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Business Tips – What is the last Competitive Advantage for a business?

images/BusinessTips.JPG(This is a summary of key ideas by Paul Humphreys, of the book The Advantage, by Patrick Lencioni)

After watching his father come home frustrated  and complaining about how his company was managed, as well as working in management roles in large organisations himself , Patrick Lencioni found  that management decisions had a very real impact on workers and customers, and ultimately the business success.

He saw in his work that an organisation’s biggest opportunity was not only about strategy, finance, marketing – but the health of the organisation – and it filtered from the top leadership – that was the new competitive ADVANTAGE.

He also finds that it is ignored by most leaders even though it is simple, because it is seen as TOO easy, and requires some humility to face the truth, is not sophisticated, nor an adrenalin rush, nor easily quantifiable.

It requires being both HEALTHY & SMART (one is not enough) -

  1. Health - low politics and confusion, high morale, enthusiasm and productivity, and low employee turnover (and clients!).
  2. Smart – the usual aim to excel at strategy, marketing, technology and occupies the greatest focus.

Many admit that the characteristics of HEALTH above, would transform their company, but without having a method to foster and encourage it, gravitate back to focus on the more tangible SMART areas which are more measurable and visible. But the opportunities by being smart/innovative are more competitive and harder to achieve.

Patrick has found that health makes the difference in successful businesses, because most organisations already have the “smarts” within the team. Rallying around a solution works, when no politics and confusion occurs. Like healthy families can exist without great wealth.

But health is not easy to define, and is not celebrated in business reporting, although everyone one knows what it is like to be in an UNHEALTHY organisation and the misery of politics, dysfunction, bureaucracy and confusion. The toll of the anguish and frustration on staff and ultimately families is another result.

In the book Patrick explains -

All the competitive advantages we’ve been pursuing during our careers are gone. That’s right. Strategy. Technology. Finance. Marketing. Gone as the key to advantage.

No, those disciplines have not disappeared. They are all alive and well in most organizations. And that’s good, because they’re important. But as meaningful competitive advantages, as real differentiators that can set one company apart from another, they are no longer anything close to what they once were. 

That’s because virtually every organization, of any size, has access to the best thinking and practices around strategy, technology and those other topics. In this age of the internet, as information has become ubiquitous, it’s almost impossible to sustain a competitive advantage based on intellect and knowledge.

However, there is one remaining, untapped competitive advantage out there, and it’s more important than all the others ever were. It is simple, reliable and virtually free. What I’m talking about is organizational health.

The Healthy Organization

A healthy organization is one that has all but eliminated politics and confusion from its environment. As a result, productivity and morale soar, and good people almost never leave. For those leaders who are a bit skeptical, rest assured that none of this is touchy-feely or soft. It is as tangible and practical as anything else a business does, and even more important.

Why? 

  • Because even the smartest organization in the world, the one that has mastered strategy and finance and marketing and technology, will eventually fail if it is unhealthy. Trust me, I’ve seen it happen again and again. 
  • But a healthy organization will always find a way to succeed, because without politics and confusion, it will inevitably become smarter and tap into every bit of intelligence and talent that it has.

So if all this is true – and I am absolutely convinced that it is – then why haven’t more companies embraced and reaped the benefits of organizational health?  For one, it’s hard. It requires real work and discipline, over a period of time, and it must be maintained. On top of that, it’s not sophisticated or sexy. That means it doesn’t excite a group of executives who are looking for a quick fix or a silver bullet, something that they will be reading about in the Wall Street Journal or Bloomberg Business week.  Moreover, in spite of its power, organizational health is hard to measure in a precise, accurate way. It impacts so many disparate areas of an enterprise that it is virtually impossible to isolate it as a single variable and quantify its singular impact on the bottom line.

But the biggest reason that organizational health remains untapped is that it requires courageLeaders must be willing to confront themselves, their peers, and the dysfunction within their organization with an uncommon level of honesty and persistence. They must be prepared to walk straight into uncomfortable situations and address issues that prevent them from realizing the potential that eludes them.

Organizational health is about making a company function effectively by:

  1. Building a cohesive leadership team;
  2. Establishing real clarity among those leaders;
  3. Communicating that clarity to everyone within the organization; and
  4. Putting in place just enough structure to reinforce that clarity going forward.

