Commerciality – Finance, pricing, innovation and research

May 13, 2019|Accountants, Kim's Blog, Lawyers, Management Skills, Marketing, Property, Statistics and trends, Strategy|

Earlier this year we ran the first “Commerciality – Finance, Pricing, Innovation and Research” workshop through Professional Marketing Forum. https://www.pmforum.co.uk/training.aspx. I am delighted to report that the consensus was that it was a success (even though we have some tweaks to make to the timing for all the group exercises).

Here are the highlights:

Aims of the delegates

At the start of the session, I asked what had bought the delegates to the session. I was interested to hear their aims which included:

To help myself and my fee-earners to become more commercial
To understand basic economic and financial knowledge
To become more strategic (please note that there is a separate course on this, see http://kimtasso.com/be-more-onion-time-out-from-the-tsunami-and-other-strategy-insights/)
To join and contribute to senior level discussions (see http://kimtasso.com/securing-your-seat-at-the-strategy-table/)
To broaden my knowledge and skill base (see http://kimtasso.com/future-marketing-manager-t-shaped-people-senior-promotions-management-vs-leadership/)
To shift from a technical to a commercial perspective
To increase innovation at my firm
To develop pricing strategies
To move from a fixed to a growth mind set
To learn how to make a commercial business case for new projects
To help my firm move from a compliance and transaction operation to more advisory work
To boost confidence to make a contribution to business development discussions

Anticipation

A key element of commerciality is anticipation.

We need to anticipate what will happen in the broader environment and markets. Business doesn’t take place in a vacuum – there are a host of external, macro factor in the environment (see, for example, http://kimtasso.com/environmental-analysis-slept-and-planning-future-of-jobs-report-2018-impact-of-technology/) as well as a variety of competitor activities.

Sometimes, we have to craft alternative scenarios of what might happen – and anticipate different future strategies to respond to them effectively. We also need to look beyond the trends and towards the outliers, which may be a weak signal of an imminent change or potential opportunity.

Anticipate what clients might need in the future. Of course, this is almost second nature to business development professionals as marketing is defined as “the management process responsible for anticipating client needs profitably”. While marketers – who often lead market research and client listening programmes – are good at anticipating client needs, there is often a need for a better understanding of what drives profitability.

Curiosity

Curiosity is a valuable attribute in market research, selling and relationship building.

Commercial people will gain a deeper understanding of their business, markets and clients by asking questions.

Successful leaders will drive their businesses forward by challenging the status quo with “Why?” questions. And they will encourage people to look to the future by constantly asking “What next?”.

Risk

Another element of successful anticipation is an assessment of risk.

There are all manner of cognitive biases that make us, for example, follow what others are doing (bandwagon effect), value what we have more than what we might gain (loss and reward bias), seek information that supports our beliefs (confirmation bias) and avoid letting go of past projects (sunk costs bias).

While it is relatively straightforward to build a business plan or produce a cost-benefit analysis for a new project, understanding the risks is less easy. And firms will have a different appetite when it comes to choosing between higher returns/risks or lower returns/risks.

Once identified, there needs to be a risk management plan to consider what action might be taken to minimise or mitigate potential risks.

Mental models and boundaries

People who have always worked in professional services will have many unconscious models of the way the business should be run. They may have artificial boundaries that limit their thinking.

During the discussions about innovation, we explored our dominant mental models and how they could constrain our thinking. We talked about the “creating swiping” (Tom Peters) of models and ideas from unrelated industries into our own. So having experience outside of the professions is a distinct advantage.

Economics and finance

We brainstormed and discussed the main theories and ideas in economics and finance including

Economics

Value exchange and the relationship between the client and the firm
Supply and demand and the impact on pricing
Scarcity and the impact on competition
Macroeconomics and the impact on different markets
Microeconomics and the impact on companies and individuals
Major economic cycles (e.g. Kondratiev waves) and the implications for planning
The importance of international trade
Principles of capitalism (free markets, capital and labour)

Finance

Profit before and after tax
Assets and liabilities
Reserves for investment
Working capital and capital expenditure
Liquidity and cash flow management
Fixed costs and overheads
Variable costs (particularly salaries in professional service firms)
Relationship between forecasting and budgeting

Pricing

Within groups, we tackled similar pitch pricing exercises where just one of the variables changed to see the range of prices agreed. This drove an interesting discussion about cost and value, capacity and opportunity cost, market leadership and premium pricing, confident and nervous clients, volume and value as well as strategic and tactical pricing strategies.

Key takeaways

At the end of the session, I asked delegates what they had found most useful and interesting.