Advisory Board Archives | Board Associates

Productivity: Uncovering Hidden Opportunities for Growth

April 30, 2024/in Advisory Board, Financial, Growth/by Matthew Dunstan

In today’s dynamic economic environment, business owners constantly seek ways to enhance efficiency and drive growth. One of the most effective approaches to achieving these goals is through the strategic use of performance metrics. Among these, ‘Revenue Per Hour Paid’ is a potent tool. Originally from the realm of professional services, this simple yet profound metric reveals hidden productivity insights that are applicable across various industries. This blog explores how implementing this key metric can improve business productivity, providing owners with actionable insights into optimising their operations.

“What gets measured gets managed.” Peter Drucker

The Metric: Revenue Per Hour Paid

‘Revenue Per Hour Paid’ calculates the revenue generated per paid working hour, offering a clear view of how effectively a company utilises its human resources in relation to its revenue generation. It’s a straightforward calculation: divide top-line revenue by the total hours paid to employees. This approach highlights the direct relationship between workforce efficiency and revenue output.

Broadening the Metric’s Horizons: A Recent Case Study

The metric ‘Revenue Per Hour Paid’ is highly adaptable across various industries and provides crucial insights into operational efficiency. One Advisory Board client experienced financial discrepancies where there was an increase in top-line revenue but a declining cash bank balance. Initially, this was attributed to the need for increased working capital to fund growth. However, further analysis of ‘Revenue Per Hour Paid’ revealed that there were deeper issues at play. The metric showed a significant drop in revenue per hour, from $350 to $270 over time, indicating that rising revenues were masking a decline in productivity. This insight was instrumental in addressing the inefficiencies that were inflating operational costs and depleting cash reserves. It highlighted the metric’s value beyond traditional productivity assessment.

How to Calculate Productivity

Consider “ConstructCo,” a hypothetical company, which reported an annual revenue of $27,600,000. The company employs 50 workers, each working 40 hours a week.

Calculate Total Hours Worked Annually:
- Total hours worked annually = 50 employees x 40 hours/week x 52 weeks = 104,000 hours
Calculate Revenue Per Hour Paid:
- Revenue per hour paid = $27,600,000 / 104,000 hours = approximately $265.38 per hour

This calculation shows that for every hour worked at ConstructCo, the company earns about $265.38, providing a clear measure of workforce productivity.

Expanding the Calculation to Capital Investments:

For industries reliant on heavy machinery or plant equipment, the same formula can be applied to assess the productivity of these investments. For example, if ConstructCo also wants to measure the productivity of a specific piece of machinery:

Calculate Total Operating Hours for the Machinery:
- Total operating hours annually = 30 hours/week x 52 weeks = 1,560 hours
Attribute Revenue to this Machinery:
- Revenue per operating hour = $5,500,000 / 1,560 hours = approximately $3,525.64 per hour

This helps ConstructCo determine how effectively their capital investments are contributing to the company’s revenue.

Conclusion

The ‘Revenue Per Hour Paid’ metric extends beyond traditional financial metrics by offering a clear, actionable indicator of how effectively revenue is being earned. It provides businesses not only with a method to measure success accurately but also drives them towards it more effectively. By integrating this metric into their strategic review, companies can diagnose the underlying issues, steering towards more sustainable profitability and operational efficiency.

Reflecting on our Advisory Board Meetings: Insights and Actions for Q1

December 6, 2023/in Advisory Board, Family Business, Governance, Leadership, Strategic Planning/by Matthew Dunstan

At Board Associates, we believe in the transformative power of strategic advisory boards. Our first-quarter advisory board meetings have yielded valuable insights in key areas such as corporate governance, financial management, leadership development, and strategic planning workshops. This piece aims to share these insights and provide actionable steps for business owners and leaders to enhance their performance.

Corporate Governance in Family Businesses: Rethinking Traditional Models

Matthew Dunstan, our founder and a respected scholar at QUT’s Australian Centre for Entrepreneurship Research, has uncovered surprising findings in corporate governance within family firms. His research, focusing on optimising governance for financial excellence, suggests that different family businesses may require distinct governance models. Key takeaways include:

The Advantage of Informal Governance in Mature Firms: Mature family firms might benefit more from informal governance structures, challenging the usual push for formalisation.
The Role of Corporate Governance in Young Firms: Younger firms appear to thrive under small, informal governance setups.
CEO and Board Dynamics: A balance between CEO involvement and board independence is crucial for financial success in family-run businesses.

