If you suspect something’s not working, confront the brutal facts and fix it - Sunday Times

We all endure business crises — the trick is to confront them and take action quickly. So constantly challenge yourself and ask if things could be run more efficiently.

We all have personal mantras — nuggets of wisdom that fuel our working lives. The one I keep coming back to is: confront the brutal facts.

Whenever we take a wrong turn or lose focus, the best fix is to face up to the truth as soon as possible. Every few years, businesses should challenge themselves on how efficiently they are being run. Look at how things are set up, your cost base, the range of activities you’re involved in, where efficiencies can be made and how the organisation’s structure has grown. In the dash for growth, it’s easy to neglect those structural issues.

I remember at HomeServe, we expanded our business model by offering warranties and repairs to customers of furniture retailers. The expansion failed because it was two steps removed from the core purpose that we executed brilliantly: the home-assistance membership model. Instead of evolution — improving that offering and reaching new territories — we sought revolution and lost focus.

Business briefing Morning and midday updates on financial and economic news from our award-winning business team. Sign up with one click

Once we suspected things weren’t working, we confronted the brutal facts. These are words I first encountered in the book Good To Great, by the management guru Jim Collins, but the concept is as old as business itself. We carefully analysed the numbers, the market, our strengths and what our customers wanted.

We asked tough questions of ourselves, sold off that part of the business and transformed the efficiency of the whole company with a reset. We didn’t waste the crisis, we used it.

We have always measured success according to the prediction for double-digit profit growth set out in our five-year plan. We review it regularly and, if we fall short, it’s usually because those assumptions are too optimistic. So, in the short term, we cut costs to bridge that profit shortfall.

We look at every cost by function and category. If we aren’t getting value, we take action. For people costs, we assess how much each person or department is costing, including tax, bonuses and incentives. With other costs, such as utilities and IT, we aim to negotiate with suppliers and sign longer-term partnerships. Then we carefully monitor customer satisfaction to check it’s unaffected by those decisions.

This discipline is easier in private equity-backed businesses. I have learnt a huge amount about strategic resets from investment group Brookfield, the owner of HomeServe. When private equity works well, it adds real value by reshaping an organisation’s structure so that the business grows at speed and with maximum efficiency.

The first step in challenging yourself is to be aware that growth isn’t simply about putting the best people in the right roles; they also need to be trusted to make decisions, and judged accordingly. A strong culture of responsibility and accountability is the red thread that ties an entire organisation together. With clearly defined roles that contribute to specific company priorities, people will feel empowered to increase the returns on invested capital.

Next, have a good development system in place so you can constantly evaluate the performances of individuals and ensure they are focused on the right things. The more they understand their role in the overall strategy, the more likely it is that their decisions will build sustainable growth.

After this, streamline management layers. Eight or more direct reports for managers is too many, while under five is too few. It’s inevitable that layers grow with the business, but they should speed up decision-making, not slow it down.

Finally, stay flexible and don’t rest on your laurels as the business evolves. As part of any review, prioritise what is working and remove any projects that aren’t key to delivering your strategy. It is easy to do too much, but by focusing on aspects that drive long-term value, you are more likely to succeed. Saying “no” now will help you to pivot when the right opportunities do come along.

Business is not just about constant expansion. Once in a while, pause and ask if your pursuit of more is working as efficiently as it can. You might have a brilliant model, but unless the business is being run as well as possible, with all costs challenged and renegotiated periodically, your lean and mean competitors could become a real threat.

We all endure business crises, but don’t take too long before confronting the brutal facts and tackling them. If you do, you will end up slashing budgets too deeply and making short-sighted redundancies. Problems will just reoccur because, instead of getting to the root causes, you will be reacting without a plan.

Richard Harpin is founder and chairman of HomeServe and Growth Partner, and owner of Business Leader