10 CSR activity ideas for positive social impact

In this guide:

  • What is corporate social responsibility?

    Introduction to corporate social responsibility and examples of CSR activities such as ethical trading, environmental efforts and volunteering.

    Corporate social responsibility (CSR) is a broad business concept. It usually describes a company's commitment to carry out its business in an ethical way.

    This means managing their business processes while taking account of their social, economic and environmental impact, and considering human rights.

    Examples of corporate social responsibility

    Corporate responsibility can cut across almost everything your business does. It can involve a range of CSR activities, such as:

    • environmental management, eg waste reduction and sustainability
    • responsible sourcing, eg using only fair trade ingredients
    • improvement of working standards and conditions
    • contributing to educational and social programmes
    • employee volunteering
    • socially responsible investment
    • development of employee and community relations

    If you're looking for different ways to make an impact, check out these fun and creative CSR activity ideas for your business.

    CSR and stakeholders

    Your stakeholders are the individuals or groups that have an interest in your business and are influenced by your actions. Different CSR strategies can help you make a positive impact on different groups of stakeholders, including:

    • Consumers - eg through fair and open business practices and good customer relations. See how to manage your customer service.
    • Suppliers - eg by choosing your suppliers carefully, looking at their labour, health, safety, and environmental practices. See more on ethical trading.
    • Communities - there are many ways to create positive change in the community, eg through sponsoring local events, taking part in charity initiatives, volunteering, etc. See corporate social responsibility: local community.
    • Employees - responsible business practices will often aim to do more than simply comply with the law. See staff motivation and performance.

    Reducing your environmental impact through different CSR initiatives, such as waste and resource management, can also greatly benefit your business. 

    Importance of corporate social responsibility

    CSR can help you improve your business performance, increase competitive advantage and build trust with customers and employees. It can also help you achieve operational cost savings, by avoiding costs of wasted energy or unnecessary fees.

    Perhaps most importantly, CSR gives your company and your brand a positive image of a reputable ethical business. See more business benefits of corporate social responsibility.

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  • Business benefits of corporate social responsibility

    Understand the benefits of CSR and corporate social investment, and why becoming a responsible business can help you boost your brand, performance and margins.

    Corporate social responsibility (CSR) has many advantages. These can apply to any business, regardless of its size or sector.

    Benefits of corporate social investment for businesses

    The potential benefits of CSR to companies include:

    • better brand recognition
    • positive business reputation
    • increased sales and customer loyalty
    • operational costs savings
    • better financial performance
    • greater ability to attract talent and retain staff
    • organisational growth
    • easier access to capital

    Responsible business reputation

    Corporate social investment can help you to build a reputation as a responsible business, which can, in turn, lead to a competitive advantage.

    Companies often favour suppliers who have responsible policies, since this can reflect on how their customers see them. Some customers don't just prefer to deal with responsible companies - they insist on it.

    Costs savings

    By reducing resource use, waste and emissions, you can help the environment and save money too. With a few simple steps, you may be able to lower your utility bills and achieve savings for your business. See how to reduce your business waste to save money.

    Finding and keeping talented staff

    Being a responsible, sustainable business may make it easier to recruit new employees or retain existing ones. Employees may be motivated to stay longer, thus reducing the costs and disruption of recruitment and retraining.

    Other benefits of CSR to companies

    By acting in a sustainable, responsible way, you may also find it easier to:

    • access finance - investors are more likely to back a reputable business
    • attract positive media attention - eg when taking part in community activities
    • reduce regulatory burden - good relationships with local authorities can often make doing business easier
    • identify new business opportunities - eg for the development of new products or services

    Business in the Community offers more information on being a responsible business.

    If you're looking for ways to make an impact, check out these fun and creative CSR activity ideas for your business.

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  • Corporate social responsibility: environmental impact

    Environmental corporate social responsibility focuses on 'green' issues such as energy and water use, waste management and climate change.

    Corporate social responsibility (CSR) can refer to a wide range of actions that businesses may take - from donating to charity to ethical trading. One primary focus of CSR is the environment.

    What is environmental CSR?

    Environmental CSR aims to reduce any damaging effects on the environment from your business processes. Activities may focus on:

    • energy use
    • water use
    • waste management
    • recycling
    • emissions
    • eco-friendly office and business travel policies

    Some of these are significant from both environmental and financial points of view.

    Advantages of environmental CSR

    Green CSR can reduce business risk, improve reputation and provide opportunities for cost savings. Even the simplest energy efficiency measures can generate savings and make a difference to your business. For example:

    • switching off lights and equipment when not in use
    • reducing the use of water
    • reducing the amount of paper you waste

    Caring about the environment can increase revenue too. Many customers prefer to buy from responsible companies.