Action for Owners: Family business owners are encouraged to reassess their governance structures in light of these findings. For further guidance, explore our articles on family business and governance, and consider participating in our ongoing research. You can register your interest by contacting info@boardassociates.org

Financial Management and Hidden Cash Reserves

In one of our portfolio companies, we’ve driven a remarkable six-fold growth over the last few years. Last quarter, however, we encountered an unexpected financial challenge. Despite intentionally moderating growth to allow profits to flow into the cash reserves, the company’s cash balance unexpectedly declined. The causes of the problem were not evident in standard financial reports, so we undertook an in-depth financial analysis working with one of our partners.

The analysis went beyond the typical data of profit & loss statements and cash flow forecasts. Instead, we focused on three additional but seldom used financial metrics that proved pivotal in diagnosing the root causes affecting the company’s cash flow dynamics. These were the working capital absorption rate, the movement of working capital and the movement of debt on the balance sheet. This analysis revealed that subtle changes in the balance between profits, cash, working capital, equity and debt compounded to create a situation where the company was profit-rich but cash-poor.

This case serves as an essential lesson for business owners, particularly highlighting the need for a comprehensive financial health check during periods of growth or turbulence. It underscores the importance of looking beyond surface-level financial reports and considering a broader spectrum of financial metrics.

Action for Owners: If your cash at bank balance is declining, you should consider undertaking a more detailed financial analysis of the causes and, more importantly, create a new set of financial management guidelines to protect the business. Our team at Board Associates can help.

A Team-Led Approach to Setting Strategy

At Board Associates, we have pioneered a transformative approach called ‘Quick Wins’ workshops, expertly guided by our People and Culture Specialist, Belinda Straughn Winks. These workshops engage all staff members in focused discussions, applying qualitative research methods such as thematic analysis to transform direct feedback into actionable data.

This bottom-up approach to strategy uniquely uncovers critical business issues and solutions as perceived by the team. It’s a novel way of shaping strategic imperatives, enhancing workplace culture, productivity, and staff retention, while uncovering hidden management blind spots. (Read more)

Action for Owners: Leaders have an opportunity to define and deliver new, tangible benefits for the business and to do so in a way that brings staff together and empowers them. If you feel there is more potential in your team, a Quick Wins workshop is a fast and affordable way to create immediate value.

The Importance of Depth in the “Senior Management Bench”

It’s not uncommon for business owners to find themselves rolling up their sleeves and diving back into day-to-day operations to support their management team. While such involvement can offer immediate operational support, it often comes at the cost of neglecting the strategic work essential for long-term growth. Owners frequently find themselves caught in a cycle of ‘two steps forward, one step backward’, where progress is hampered by the constant need to put out fires.

This year, we have observed several instances where businesses struggled to maintain momentum due to the owners’ frequent need to step into operational roles. In these cases, lacking a solid and capable management team meant critical strategic initiatives were sidelined.

Forward-Thinking Solution: Building depth on the senior management bench is vital. This not only alleviates the burden on the business owner, allowing them to focus on strategic growth but also ensures the business is equipped to handle challenges effectively without always relying on the owner.

Long-Term Benefits: Building your bench of senior management talent might seem difficult or expensive, but the long-term gains in efficiency and strategic growth are invaluable. It is also critical for the future valuation of your business.

Action for Owners: Ask yourself this question: If I stepped away from the business now, could the team continue to run it as I would? If the answer is no, you must implement actions to build your senior management bench. Board Associates has experience in executive coaching, mentoring and leadership development programs that may be able to assist.

Strategic Planning Clarity: Focusing on What Truly Matters

In business strategy, clarity and focus are not only vital, they are liberating. A prime example is one of our client companies, currently valued at $7 million. The owner has set a bold aspiration to elevate the business’s value to $40 million within a few years. Achieving such an ambitious goal is no small feat and requires a razor-sharp focus on key growth drivers. Through several rounds of strategic planning, we have identified the four critical imperatives essential to realise this objective.

These four imperatives have become our cornerstone and helped elevate the conversations around the advisory board. With this clarity, every advisory board meeting is now centred around these “four jobs to be done”. Furthermore, this clarity extends to the incentivisation of the CEO – their reward structures are tailored to drive performance specifically in these four areas. This alignment ensures that the CEO’s efforts directly contribute to the business’s strategic objectives.

