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How to prepare to become a new business

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One of my 'character building' experiences was trying to convince State Managers of the importance of reporting the Sources of Revenue rather than just Total Revenue. 

Lesson in life 1: the impact of incentives on behaviour: State Managers were given bonuses on total revenue so they didn't want to prompt a State committee discussion about 'Why don't we put our time and effort into developing our own courses rather than running those that we don't own and no longer match our vision?' 

To argue the 'growth imperative', I reported both the sources of revenue and the total revenue per state division to the national board so that the disparity was clear. It was a time when we were crawling back from 'lots of red ink' and proposing to start reducing the cash cow products made everyone nervous. There are many other companies currently facing that problem. But let's look at Australia Post.

Australia Post has reached the turning point because the growth in its new businesses, notably domestic parcel delivery accompanied by cost management hasn't been sufficient to balance the accelerating decline of traditional mail (1 billion fewer letters than five years ago).  

Look at the numbers. 

                                            


It is still making a profit but because it is a Government Owned Corporation (GOC), it has to pay the Government a dividend but has no right to decide the amount. $244m/$312m means that Australia Post is 'losing' a significant amount internally generated profit which could be used for investment in its future. 

For most GOC's/SOE's, this usually means having to borrow to fund business development, putting strain on the balance sheet. 

A second key challenge to growing your business in time of change, is the need to continue meeting commitments and expectations of stakeholders. For listed companies, the idea is not to spook the market. For NFPs, the idea is not to lose the goodwill of donors or members. 

A GOC has 'Community Service Obligations' (CSO's) and the shareholder - the Government department(s) - defines the metrics of minimum standards of performance, like so:   

                                                                               


It costs you in people and infrastructure dollars to service those obligations. You can be: 

  • experiencing structural change - a permanent change in the way your business operates.
  • needing to invest in new technologies and/or businesses.
  • subject to media criticism for the 'hire and fire' process where you need to restructure and hire the people for the new businesses while deploying or offering redundancies to those who no longer 'fit' and
  • often having to deal with those who campaign against change. 


Australia Post has been preparing for the internet age for over 20 years. Recently, I queued for 30 minutes at a renovated AP office in the city. It looked like a funky nightclub. The 'parcels' queue moved slowly but constantly. The only available staff member looked at my queue of about 10 bods and asked: 'Passport photos?' 'Money orders?' 'Bills?' ... 'What are you wanting?' And we all called 'Stamps!' Alas, the people who could sell stamps had queues of people collecting their parcels.


FOR YOUR PROJECT OR BUSINESS UNIT:

Two issues to consider: 

Remember to take politics into account.

If you have to recover a struggling business and face political obstacles, the task will be much more difficult. It is useful to find a champion. I once asked the Treasurer to spend one hour while I explain the 'numbers' of our education business. After that, he led the discussion at board meetings and I just had to clarify. We came across as a 'finance team' which gave the rest of the board members confidence. 

Diversifying the sources of income can go too far.

In the 1970's the business model was to put discrete businesses into their own unit with their own CEO. You can do that if the total business is sufficiently large but what if the business is smaller? 

Two questions to ask: 

1. We often read of 'selling non-core businesses' - sometimes within a decade of purchase. How could the purchase decision criteria be improved?

2. If you are responsible for managing a key period of change, is it better to try and argue your case or just wait?


This blog is for education purposes only.

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