    How to reduce your environmental impact

    You can reduce your business' environmental impact in many ways. For example, you can:

    • create products that can be recycled
    • optimise your product life cycle
    • source responsibly (eg using recycled materials and sustainable timber)
    • reduce packaging
    • buy locally to save fuel costs
    • create an efficient (and fuel-efficient) distribution network
    • work with environmentally conscious suppliers and distributors

    If you're looking for other ways to make an impact, check out these fun and creative CSR activity ideas for your business.

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  • Corporate social responsibility: ethical trading

    What is ethical trading and how to demonstrate to your customers your commitment to corporate social responsibility.

    Ethical trading focuses on protecting workers' rights throughout the supply chain. By treating your employees, your suppliers and their workers fairly and ethically, you can demonstrate corporate social responsibility (CSR).

    What is ethical trade?

    Ethical trade is about the purchasing practices of your business - and the steps you take to ensure that you and your supplier companies respect workers' rights.

    The term ethical trading often implies socially responsible sourcing, which focuses on:

    • worker welfare
    • agricultural practice
    • natural resource conservation
    • sustainability

    The leading alliance that supports ethical trade in global supply chains is the Ethical Trading Initiative.

    Ethical trade and suppliers

    Choosing your suppliers carefully can be an important part of your approach to CSR. For example, you might try to use local suppliers as much as possible. This helps you to support your local community and reduces the environmental impact of your sourcing, logistics and distribution practices.

    When choosing suppliers, you should also examine their:

    • employment practices
    • health and safety procedures
    • environmental policies

    Customers are increasingly concerned about the wider impact of supply chains, for example on the local workforce and environment. Being associated with businesses that abuse the rights of their workers or their local environment can significantly harm your reputation.

    Larger organisations often audit their suppliers to ensure that they follow responsible working practices. You could do something similar - simply asking them about their attitudes to CSR might be revealing.

    You should also treat your suppliers fairly, particularly smaller businesses that rely on you. For example, on-time payments can make a big difference to them.

    Ethical trade and customers

    Your customers will want to know that you don't exploit the people who make and sell your products. To reassure them, you could:

    • Create brochures in plain English and frankly disclose any 'small print' limitations.
    • Be open and honest about your products and services. Tell customers what they want to know, including what steps you take to be socially responsible.
    • If something goes wrong, acknowledge the problem and deal with it.

    In return, you can expect customers to reward you with their loyalty. Listening to your consumers can also help you improve the products and services you offer them.

    If you're looking for different ways to make an impact, check out these fun and creative CSR activity ideas for your business.

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  • Corporate social responsibility: local community

    Understand the role of corporate social responsibility and community engagement in building your reputation and business relationships.

    Community engagement is one of the key pillars of corporate social responsibility (CSR), alongside the concern with the workplace, the marketplace and the environment.

    Community involvement can take many forms. For example, some businesses choose to:

    • support a local charity with financial contributions
    • sponsor a local event
    • organise clean-up events
    • volunteer in local schools or community projects

    For most businesses, it makes commercial sense to get involved in community-based CSR related to your product or service. This lets you use your expertise, and show the human face of your business at the same time. For example, some restaurants provide food to local homeless groups, while some builders give free labour and materials to community projects.

    Look for opportunities that will mutually benefit you and your community - eg by generating publicity, or improving the neighbourhood around your premises.

    Community and employee engagement

    Many businesses include their employees in decisions about CSR activities. You can, for example:

    • support charities that were chosen by your staff
    • encourage staff to volunteer for community activities
    • give staff paid time off for volunteering
    • help employees to make tax-free donations to charity through 'payroll giving'

    As well as improving community relations, involving your staff in CSR can help motivate them and encourage their personal and professional development.

    Advantages of community involvement for business

    Working with your local community can bring a wide range of benefits. For example, for many businesses, local customers are an important source of sales.

    Demonstrating commitment to your community can also improve your business reputation and, in turn, make it easier for you to recruit or retain employees.

    A good relationship with local authorities can also help. For instance, some local authorities prefer to award contracts to businesses with a record of community involvement.

    If you're looking for different ways to make an impact, check out these fun and creative CSR activity ideas for your business.

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  • Measure the effects of your corporate social responsibility

    How to measure the impact of your corporate social responsibility, benchmark and report on your CSR activities.

    Many businesses have difficulties measuring the effect of their corporate social responsibility (CSR) initiatives. Some of the benefits - such as customer loyalty and improved reputation - are hard to quantify, making it difficult to assess the value of your activities.

    However, measurement is extremely important as it enables you to:

    • disclose the importance of your activities to your stakeholders and customers
    • improve your decision-making as you move forward with your CSR programmes
    • align your activities with corporate goals, eg decrease turnover or develop staff skills

    By measuring the impact of your CSR, you can connect the value of your activities to your company's bottom line. For example, you can establish a link between skill development and lower training costs, employee satisfaction and lower turnover rate, and even growth in sales leads that increases revenue.