This experience raises important questions for all business leaders:

Do you have a clearly defined intent for your business?
Have you identified the critical “jobs to get done”?
Is your team aligned around these objectives?

A clear strategic focus and aligning your team around specific goals is fundamental to driving substantial growth. It simplifies decision-making and streamlines efforts across the organisation, setting the stage for accelerated growth and achievement of ambitious targets.

Action for Owners: What are the three or four things your company must deliver to drive strategic growth? If you can’t answer this question, don’t worry – most leaders can’t, but that’s the opportunity. Board Associates’ Strategic Planning Workshops may be able to assist.

In conclusion, these insights from our Q1 advisory board meetings underscore the breadth of expertise and support available at Board Associates. For more detailed exploration of these topics or to engage with our advisory services, contact us at info@boardassociates.org for tailored advice and solutions.

Resetting Culture to Reignite Your Team: A Deep Dive into Sustainable Workplace Practices

November 2, 2023/in Advisory Board, Family Business, Inspiration, People and Culture, Strategic Planning/by Matthew Dunstan

How to Pivot After Q1: Assessing and Adjusting Your Business Trajectory

October 15, 2023/in Advisory Board/by Matthew Dunstan

With the end of Q1 upon us, businesses should pause and reflect, asking: “Are we on the right path for the year?”

Here’s why this assessment is critical and some best practices for doing so:

Gauge Your Trajectory First and foremost, measure your current trajectory against your annual goals, budget, and shareholder expectations. Are you on track? Behind? Ahead? This initial assessment sets the stage for all subsequent decisions.
Celebrate or Calibrate If you’re ahead or on target, that’s fantastic! But don’t rest on your laurels. Always look for areas to optimize. On the other hand, if you’re off track, it’s crucial to recalibrate. A shaky Q1 can significantly impact the rest of the year.
Diagnose the Divergence Before making changes, understand why Q1 might be underperforming:

- Is it a continuation of trends from the previous year’s last quarter?
- Are there new challenges that have arisen this quarter?
- Has there been a change in market demand or your cost structure that wasn’t accounted for?

Speed is Key Time is of the essence. The longer you take to adjust, the harder it becomes to recover from a difficult Q1. It’s not just about damage control; it’s about capitalizing on newfound insights.
Seek External Insights While internal data is indispensable, looking outward can offer valuable perspectives. What are industry peers experiencing? Are there macroeconomic trends affecting your sector?
Re-Evaluate Strategies, Not Just Tactics While tactical changes can help, sometimes the issue lies in the broader strategy. Ensure your business model and offerings still align with the market’s needs.
Engage Your Team Remember, you’re not in this alone. Engage with your team, seek their insights, and involve them in the solution. Collective intelligence often yields the best results.
Continuous Monitoring Finally, don’t wait for the end of Q2 to reassess. With the pace of today’s business, continuous monitoring allows for agile adjustments.

In conclusion, the end of Q1 isn’t just a time for reflection; it’s a call to action. It’s a quarter of the way through the year, and the steps you take now can greatly influence the outcome of the remaining quarters.

How An Advisory Board may help;

Moreover, this is where an advisory board can be a game-changer. Advisory boards bring in a wealth of external knowledge, diverse perspectives, and expertise that can shed light on blind spots and opportunities you might miss. They can:

Provide Objective Assessment: Being somewhat removed from day-to-day operations, an advisory board can give unbiased feedback on performance, ensuring that your assessments are rooted in reality and not clouded by internal biases.

Leverage Industry Insights: Members often come with vast industry experience and can provide insights on broader trends and best practices that your business can adopt or be wary of.

Expand Networks: The connections that advisory board members bring can open doors to partnerships, collaborations, or even new markets.

Offer Strategic Guidance: In situations where you need to pivot or reassess strategies, a seasoned advisory board can guide decision-making, ensuring that changes align with long-term goals and industry realities.

(Wondering “what is an advisory board” or “when are they the right next step?”
Learn more about why and how business leaders benefit from Advisory Boards here.)

About Board Associates;

We help business leaders embrace change, be agile, and remember – it’s all about forward momentum. And with the right advisory board by your side, you can navigate the complexities of the business landscape with increased confidence and foresight.

