The name is intriguing right? It sounds like something you might be interested in just because the words themselves evoke something within you. And you’re right. It’s an up-and-comer in the world of business management. It’s a new ‘buzz’ phrase worth looking into.

Blue Ocean strategy has been one of the more popular corporate strategies to be talked about in recent years. Exactly what does blue ocean strategy involve and how can it be effective? What is the role of the manager or leader in effectively designing and implementing blue ocean strategy?

What is it?

Industries today are overcrowded. There is a continuous, long, arduous battle to capture market share, and to keep it. Originally created and discussed in a book by W Chan Kim and Renée Mauborgne, this strategy is an effort to avoid some of the stresses of head-to-head competition… by getting around it altogether (kind of). It is a systematic approach to ditching the traditional ways of regarding your competition and in some ways, making it irrelevant.
Blue Ocean Strategy involves the creation of new market space through innovation and careful observance. It focuses on creating new factors that add value to your product and de-emphasizes the obsession with competition.

The well-known book-selling giant Barnes and Noble can illustrate this concept. Instead of focusing mostly on what types of books to sell, B&N used a more innovative approach. They took a step back and asked what consumers do, or want to do, in connection with buying a book. They want to sit in a big comfy chair and have a latte. They want to peruse magazines without feeling pressured. They want comfort and Barnes and Noble made this a hot commodity. They found a niche, a veritable “blue ocean” and capitalized on it.

This strategy shifts the perception that in order to be profitable you must out-compete the others in the market. Blue Ocean strategy serves to disprove this common belief and give organizations hope that they, too, can get ahead of the game.

Why is it successful?

This can be an extremely successful strategy because it captures under-the-surface demand and encourages the unlocking of new resources. It gives consumers new options that other competitors do not offer and can lead to substantially increased profitability.

At the Management Level:

The manager or leader plays an integral role in the implementation and design of this strategy because they should be the main driving force behind it. They are responsible for communicating with team members the need to expand their horizons and create new value rather than just trying to improve on what is currently offered. It is also their job to ensure that there is no “canyon” or misunderstandings amongst employees. In order for the strategy to work, everyone must believe in it. And if they do, it can be a powerful force!
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At the Implementation Level:

Of course this all seems overwhelming. And wouldn’t it simply take too many precious resources to put a plan like this in motion? You probably think there isn’t room in an already-stressed budget to even consider something so out-of-the-box. But the best part about Blue Ocean Strategy is that it is designed with simplicity.

As discussed in the Blue Ocean Strategy book, the two key pieces to successful implementation are leadership and fair process. In order to expend the least amount of resources during a change, an organization’s leader must capitalize on influential employees’ strengths to complete changes at a low cost. The other side of the coin is utilizing a fair process, an essential part of winning employees confidence in your project. This mitigates the possibility of negative reactions and resentment that can arise when trying to implement something as novel as Blue Ocean Strategy concept.

The book, Blue Ocean Strategy, is a fantastic resource to explore if the concept sounds like something you might like to tackle. If you’re unsure, that’s understandable. Just keep in mind that you can’t always exist comfortably in the niche you’ve created for your company or product, especially if successful. There will always be a line of competitors looking not only to replicate your success, but to exceed it entirely. Keeping your finger on the pulse of your competitors is an important practice to keep, and learning what could be done better is even more so. Nonetheless, we’re reminded that no matter what space you’ve carved out for yourself, it’s rarely permanent. Blue Ocean’s included.

How much do you know about the North American Industry Classification System (NAICS)? If you’re like a lot of business owners, chances are, not much.
Here is a short overview of the system and how to navigate it:

What is NAICS?

The North American Classification System was introduced to essentially replace the older method, Standard Industrial Classification (SIC). Developed in the 1930’s, SIC was the go-to method of industry classification. However, it has recently been overshadowed by NAICS because of frequent criticism that the SIC process has proved unable to handle the rapid current economic change.
NAICS assigns a code to a business to correspond with their economic activity. This system breaks down into twenty industry sectors. For small businesses, these codes are typically used for contracting and tax purposes.
As the SBA states on its website, a NAICS code is comprised of six digits. The first two indicating your economic sector, the third your industry subsector, the fourth corresponding to your industry group, the fifth referring to your industry and the sixth denotes if an establishment is specific to the US, Canada or Mexico.

