail spend, up 7.4% on the same time last year. And yet somehow the general sentiment is 'nervous', 'uncertain', 'bumpy road ahead' with plenty to challenge our ability to plan and forecast.
The Autumn statement, with its various incentives to boost confidence, has been met with the usual mixed reviews but those of us in business will probably feel some effort is being made to improve the trading conditions. We can be in no doubt that the dept burden we carry as a country is not going to ease any time soon. If anything we have all been primed to expect it to increase. That's one less unknown.
As we look ahead to 2017 our destiny lies entirely in our own hands. In a sector I work closely with, retail, digital disruption will continue unabated. Consumers will continue to shop and the wheels of the economy will continue to turn. More than ever though we will need to watch out for the 'the unknown unknowns'. As an Accountant by profession one thing I do know is that I will need to draw even more closely on my ability to plan, monitor and react. Managing cash, understanding the risks as clearly as possible and being ready to alter course but not overall direction will be more important than ever.
It seems clear that inflation is going to rise, 2.9% is the latest estimate of what it is likely to reach, and all businesses will be under pressure with their wage bills. Not only will we have to see how increases can be funded in basic pay but also we have the Workforce Pension Scheme requiring increased employer contributions over the coming years. Plenty to keep us focused.
Irrespective of Brexit, Trump and possibly Farrage, the opportunities will still be there. We just need to keep our minds open and seize them when they present themselves.
This time next year will be a fascinating reflection!
Many of you may have seen on linkedin the image showing a broken diesel engine from a shop and the story attached to it about price. In brief the engineer who fixed it spent about ten minutes identifying the right place to hit the engine with this hamer but charged $10,000 for the repair. The time cost $40, the knowledge of where to strike the engine $9,960.
Pricing is a complex subject that can appear quite simple. The value that is provided by the produce or service is largely the result of financial and emotional factors specific to the individual and the market. This can often be very different to the vendor's perception. To some the value may seem very reasonable and to others it may seem very hard to justify.
In an ideal world the price should be equal to the value that an individual would be prepared to pay. Individual pricing has hitherto been beyond most organisations and runs the risk of alienating the customer when they find out they have paid a lot more than the next person. The inevitable result is published price lists and 'recommended retail price' or RRP.
However nowadays pricing tools and data analytics are providing businesses with the ability to have much more sophisticated price models that build in premiums for convenience, spikes in demand and will trigger discounts to avoid over stocking for example. Pretty much every eventuality can now be factored in to optimise profit. Retailers and airlines are just two examples where this 'time of day' pricing is now the norm.
Whilst price might be very volatile a business should be able to estimate the cost of delivery accurately. The difference between the two is the all important profit that the business can expect to make and which it must seek to optimise on each sale. Managing the profit is inextricably tied up with managing the price. In the services world where it is people's time and intellectual property that is being sold keeping control of the 'creep' on projects is also vital. In the manufacturing world controlling production quality, maximising capacity and avoiding wastage is vital.
What is 'creep'? Creep occurs where the detail of what is to be delivered changes as a project progresses. Most contractual arrangements provide for change control that will identify when something alters from the originally agreed schedule of work and an additional charge can and should be made. Failure to charge for any changes directly hits the profit and devalues the price for the service.
Some headline points to consider in establishing the price for a product or service.
For many businesses there is the benefit of history and experience to draw on. Increasing disruption in markets today, including the digital disruption such as online comparison sites and e procurement, means that sometimes the history is of little use and you will need to rely on specific tactics to suit the current circumstances and immediate opportunities. Aiming high and leaving room to manoeuvre is important but also knowing when to stop discounting is also a key judgement. Business at any price is not usually business worth having unless you have a really sound reason for investing in a customer.
Setting your guiding principles for pricing will be unique to your business. Identifying what differentiates you from the competition and reflecting that in your pricing and ultimately your profitability is a process that never stops. As certain as we are that night follows day so to is the job of managing price one of life's inescapable tasks in striving for business success.
The backdrop for managing online security is the ever growing inventiveness and success of the criminal world invading the corporate data world. 74% of businesses reported a security breach in 2015.
In many companies time to manage the IT infrastructure, let alone the specific aspects of cyber security, is under constant pressure. As a result there is a risk that managing this area slips down the priority list. The following steps form a simple, but not exhaustive, checklist that should ideally reviewed for compliance every quarter.
Authors note: this article is not intended as a comprehensive and exhaustive guide and each organisation must review its own individual circumstances and decide what is suitable. No guarantee of security is given in providing this guidance.
Some useful links:
Information Commissioners Office – ico.org.uk
Get safe Online – Getsafeonline.org/business
‘Comply or explain’ can contribute to sustainable success if three conditions are fulfilled:1. Boards should be willing to depart from a particular part of their code, where necessary, rather than taking the easy route and complying rather than explaining. Larger listed companies in particular alas seem to be under pressure to comply rather than risk the annoyance of their investors, and particularly the proxy agencies, by departing from a particular code provision.