Board associates is experienced at creating and running advisory boards for companies across a broad array of industries. If you’d like to explore how an Advisory Board can drive strategic growth for assist business, please contact us to schedule a call with one of our experienced Advisory Board Chairs.

What is an Advisory Board?

October 6, 2023/in Advisory Board/by Matthew Dunstan

Increasingly, business owners are starting to hear more about an “advisory board”, but what is an advisory board? At its core, an advisory board is a group of external experts assembled to provide informed guidance, diverse insights, and strategic advice to an organisation’s leadership. Unlike a legal board of directors, which typically has direct governance responsibilities, an advisory board doesn’t have official authority over company affairs or formal legal obligations. Instead, it acts as a reservoir of expertise and perspective to support the company’s mission and vision.

There are several reasons a company might opt to establish an advisory board:

Expertise and Knowledge: No matter how seasoned an entrepreneur or executive team is, they can’t be experts in everything. An advisory board fills those gaps by providing knowledge in areas that supplement the executive team. This often includes technology, financial management, people management, international markets, and specific industry experience.
Networking and Opportunities: Members of an advisory board often come with an extensive professional network. Their introductions can lead to new partnerships, customer relationships, or even potential investors. This is also particularly valuable if you’re considering exiting your business.
Credibility and Validation: Having recognized industry leaders or subject matter experts on an advisory board can significantly bolster a company’s standing in its industry or market. It also supports the sale process if you’re exiting your business and can lead to higher business valuations.
Objective Perspective: Because advisory board members aren’t typically involved in day-to-day operations, they can provide an outsider’s perspective, helping companies identify blind spots and areas of opportunity. We know we should make time to work on the business rather than in the business – an advisory board provides that opportunity.
Accountability: While the primary function of an advisory board is guidance rather than governance, its mere presence can instil a sense of accountability in owners and top executives. Regularly presenting company progress, challenges, and plans to a group of seasoned professionals can encourage better preparation, deeper reflection, and more strategic thinking, knowing that these will be discussed and dissected by the advisory board.

(You can read more about the benefits and the business case for an advisory board here.)

In summary, when considering “what is an advisory board?”, think of it as a strategic tool that offers guidance, broadens horizons, and propels growth. Whether a company is navigating rapid growth, looking to penetrate new markets, or facing complex challenges, an advisory board can be a valuable asset to ensure informed decisions and long-term success. If you’re contemplating strengthening your company’s strategic arsenal, perhaps it’s time to think about setting up your own advisory board.

Board associates is experienced at creating and running advisory boards for companies across a broad array of industries. If you’d like to explore how an Advisory Board can drive strategic growth for assist business, please contact us to schedule a call with one of our experienced Advisory Board Chairs.

The Danger of Family Councils and Family Constitutions

January 24, 2021/in Advisory Board, Family Business, News/by Matthew Dunstan

Managing family within a family business is one of the most challenging things an entrepreneur and a Board has to do. To help keep these lines separate and smooth, the prevailing wisdom has been for family shareholders to have a governance structure which manages family harmony (family council or family assembly). Recent research, however, suggests that in some cases this may do more harm than good.

“Family regulatory framework provides obsolete laws without the family governance structure, whilst this structure causes complete confusion without the right regulations.”

THE STUDY

Researchers from the University of Valencia studied over 1,000 family firms, looking at how financial performance is affected by things such as family constitutions, family assemblies and other mechanisms which define the rules by which family members operate in business. They found that these structures and rules were important where family complexity was high (multiple generations and family branches) but in other situations, they were associated with a negative return on assets.

Key Findings

The results show that the relationship of family rules and institutions with performance (ROA) is contingent on family complexity.
It should fit the level of complexity of the owner’s family. Any misfit will lead to a non-significant effect or, worse, a negative impact on a firm’s performance (ROA).
When family complexity is low, a complete set of rules and agreements that regulate the relationship between the family and the firm is adequate.
However, when the level of family complexity is high, a complex set of rules (i.e. a complex family regulatory framework) is not enough and may even be counterproductive.
High family complexity requires a well-developed regulatory framework supported by the right family governance structure.
The family regulatory framework provides obsolete laws without the family governance structure, whilst this structure causes complete confusion without the right regulations.

LESSONS FOR OWNERS

This research is an important reminder that one size does not fit all and that prematurely adopting the structures and rules of larger, more complex family businesses can damage the organisation’s financial performance and wealth generation.