Why is it Relevant to You?

Potential applications of the NAICS knowledge include:

• Statistical analysis
• Risk assessment for insurance
• Tax incentives
• B2B
• Benchmarking
The NAICS is can play a substantial role in the life of a small business. One application of these codes is by the government to generate statistics for analysis to aid research. When applying for business insurance, an agency will likely use your NAICS code when assessing risk and generating rates. High-risk industries require different action. In addition, some federal and state agencies require an establishment to have a NAICS code for tax reasons and occasionally tax breaks are given to businesses in specific industries. If you work with a company that has B2B (business to business) arrangement with other companies, you can use the NAICS code to glean important information about prospective customers. In short, it is a system of industry categorization that could be used for a wide range of analytical purposes. Take benchmarking for instance; as a business owner, you may be interested in determining how your financial statements compare with that of your peers. It is important to at least have a marginal understanding of the NAICS code system before setting out on your benchmarking quest.

How can you place your company within NAICS?

For instance, you run a software publishing firm and need to determine your NAICS code. Publishing is within the “Information” economic sector, thus NAICS 51. This economic sector includes Publishing Industries (NAICS 511), but also includes Motion Picture and Sound Recording Industries (NAICS 512), Broadcasting (NAICS 515), Telecommunications (NAICS 51), Internet Service Providers (NAICS 518), and more. If benchmarking and looking for financial data and trends from firms in our example industry, we need to refine our NAICS code to the six-digit level. Let us follow the three-digit Industry Subsector of NAICS 511 for Publishing Industries.
Within Publishing Industries, the four-digit Industry Group reveals two industries: Newspaper, Periodical, Book, and Directory Publishers (NAICS 5111), and Software Publishers (NAICS 5112). This particular industry does not break down into any further segments so the five-digit Industry code takes on a single “one” showing NAICS 51121. Likewise, if there were several types of Software Publishers within the NAICS code system, they would correspond with a fifth digit as 1, 2, 3, and so on. Lastly, the six-digit U.S. National Industry code for our sample industry is NAICS 511210 Software Publishers, as no further breakdowns exist.

Learn more

A wonderful source for searching NAICS codes and learning their structure and descriptions is the U.S. Census Bureau’s NAICS website at http://www.census.gov/eos/www/naics/. In addition, FINTEL offers its own resource for researching the NAICS system linked with its Industry Metrics tool. Happy searching!

Just when the economic outlook seems very bleak to us in the US, as well as abroad of course, there is some hope for selling a company. Obviously, it’s extremely tough to sell a business and it is not for the feint of heart. Buyers want positive cash flows, profit growth etc etc etc. You have heard it a million times. But fortunately there seems to be a light at the end of the tunnel. Investors overseas, particularly in the massive force that is China, are dying for ways to get an “in” into the American market without paying the high price tag.

So you want to know the approximate worth of your interest in a business. You want to pin down the exact economic value you have spent innumerable hours perfecting. How do you even begin to get a clue about this? If you are looking to sell, would you have the remotest idea about a legitimate selling price? Lets go over some of the most basic concepts of business valuation to give you an idea.

Defining your Motives and Describing Your Environment

First and foremost you must define why you are constructing a business valuation. What are the reasons for and circumstances surrounding your decision to conduct this analysis?
Next, you need to describe the conditions of the economic world surrounding the deal. It’s important to research the vitality of your industry currently as well as the more basic local and regional economic conditions.

Comparable Transactions

Another good initial step toward putting a value on your enterprise is looking to your peers. Find a similarly structured transaction to your proposed financing deal structure. This means finding a company with the following criteria:
• Comparable in size of
o Market
o Number of employees
o Product type
o Industry
• Similar life stage
• Geographic proximity
Looking at a business that somewhat mirrors yours is a good way to project some things for yourself. It is also good to investigate how the deals went for both parties and what percent ownership investors acquired in proxy transactions.

Valuation Techniques

Book Value

This is the simplest way to define what you are worth. The numbers. The book value is, simply put, the value an asset carries on a balance sheet. This is calculated for a company by subtracting intangible assets and liabilities from total assets. The book value is helpful in one of the most basic ways- it is a tangible starting point for evaluation. It gives you something to base other analyses off of. Of course it is important to note that accounting practices have a significant effect on book value and should be taken into consideration.

