Marginal gains: not just for the sporting arena?

04 June 2019

Marginal gains: not just for the sporting arena?

It is sometimes said that fair-weather golfers are pampered creatures preferring to play in a benign, sanitised climate and venturing out only when conditions are completely in their favour. None of the above-mentioned was in attendance at Evolution Capital’s 2019 Golf Day. Our 26 robust competitors – all business leaders in the Telecoms and IT markets – gathered in the beautiful surroundings of the Goodwood Golf Club at the Kennels for a ‘Texas Scramble” last month.

Paying scant attention to the dampness of the climate, the first group of four set out at 9am for their battle against ‘par’ and course conditions – the latter succinctly described by one of our Caledonian guests as driech. Golfers appreciate their game is often used as a metaphor for life and, like life, it was never meant to be easy. Slightly inclement conditions, like a little bit of water, should not be problematic and are to be dealt with as part of the overall challenge.

Small hinges swing big doors

The famous American sports psychologist Dr Bob Rotella, once said: “A golfer has to train his swing on the practice tee, then trust it on the course.” When golfers focus on practising each individual facet of their game, the tiny percentage gains in each area, such as grip, swing, stance and so on, can ultimately add up to something much more spectacular when viewed holistically.

The more facets focussed on and improved, the better game-skills become. For example, playing in the rain will help develop ‘ball striking’ on soft ground, makes the golf course play longer and enhances the use of middle and long-iron approaches. A 1% improvement in this area, together with 1% gains in multiple other areas could well have been our winning team’s secret of success at Goodwood.

Sporting pioneers, not necessarily golfers, of the ‘marginal gains’ theory have been much vaunted in the early part of the 21st century. When Dave Brailsford became head of British Cycling in 2002, he inherited a legacy of failed, if spirited disappointment, having only won a single gold medal in its 76-year history. During his 10-year tenure as Performance Director, British Cycling teams became routinely successful as they left their competition literally gasping for air in their wake.

Brailsford’s philosophy of ‘marginal gains’ came from the theory that if you break down everything that goes into road and track cycling, and then improve it by 1%, you will get a significant increase when all the margins are added together. His leadership of Team Sky was equally stellar when he masterminded Tour de France wins for Wiggins, Froome and Thomas in consecutive years.

Marginal gains in business: the secret weapon

So how can the philosophy of marginal gains segue into other areas where our Goodwood golfers also excel, such as in business? As every successful entrepreneur will know, the answer is in the detail. Business owners are continually reviewing and improving the minutiae of their company’s processes, infrastructure and fundamentals to enhance the bottom line and get a competitive advantage.
The marginal gains philosophy enables business leaders to transform innovation and the entrepreneurial spirit into a predictable process. This means reviewing and enhancing your activities, harvesting the data and incorporating what works. Then, repeat.
What might be the deliverables in reality? In a very simple example, by taking a company turning over £5m and accruing a 1% marginal gain across the business, the effect of this improvement could be significant. A cumulative increase of a gross margin from 20% to 21% and a reduction in the expense line of the same, in real terms, puts an additional £104,000 on the bottom line representing an overall uplift of 19% in all.

Golf clubs
Photo by Diana Palkevic on Unsplash

Sweat the small stuff

Most business owners have multiple areas of activity which could potentially be improved with the right focus and process. They will look, implicitly, at the ‘big stuff’ but, arguably, the ‘smaller stuff’ might need a bit more attention. Perhaps the efficiency of the budgeting process, the supply chain, cash flow management, profit improvement, sales performance or service response can all be tweaked? Imagine the aggregated marginal gains of a 1% improvement in each area?

Indeed such is the competitive nature of our TMT market that it behoves its leaders to constantly search, refine and evolve gains in each area to ensure success. Getting some granular improvement in an area like sales, for example, might be as simple as obtaining an extra customer, stronger supplier negotiation or just increasing the focus on recurring revenues. In terms of looking at expense reductions, a business might be able to agree reduced rates, a rent-free period or bulk buying consumables. Looking for a 1% expense reduction might be easier than it seems.

It is worth pointing out that most of the strategic reviews that we take on at Evolution Capital often result in recommending small changes in multiple areas. The net effect of these marginal gains invariably results in an upward adjustment in the EBITDA and subsequent valuation. In simple terms, we encourage our clients to ‘sweat the small stuff’ in the expectation that this will have a bearing on the overall profitability.

Richard Blanford, MD and founder of Godalming-based Fordway Solutions, has some definitive views on the subject:

“This is a very well understood concept which we have been putting into practice for many years now. We define it as a process of continual service improvement. It is about identifying, defining and ultimately improving everything we do both internally and externally.”

He continues: “One of the management tools we utilise extensively is a CSI Register to record and manage improvement opportunities throughout their lifecycle. Once a month, it is reviewed and we split our findings down into quick wins, experimental improvements or things that need to be redefined as a part of a new programme.  We look at the drive for marginal gains as a defined and managed process which should be regular and ongoing. As much as people like to think it is a science, it’s really down to good, common sense.”

Marginal gains in business need not necessarily be measured purely in financial terms. We asked Stephen McCallum, MD of Tiger Communications, for his take on the subject:

“It is a great deal more challenging finding and achieving marginal gains in a business than it is in sport where there are smaller groups of individuals. In business, you need to know what your baseline is before you can begin to accrue your gains.”

He adds: “Sales is a relatively easy area to measure – but other areas are going to be more difficult. As a company, we have taken a different approach and our emphasis is very much on our people. The happiness and wellbeing of our staff is the key to gaining incremental growth. We have created an environment for collaboration where all our staff are motivated and recognised for their contribution. A team full of happy, fit and healthy members will feed all sorts of marginal gains through to the bottom line.”

What is widely recognised is that without a baseline to a company’s fundamental data it is impossible to accrue any marginal gains at all. If a company’s underlying data is wrong then each and every perceived gain made will be fundamentally flawed.

Martin Doyle, CEO of data specialists DQ Global, agrees:

“The aggregation of marginal gains in every part of a company’s operation is an obvious target for all owners but we all need to be sure of the quality of our data and information to progress this practice. Every house has only one basement and this is where the fundamental processes need to be established correctly. Once these processes and methodologies are in place you can start to calculate the gains. If you can’t measure something how can you expect to calculate a gain?”

Doyle adds that as soon as the fundamental best practice has been established, that is the time to start focusing on the details. “Take an area like customer communication for example. If we train our employees to communicate more effectively, they can help customers make better choices. I would be very pleased to get an additional ‘happy’ customer every day,” he says.

Back to Evolution’s Golf Day, it is fitting that a fiercely competitive field produced some winners (if only by a thin margin). The winning team of four comprised Daren Bland (Recarta IT), Steve Connor (Outsource International), John Taylor (Bidstack) and Stephen Taylor (Evolution Capital). The ‘longest drive’ prize went to Tim Mercer (Vapour Cloud), ‘closest to the pin’ winner was John Taylor and the Hickory Challenge was won by Richard Blanford (Fordway).

In business, just as in sport, attention to detail is paramount. Finding those weak points, no matter how insignificant they seem, and making small improvements will pay dividends in the end. As Justin Rose, ten times PGA Tour winner said in an interview earlier this year:

“I’m dedicated to improving my weaknesses, always looking at them. Where can I get better marginal gains?”

Photo by David Goldsbury on Unsplash

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