The advantage of organizational health is undeniable and massive. Companies get more done in less time. They avoid losing their best people. They identify problems earlier and solve them faster. They beat rivals who waste time, money and energy fighting among themselves, which ultimately drives away good employees and customers.

Need Help? - Email info@accountkeepingplus.com.au or call 0407 361 596 Australia

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Business Financials – Tax Breaks for Business – Do they encourage and stimulate business innovation and the economy?

 images/Business Financials2.jpgNot according to Chris Evans (although written in 2015, it is still relevant whether tax breaks work to encourage and stimulate business innovation and the economy) - professor at the UNSW School of Taxation Business Law, in an article on Smart Company -

The Turnbull government will release its innovation statement in the next few weeks, and it’s widely expected to include tax breaks for startups. The government may abolish capital gains tax (CGT) for investments made in early stage companies, especially in the high-tech sector. The idea, promoted by Coalition backbencher David Coleman, is that those who invest in early stage private companies with an annual turnover of less than $1 million will be able to exit their investment at no tax cost.

Innovation - The creation and diffusion of new products, processes and methods - is, and will continue to be, a key driver of productivity, growth and well-being. As the OECD notes, it plays an important role in: “helping address core public policy challenges like health, the environment, food security, education, and public sector efficiency. Innovation-led productivity growth will become even more important in the future to address key challenges like ageing populations and climate change”.

Innovation clearly matters, and it matters a lot. On the surface, therefore, the idea of abolishing CGT on startup investments seems like a great idea. It would achieve the double whammy of showing the government is “doing something” to promote innovation at the same time as giving tax dollars away - always popular.

But using the tax system in an attempt to foster innovation may not be the sensible policy choice.

Tax systems are excellent at achieving the principal objective for which they are designed - raising revenue. They are often notoriously bad at achieving some of the other objectives for which they are so often used and misused, such as attempting to change the behaviour of corporate and private citizens. The tax history of the world is riddled with examples that illustrate the folly of seeking to promote one particular outcome - favour this activity rather than that one, help these taxpayers rather than those - by using parts of the tax system as an often blunt policy instrument.

A history of failure

In the 1970s and 1980s the UK had a disastrous experience when it attempted to establish something similar to the current Australian proposal - the Business Expansion Scheme (BES). The BES became a byword for some of the most blatant and aggressive tax exploitation by unscrupulous investors and their advisers. It was eventually so hedged in with anti-avoidance measures that it became virtually unworkable.

In Australia those familiar with the failure of the so-called Simplified Tax System for small businesses in the early part of this century (subsequently abandoned), or with the current malfunctioning and highly distortionary Wine Equalisation Tax, will readily attest to the perils of trying to use the tax system to achieve non-tax outcomes.

Providing a CGT break for investors in startups falls foul of the three key criteria of efficiency, equity and simplicity by which tax systems are judged.

Chris then argues the proposal will be inefficient, unfair and complex, so read it there, and goes on to suggest better  alternatives –

Alternative solutions

So how can the government help to promote innovation without using the tax system?

The answer is relatively straightforward. The OECD suggests it needs to concentrate its policies on five concrete areas for action. These are:

  • effective education and skills strategies;
  • a sound, open and competitive business environment;
  • sustained public investment in an efficient system of knowledge creation and diffusion;
  • increased access and participation in the digital economy and
  • sound governance and implementation.

Interestingly the OECD notes that support for business innovation should not overly rely on tax incentives. Well designed and competitive grants, access to (government) contracts and support for networks can be better suited to the needs of young and innovative firms than tax incentives.

The government should think long and hard about using yet more tax breaks to stimulate a key sector of the economy. It might also do well to look at the much vaunted success of Silicon Valley, where tax incentives are, and always have been, negligible. An innovation policy that relies too heavily on the tax system for its sustenance is unlikely to be one which can provide the sort of long-term viability and success that Australia’s innovation policy is surely capable of providing.

Need Help?- Email This email address is being protected from spambots. You need JavaScript enabled to view it. or call 0407 361 596 Australia

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