PracticeAccounting FirmsProfitability: bankable strategies

Profitability: bankable strategies

Most strategic initiatives do nothing to improve profitability. But there are ways to push up the bottom line

What is it with strategy, that harmless ‘S’ word which sees a grown man
tremble with excitement, to later hang his head in shame? Consultants have made
no small fortune from it. Meanwhile, it grips the minds of the finest talent ­
to transform product, workforce and process. Yet for all this earnest endeavour,
strategy remains all but impossible to achieve. The philosopher’s stone turns
fool’s gold.

For all the frustration, the failure to deliver strategy is not terribly
surprising. Typically, strategy is given a very long incubation period, lovingly
and reverently cradled by senior management. Square this with the realities of
doing business, where speed of action is essential, and the treatment of
strategy is woefully out of kilter with the day-to-day.

The reverence is perpetuated by the secrecy and hype of its unveiling. By the
time a strategy is delivered, it is either lost in translation or the world
around you has simply moved on.

This is not to undermine the importance of staff buy-in (or ‘engagement’ as
the HR department would have it), nor to suggest that tomorrow’s Google or iPod
can be dreamt up overnight. Rather, it highlights the rarity of building
strategy around execution. You should undertake the most nimble implementation
available to the business.

Without milestones and momentum, a strategy will begin to fail almost as soon
as it has been conceived. Indeed, a study by Pentacle, the Virtual Business
School, blames poor execution for its failure. More damning still, 83% of
employees believe strategic initiatives within business do nothing to improve


While numbers are usually put against a particular business initiative, more
often than not they are the wrong numbers. Cost-benefit analysis is a necessary,
objective means to justify investment. But the cost of ‘doing nothing’ also
needs to be considered ­ be that from a competitor, customer or regulatory

This not only helps determine the importance of a particular strategy, but
also moulds its time-frame. It forces corporates to think much more critically
about the shape of the market and align business milestones with the needs of
customers, to produce a strategy that will have much greater financial impact.

Senior management must also ensure the mission and vision, as punched in the
air by the CEO, is not confused with the overall strategy of the business. This
may sound like hair-splitting, but it is not. Strategy should be the way in
which these objectives are delivered.

For example, if the strategic goal of a firm is organic growth through
customer service, the business strategy needs to clearly articulate how this is
to be achieved.

Rarely is this the reality. According to McKinsey, some 28% of employees feel
the company achieves a strategic plan that reflects the company’s goals and
challenges, but is then not effective. A further 14% argue that the strategy and
execution is simply not aligned.

Instead, strategy needs to touch everyone within the organisation. Only then
will it be executed, instead of needing daily instruction and seeing bottlenecks
and misinterpretation. By taking this approach, strategy is much more carefully
managed, rather than each part of the business working in silo.

The danger of this with a good workforce is that each function may well
fulfill its targets, but the business may never achieve greater profitability
overall. (Let us not even consider what this means for the bad!) For while every
head of department will be focused on individual targets and ‘talk-the-talk’
when it comes to presenting the figures, rarely is the net result studied across
the organisation. The ivory tower should constantly check a strategy is
succeeding in boosting the bottom line.

This more carefully delivered approach to strategy will also allow a business
to engage much more tightly with each element of the business and define exactly
what it is trying to achieve strategically.

Compare this with an underperforming plc. Strategically, the chief executive
crunches the workforce in a bid to enhance value and boost an ailing share

It’s the one thing he can control and it may well save his own skin. Yet a
better defined strategy from the outset, would have focused on each element of
the business.
Unprofitable areas would be examined much more closely. They would be
aggressively closed, sold or given clear direction to manoeuvre a turnaround.

The right strategy requires a speed and comprehensiveness of execution. This
is perhaps better associated with private equity (minus the unpalatable
financial gearing), or more popularly associated with the likes of the M&S
revival ­ from product, to marketing, to customer experience.


Profitability is also greatly enhanced by ensuring that the given strategy is
less focused on the business itself, but rather its position in the market. For
a successful conglomerate with strong brand power and innovation, domination and
first-mover advantage will always characterise its given strategy. For nearly
all businesses, except those patiently (or impatiently) waiting to be acquired,
they are continually evolving. They need to measure their strategies against the
market and competitors.

Whatever that strategy (customer experience, cost, or breadth to constantly
trip up your competitors), it must critically engage with the wider marketplace.
It should continually ‘road-map’ the reaction of the market and customers. This
becomes an evolving business case, justifying further development, continued
commitment, or indeed a reversal in thinking.

The entire business can then be aligned to this much more market-based
approach to strategy. Stratas of management can be axed or reorganised to ensure
they remain a vital cog in the delivery rather than a conduit for the sake of
it. BP’s painful reorganisation from 11 layers of management to seven is a case
in point.

For larger organisations, virtual working is also a way of bringing together
the very best team to undertake a given strategy. They also give a much wider
perspective on the effect on the market and the business as a whole.

So think big, and think widely. Or, to quote the wise and good, ‘a little
less conversation, a little more action’.

Professor Eddie Obeng is director of Pentacle, the
Virtual Business School

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