Adjusted Book Value

The adjusted book value is designed to reflect fair market value. This is done by considering the book value but also subtracting off balance sheet liabilities. The ABV is able to adjust for large discrepancies between the book and actual market value of tangible assets. It also adjusts intangible assets to zero, which is an often criticized part of the method. This can be a good way to showcase the equity of a company but is not often accepted as a trustworthy valuation technique.

Liquidation Value

This particular practice is not usually of any importance to a buyer or seller but it can be constructive as a “floor value.” This estimates the value that could be made from a quick sale but is merely an indication rather than a concrete estimate to base decisions off of.

Market Multiples

A market multiples analysis, also referred to as a comparison analysis, uses comparable businesses in your industry to assess value. It uses averages to produce more broad-range, but accurate results. One of the most praised parts of the market multiples approach is its ease of use. There is no need to compute discounted cash flows and it is a relatively easy to understand. Components/ ratios of this approach are:
• Price to Earnings Multiple
• Price to Sales Multiple
• Price to Invested Capital
• Price to Book Value

Net Present Value/Discounted Cash Flows

This is difference between the present value of cash inflows and cash outflows. It is a cash flow summary designed to reflect the time value of money. A company’s cash flows are discounted back to the present value using a market-adjusted discount rate.

Art and a Science

There is no doubt that valuations are much more complex than the basic methods outlined here, and this list is not exhaustive. However, these methods do fall into one of the traditional categories of valuation: assessment of business assets & liabilities (Asset Approach), historical earnings, future earnings (Income Approach), and industry or market-specific trends and multiples (Market Approach). In reality, a combination of several methods is generally applied for a more comprehensive approach to business valuations.

How does one determine the appropriate combination? For values achieved by each complementary method, how is a weighted average applied to arrive at an appropriate value? Defining your motives and describing your geographic, economic and competitive environment all play a role in this complex decision. It is this facet of valuation that leads many Business Appraisers to refer to their trade as more of an art than a science.

Solutions

Considering the complexity involved in any serious business valuation, we suggest hiring an experienced Business Appraiser. However, to get a “ball-park” perspective on what your firm may be worth, there are plenty of tools on the market. Business Owners may consider several of the Financial Calculators available online, like those available at http://www.dinkytown.net for instance.
For Business Coaches with a need to analyze existing and pro-forma statements for clients, the FINTEL Business Analyzer provides a great solution to quick and powerful business valuations, using methods including Book Value, Earnings Capitalized, Capitalization of Current Earnings, Average and Top Quartile P/E Ratios, and Operating Income Multiple showing values for each method with a weighted average considering all methods for a more comprehensive approach.

Food for Thought

Whether business owner, business coach, or prospective entrepreneur - it pays to learn more about this very complex topic of business valuation. Why, you ask? Why not just leave the valuations to the experienced Business Appraiser as suggested? Consider, the financial and operational decisions that have been made, currently applied, and prospectively planned within a company all impact its current and future value. Thus, a more complete understanding of valuation allows decision-makers to maximize value-enhancing strategies and minimize value-reducing mishaps with this perspective in mind.

Business Performance Measurement is concerned with measuring performance relative to some benchmark, be it a competitor’s performance or a preset target. A typical performance measurement helps businesses in periodically setting goals and then providing feedback to managers on progress towards these goals. The time span for these goals is normally a year or less for short-term goals and may extend up to several years for long-term goals. Hence, specifically, business performance measurements are formal, information-based routines and procedures managers use to maintain or alter procedures and practices in organizational activities.

The primary reasons that may be attributed to this exercise of Business Performance Measurement are to synergize profit and growth, and, consequently, decide upon extents of control to be exercised for favorable and justified outcomes. This will also enable you in measuring and redefining your short-term and long-term goals by offsetting them against opportunities and capabilities as you move along. These strategic goals and plans then peter down to operations, human resources and other day-to-day management practices. As an ongoing exercise, it will ensure monitoring and control to drive growth and improvement.