    How to measure the impact of your CSR?

    Here are some ways to help you measure your CSR success. You can:

    It's worth remembering that measurements will probably only show the immediate impact of CSR. The biggest benefit can be the long-term improvement in your reputation.

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  • Importance of PR in corporate social responsibility

    It is important to publicise corporate social responsibility internally and externally to help you build reputation and long-term value.

    Corporate social responsibility (CSR) lends itself to good news stories and is a source of positive public relations (PR). Make the most of your CSR activities by publicising them to let customers, suppliers and the local community know about the good that you are doing.

    Role of PR in promoting your CSR

    Publicity can be a key part of using CSR to win contracts. People want to buy from businesses they respect. CSR can be particularly effective for targeting ethical companies, the public sector and not-for-profit organisations.

    At the same time, you should see CSR as part of a continuing process of building long-term value. Everything you do should help improve your reputation and encourage customers and other stakeholders to stay involved with you. A business that buys recycled paper - but exploits its customers and ignores the community - has missed the point.

    Business awards

    Your business could also look at entering business awards that recognise and promote businesses that excel with corporate social responsibility projects. Potential awards your business could enter include:

    Quality standards

    You could consider working towards a management standard which you can then use to promote your ethical, environmental or social responsibility. For example, many businesses have already achieved the ISO 14001 environmental management standard.

    Socially responsible businesses act in an ethical and transparent way that contributes to the health and welfare of society. ISO 26000 provides guidance on how businesses can operate in a socially responsible way.

    See more on quality management standards.

    Effective CSR like this can give your business a competitive edge. Even with dozens of competitors, a real commitment to CSR lets your business stand out. 

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  • Corporate social responsibility (CSR)

    Implementing a successful CSR strategy - Henry Group (video)

    Construction organisation the Henry Group, based in Magherafelt, explain how they successfully deliver corporate social responsibility in their business.

    Henry Group is one of Northern Ireland's top construction and civil engineering companies. The Group employs more than 500 people with operations across the UK, Europe, the Middle East, Asia and Africa.

    As one of the leaders in the industry, the Group places its commitment to corporate social responsibility (CSR) at the core of its business.

    Here, corporate responsibility director Ian Henry and Jennifer Cruickshank from the corporate responsibility team share their experiences of implementing a CSR strategy in their business.

    They describe how they've engaged with employees on social responsibility projects and how these initiatives benefitted the local community and their business as a whole.

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  • 10 CSR activity ideas for positive social impact

    Examples of meaningful CSR initiatives to help you encourage teamwork, build reputation, and contribute positively to the community.

    When it comes to corporate social responsibility (CSR), not every effort has the same potential to create a lasting impact.

    Your activities should be authentic, sincere, and aligned with your core business strategy. Only then will they allow you to contribute positively to the community while building trust, reputation, and your business' team spirit.

    Here are potential CSR activity ideas that your business can explore.

    1. Volunteering days

    Arrange opportunities for employees to volunteer together for a local charity, non-profit, or community organisation. This could involve cleaning up a park, helping at food banks, or local shelters or support organisations.

    2. Skills-based volunteering

    Host opportunities for employees to share their professional skills with local schools, community centres, or non-profits. This could be through one-off activities or ongoing mentorship programmes. For example, employees could teach reading, coding, financial literacy and other valuable skills, or offer help with things like career advice, resume-building, interview preparation and more.

    3. Environmental initiatives

    Plan eco-friendly activities such as tree planting, beach clean-ups, or urban gardening projects. There may be recycling drives or habitat restoration projects in your community you can get involved in. Look for activities that not only contribute to the environment but also promote teamwork and camaraderie.

    4. Charity walk or run

    Offer staff the opportunity to participate in charity walks, runs, or bike rides. They may engage as individuals or form teams - either way, this is a great way to support a charitable cause while also promoting employee wellness through activity.

    5. Corporate blood drive

    Partner with local blood banks to organise blood donation drives. You may want to offer incentives to encourage participation and create a sense of achievement.

    6. Gift donation / wrapping for charity

    During the holiday season, invite staff to donate gifts for charity. You can also set up a gift-wrapping station in a public area or shopping centre, with proceeds going to a chosen charity. Employees can volunteer their time to wrap gifts for shoppers.

    7. Art for a cause

    You could host creative workshops for employees to make handmade items to donate, or organise an exhibition where their creative works are displayed. The sale proceeds of both could go to a charitable cause.

    8. Friendly competitions

    You could arrange trivia events and quizzes for employees to form teams and compete in friendly competitions. Charge entry fees and donate the proceeds to your chosen charity.

