Why do they do this, when such lack of thoughtful and careful attention will inevitably damage, seriously and often fatally, the future of their businesses ?

A relevant case study

A long-established Out-of-Hours GP Deputising Service business with an approx £20m turnover got itself in to all sorts of most unpleasant difficulties, well before the current recession / depression, this because the directors / shareholders refused point blank –

• to look beyond their immediate (superficially-successful) (effectively turnover-only-driven) business model, and

• to take the appropriate and relevant notice of the deep underlying need for some serious long term bottom-line net profitability  

The said directors / shareholders had done an absolutely amazing job in effectively starting up and then building and developing this significant enterprise over many years, and with their having put in to place during that time the most excellent and absolutely state-of-the-art call centre technology, both nationally, and regionally, but they had become stuck in a complete time-warp as regards –

• the need for serious net profitability and

• their lack of awareness of the rapidly-changing nature of the needs of their market place for their products, ie that much higher fee rates could be shown to be acceptable and that the relevant fee-rate hikes could be made to stick  

The prevailing situation was though that the service provision which was being offered was seen by the board to be a completely un-saleable proposition at the much higher fee rate levels which would be needed to generate truly serious levels of net profitability    

To the credit of the directors, there had been at least some attempt to re-focus the business away from its original primarily call-centre-driven routes, and towards that which it actually said on the can, ie an out-of-hours GP deputising service, but that re-focusing was largely a token gesture rather than a complete mind-shift in the business   

What the director / shareholders had failed to appreciate and take seriously on board, at any level really, was that, at their current pricing levels, they were never ever going to be achieving the short, medium and long term net profitability returns which they were now advised that they needed for their company, via which to be able to survive and prosper  

At this point, the director / shareholders at last woke up, as the company became increasingly unviable and when it was moving inevitably towards failure, and they realised that just sitting back and taking no remedial action of any kind was not a serious option. They were indeed going to go under, unless some dramatic action was taken and fast

Stage one – On the advice of an OMSG Group Non Exec who had been appointed, a wholly-new business plan and model was required, which was to be built jointly, and urgently, and which could and would generate real net profitability, and thereby ensure the survival of the business. It was agreed also that the OMSG Group Non Exec was to be committed to continue on with the client company for at least three to four years, to support the senior management team, and the board, in and through all off the implementation phases of the plan which they were all going to build together, to achieve that net profitability ambition / necessity   

Stage two – To meet the challenge of this new much higher level of net profitability, there were going clearly to have to be massive sea-changes at the many regional HQ’s, in terms of attitudes and behaviours, buildings and equipment and personnel, and in costings, and in quality control - and most critically in pricing - and not least also in terms of Fixed Capital Expenditure ! - And there were indeed going to have to be very marked hikes in fee rates, and with those hikes calculated to be ranging around the 50% plus mark in most cases  !

The outcome - To their credit, the director / shareholders bit the bullet, and a very challenging bullet it was too, in terms of considerable courage, much initial flak from their GP Practice client base, huge numbers of soothing and explanatory and re-assuring (but assertive and bold) discussions with client practices - and in further large amounts of Fixed Capital Expenditure - but they went strongly for the new business model, and just as fast as they could, practically and sensibly, and with their being guided and hand-held at all times over the three / four years involved, by the OMSG Group Non Exec 

At two years in to the plan, the company was by then selling pretty well exactly the same underlying volume of service provision, ie it had not lost any business at all as a result of the seriously-significant fee hikes for the client GP Practices, as outlined above, and the company was now trading profitably, and significantly so, and was thereby ensuring its future commercial and financial survival and prosperity - and was actually beginning to grow the underlying volume base of the business once again, and doing that largely via Word of Mouth Recommendation ! 
 
The moral– Having a strong-minded, independent detached objective and highly-experienced and expertised Non Exec on board made all the difference to the board and senior management team, in order to be able to be analysing clearly the problem, and to be discussing examining - and validating and proving appropriately - the relevant and workable alternative strategies and tactics with which to deal successfully with that problem - And, for the client firm and all its key people “to have their hands held” throughout - and Yes, we would say that wouldn’t we ! – but it’s true, nonetheless

More next month, on another topical issue for SME businesses.

August 2010