Obviously, to achieve this, a business has to spell out the parameters and subsequently, the scores or ratings to gauge performance vis-à-vis these parameters. The outcomes of such collated data will be very strong indicators of the business health of your enterprise. And this, will, no doubt, reflect on the performance of the top management which mainly drives such business activities. As an entrepreneur, you can then have a holistic view of your business. Such data-based information will empower you with indices with which you can fast-forward your business towards betterment and growth. But do make sure the data are honest and dependable. Check out the IT support practices and tools which collate this data and generate reports as it can make or break your strategic decisions. And always remember that efficiency and effectiveness are central to your business performance measurement, the challenge being to strike the right balance between them.

You can now review performance at all levels, identify improvement areas, set new benchmarks for improvement and then again review the impact of these actions. And, not to forget, reward excellent performance to sustain motivation which always runs the risk of falling by the wayside if ignored. This is what shouldering responsibility is all about, after all.

As an entrepreneur, you must be aware that these parameters of business are being continually researched upon and these indicators have evolved over the years to suit the needs of the present times and different natures of businesses and industries. And even within a business entity, there are various indicators for different aspects of business, including the financial perspective, the manufacturing/operations perspective, the customer perspective, etc. For small enterprises, the financial perspective by itself is crucial. A balanced business scorecard will help you to study and gauge the financial framework of your organization.

FINTEL can be helpful in the process of gauging and managing business performance by providing tools and data designed just for that purpose, including reliable and insightful industry comparisons and trends.

The iconic Brazilian soccer player of the 1960s and 1970s, Edson Pele, was once caught smoking by his father when he was a child. His father advised, “ Listen, if you want to play sport, you have to be in good health”.

This applies to your businesses’ health too. Check out what you need to smoke out! Go, get the barometer.

In today’s competitive business world, it is necessary to spend more time working on your business rather than in the business. You always compare your business with your competitor, but have you ever tried to know whether you are charging enough for your products or services? Whether you are spending too much? Who’s the top performer among your industry peers and competitors? And how do you measure this? etc. Although most business owners do not pay much attention to these aspects, these considerations are considered to be among the pillars of a successful business. Benchmarking is a business management tool that is used strategically to review the position of the measuring organization within the market place.

Introduction to Business Benchmarking

The process of identifying who is the BEST, who sets the standards and what the standard is, is called Business Benchmarking. It other words, it is a process of determining ‘best practice’ related to both products and the manufacturing and delivery processes of these products. The search takes place in all the industry.

Process of Benchmarking

The process of Benchmarking involves the examination of performance levels of other industry or organization. In this way benchmarking helps explain the processes behind excellent performance. Business benchmarking facilitates improved performance in critical functions within an organization.

The four major key steps for applying benchmarking are as follows-

• Understanding your own existing business process in detail
• Analyzing the business process of your competitor
• Comparing your process with that of others.
• Implementing necessary steps to close the performance gap

Major Benefits of Benchmarking

Benchmarking is very effective for all the small and large businesses. It helps the organization enhance its performance level.

Major benefits of this process include the following Benchmarking -

• Allows an organization to compare itself against the competition, the market,
• Is a powerful motivator for change and can facilitate developing a roadmap from current state to best practice.
• Can improve the day to day management of the business
• Offers valuable insights
• Helps to identify the areas of underperformance compared to other organizations, their reasons and needed actions.

FINTEL is a company that brings you an array of product to help you understand and improve the financial performance of any organization by using business benchmarking tool. If you are searching for some source to enhance your financial performance, you can take the help of FINTEL’s Business Scorecard.

How financial intelligence is helpful to enhance the company’s financial performance.

Quite typically, the term ‘financial intelligence’ is linked to a very niche government activity of gathering of information about the financial affairs of entities, the exercise aimed to curb money laundering, financial fraud and such evils as terrorism.

However, a more relevant and business related meaning of financial intelligence is ‘understanding the financial aspects of business and applying the knowledge of financial management to improve the operations and profitability of the company’. Top consultants have often argued that better financial management, more than anything else, is the key to improving a company’s competitiveness in the market. They claim that employees, stakeholders and business affiliates should understand the financial implications of their everyday decisions and actions, and work for the best financial outcome for the organization.