One interesting and simple finding from the research, however, is that starting with simple agreements on how the family operates within the business is useful at all levels and that this should be implemented before considering family governance structures.

There are many studies which show that the creation and deployment of rules regulating ownership and work with the family business provide several benefits:

Protection against owner-owner conflict,
Develop and protect ‘familiness’,
Regulate ownership transmission without draining financial resources or reducing family control,
Formalise communication processes,
Strengthen a shared commitment to norms and values and;
Provide institutional legitimacy to the family and the business

IN OUR EXPERIENCE

Having a forum to raise and address family matters is essential, but it doesn’t have to be a formal structure such as a family assembly. It could be as simple as a regular meeting around the kitchen table. What’s probably important though is how you run it.

Here are some simple tips:

It needs to be regular and committed to. It doesn’t work if it’s ad hoc.
The agenda can be pretty simple, but you need to have one so that management issues don’t creep in.
How you run it is more important than what you discuss. The tone has to be set early (preferably when things are going well) and revisit those at the start of each meeting.
If things are already a little fractious, don’t try to fix it yourself. Get some professional assistance to get those topics out from under the rug and into the light of day.
Separate family and business meetings. Let the board meeting focus on running the business and the family meeting focus on protecting Christmas lunch.

NEED A HAND TO HELP DEVELOP YOUR FAMILY BUSINESS?

In our experience, most family businesses do not have a simple set of family agreements in place to protect both the business and the family. If you would like to discuss how these might be developed for your family business, contact us here

ABOUT THE AUTHOR: MATTHEW DUNSTAN

Matthew is the Founder of Board Associates, a firm dedicated to the sustainable growth of family and private firms. Matthew is also a researcher at QUT working towards his PhD in family business governance.

LINK TO THE RESEARCH:

Tomás González-Cruz , José Antonio Clemente-Almendros & Alba PuigDenia (2021): Family governance systems: the complementary role of constitutions and councils, Economic Research-Ekonomska Istraživanja, DOI: https://doi.org/10.1080/1331677X.2020.1867603

Board Portals for SMEs

June 14, 2020/in Advisory Board, News/by Matthew Dunstan

Technology has long been used to drive efficiency in all corners of business but it’s been slower to make it into the boardroom. Traditionally, Board portals have been beyond the reach of most organisations but we believe we’ve found a solution that brings it back within reach.

ProcessPA is an Australian start up which has been funded by local venture capital with the goal of helping more organisations move their Board online.

Board Associates have adopted ProcessPA as our standard Board portal platform, allowing us to drive accountability, structure and efficiency in Board meetings for all organisations.

If you’d like to know more or try Process PA for your organisation we’d be happy help.

Contact us for more information.

Transformation: The Board’s Missing Agenda Item

October 18, 2018/in Advisory Board, Leadership, News/by Matthew Dunstan

Yet another corporate collapse brings into sharp relief an issue which seems to be missing from the agenda in Boardrooms around Australia: Stewardship of Transformation.

Disruptive consumer and competitive trends are not new and yet many fail to respond. I wonder then, how active this discussion is in the Boardroom? In my view there is a clear imperative to “re-tool” our organisations for the business models of the future. It is fundamental to the sustainability of our organisations and to our duty as Directors.

there is a clear imperative to “re-tool” our organisations

But what to do about it… I’d like to offer my own perspectives and “questions for the Board” as follows:

Board Composition: is there sufficient cognitive diversity on the Board? Are there skills & experience in innovation and new business models (not just IT)?
Market Sensing: Is the voice of the customer present at Board meetings (beyond NPS and satisfaction surveys). How are we detecting, reporting and responding to emerging trends?
Strategy Development: How are we leading or responding to disruption? Are we looking at ways to disrupt ourselves? Are we planning for transformation or resting on the laurels of past success?
Resource Allocation: Have we provided the means to foster innovation & experimentation? Have we invested sufficiently in our future selves?

In my view, the transformation imperative is clear and so to is the Board’s responsibility for the stewardship of that transformation. The challenge is that the skills to transform don’t reside in the traditional roles of marketing, HR or IT. Instead, new disciplines such as human centred design, lean and design thinking have emerged to confront this challenge; but few organisations have them and they certainly aren’t represented in the Boardroom.

https://www.abc.net.au/news/2018-10-18/menswear-chain-roger-david-enters-administration-jobs-at-risk/10390760