In fact, business intelligence tools of today, including industry benchmarking, that aim to place the organization’s performance side by side with that of competition and industry peers, place strong emphasis on financial performance. Saying that a competitor has a better network, enjoys greater channel support or better credit terms from raw material suppliers or has higher per employee productivity doesn’t suffice anymore - financial metrics give dimensions to such observations. When an organization invests in business financial intelligence, it shows its commitment to not just knowing its performance vis-à-vis that of its peers or competitors but to its determined endeavor to improve its cost competitiveness, its revenues and thereby, its profitability. Top management and the Board manage by exceptions - they cannot go over to everyone on the shop floor to ask what is wrong and then try to correct it. However, business financial intelligence provides concrete, actionable insights into what a business is doing right and where it is going wrong. When usage of obsolete machinery is seen together with lower productivity in dollar terms, the decision makers can immediately smell the rat and consider modernization of the plant.

The decision to modernize or continue the same way is again based on its financial impact - if the expected benefit (increased productivity) seems to surpass the cost of modernizing, the decision makers may be keen to go in for it. Industry best practices are discovered when financial performance of the organization is placed with that of peers and competitors in the backdrop. Enterprise business intelligence has acquired a financial flavor - very objective, actionable information is needed to succeed and be profitable today.

No business can survive in today’s rough, cut-throat markets with ‘flab’- customers expect enhanced value at lower cost, and surprisingly, one finds that competition is often willing and able to extend such offers. Financial intelligence is a discipline that cannot be ignored if the business has to be one up on its competition.

One of the key challenges any business faces in times of turbulence is how to sustain and enhance profitability. Profit is, no matter how one puts it, the very motive of all commercial endeavors and the management is answerable to the stakeholders for the profitability performance.

Profit, simply put, is the gap that exists between a firm’s revenues and its expenditure. So, as long as the company is able to increase its revenues at a certain rate and its expenditure increase at an equal or lesser rate, the company’s profits are likely to improve – this is a layman view of things. Revenues are, in turn, dependent on volume and price.

Now, in a recessionary economy, there is a sure slump or stagnation expected in demand for almost all types of goods and services, so the volume is unlikely to go up. The prices can only go down in midst of low demand and competition so both the multipliers on which revenues depend are likely to shrink i.e. most companies are bracing for a deceleration, if not, decline in revenues.

However, this is where the management has to show its knowledge and skills to the stakeholders – ok, we know that there is a crisis situation but that is what we were hired for….if it were all smooth and easy, why would professional management ever be required…

This is where cost-cutting, production efficiency and smarter financial management can help. Increasingly, business analysis and financial benchmarking tools such as FINTEL’s Business Scorecard and Industry Metrics are being used by industry leaders seeking to sustain and enhance profitability. By highlighting areas of operational and financial inefficiencies, and presenting industry benchmarking and best practices data, these financial intelligence tools provided by FINTEL are helping managers to control costs and thus, maintain or even enhance the gap between revenues and expenditures.

The power of better financial management can just not be overemphasized. It is one of the few ways in which a company can not only survive the present slowdown, but enhance its margins and become a leaner, efficient organization with least wastage, a competitive advantage that cannot be easily lost to competition.

Recession is no more a fear but a stark reality and corporate giants of the highest order have fallen like packs of cards in these gloomy times. Such mega failures have not only crippled the economy and dampened sentiments but raised questions on the foresight and planning of top management of such companies.

The economic slowdown has forced businesses to restrict capital expenditure, cut costs and revisit their production and sales targets. These are surely testing times, and no business can afford to make any costly mistakes. Operational efficiency along with the most stringent financial management can help businesses see through the recession. Only the fittest shall survive, those choosing to ignore competition and market realities are destined to perish.

Contrary to assumptions of many small and medium sized business owners, business intelligence is not a fancy word meant for boardrooms of large corporates - it is as important for smaller businesses as it is for larger. In fact, considering that smaller businesses have exposure in just one or two areas and much lesser financial resources at their disposal, optimizing performance based on business intelligence becomes all the more critical.

It is also a myth that business intelligence can only be accomplished by allocating huge budgets. Thanks to the efforts of professional business intelligence solution providers, even small business owners can now have economical access to financial benchmarking and other business intelligence tools. For instance, Fintel’s Business Scorecard Premium Edition that provides a quick and actionable snapshot of the company’s financial performance in comparison to its industry and competitors is available for just $29. Similarly, other reports and business intelligence solutions provided are economical and justifiably priced.

By making judicious use of business intelligence tools, finance directors and small business owners can track and improve upon critical aspects of business performance including liquidity, efficiency - turnover, profitability - ROI and growth.