    You could also put on sports tournaments like football and golf, where teams can compete and raise funds for local charities or causes.

    Another idea could be to host a cooking or baking competition among employees, with the proceeds from ticket sales or entry fees, as well as the sales of cooked and baked goods going to a local food bank.

    9. Book or clothing drives

    Organise book or clothing drives within the company. Employees can donate items they no longer need, which can be given to local schools, libraries, shelters, or organisations that support those in need.

    10. Community picnics

    Hold picnics or outdoor events for employees to socialise with each other and community members. Combine these events with activities like games, music, and food stalls that support local vendors. Collect entry fees and donations and pass these on to your charity of choice.

    Remember, the key to choosing meaningful CSR activities is to align them with your overall business goals and values. Involve your stakeholders and employees in the planning process to ensure buy-in, and avoid engaging in superficial gestures - eg greenwashing.

    Make sure that you choose activities and projects that allow you to integrate CSR genuinely into your business practices.

    Finally, remember to measure the effects of your CSR and adjust your practices accordingly for a lasting positive impact.

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Growing a successful business - OutsideIn

In this guide:

  • Importance of business growth

    Understand why growth is good for business, common reasons for growth and how to identify growth opportunities.

    Growth is crucial to the long-term survival of a business. It helps to acquire assets, attract new talent and fund investments. It also drives business performance and profit.

    Why is growth in business important?

    There are many reasons growth can be good for business. For example, it may allow you to:

    • take advantage of new opportunities
    • expand your products or services
    • attract more customers
    • increase sales
    • employ more staff

    It may also help you to respond to market demand, increase your market share and capitalise on your growing brand. It often spurs innovation, helping you to differentiate in the market and stave off competition.

    Growth can also boost your business' credibility, allow you to broaden your supply base and increase stability and profits. However, to be successful and sustainable, growth must be strategic and must happen for the right reasons.

    You should examine carefully if your business is ready to achieve and sustain growth.

    Reasons for business growth

    Most businesses grow to become bigger, perhaps through increased sales or market share, but size isn't the only driver. Some businesses pursue growth for:

    • greater sustainability or resilience in the market
    • lower costs - due to economies of scale
    • greater market dominance
    • greater buying and bargaining power
    • ability to mitigate commercial risks - eg through diversification
    • ability to reduce the threat of competition
    • ability to survive market fluctuations and downturns
    • ability to attract the best talent and staff

    Whatever the motivation is, a full evaluation of the advantages and disadvantages of growing your business is always advisable. 

    Deciding how to grow

    There is no one way to grow a business. You may want to expand your service area, form business partnerships, launch new products in existing markets, diversify your existing product line or explore other business growth strategies.

    The prospect of growth is exciting, but it requires careful planning and preparation. Follow these tried and tested tips to help you prepare for business growth.

    You can also get free advice and guidance from your local council to help you grow your business and scale up operations. To request support, complete a short enquiry form or call the Go Succeed helpline on Tel 0800 027 0639.

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  • Business growth strategies

    Different types of business growth strategies, and how to use tools such as the Ansoff matrix to assess the benefits and risks of each option.

    There are many ways to grow a business. Which way you choose to expand largely depends on your ambition, your reasons for growth, and the opportunities and resources available. However, two crucial factors for choosing a growth strategy exist. They are:

    • products - what you currently offer, and what you'd like to offer in the future
    • markets - where you currently sell, and where you'd like to sell in the future

    Based on these factors, strategic tools - such as the Ansoff matrix - suggest four main types of business growth strategies.

    What are the four major growth strategies?

    Four main strategies for growth, each with their own distinct benefits and risks, are:

    • market penetration
    • product development
    • market development
    • diversification

    With a market penetration strategy, you try to sell more of the same things to the same market. The risks are usually low as you focus on capturing a bigger share of your current market with the products you already have.

    With a product development strategy, you are introducing a new product into your existing market. You're effectively selling something different to the same customer, potentially encountering greater risks.

    Another option is a market development strategy, where you try to sell an existing product in a brand new market. For example, you may want to segment your existing market or reposition your product in it, or target an entirely different geographical area.

    Finally, with a diversification strategy, you are aiming to sell completely different goods or services to completely different customers. This is typically the riskiest of options - it requires both product and market development.

    Other ways to grow your business

    Every business is different. You may need to adapt some of the suggested strategies to suit your circumstances. For example, you may want to explore:

    • acquisitions
    • franchising
    • strategic partnerships
    • improving efficiency in your business

    You may also want to construct your own unique combination of strategies.

    The best approach will usually be the one that suits your overall strategic plan. Focus on finding an option that could yield the most results from the least amount of risk and effort.

    Keep in mind that, to succeed, your growth strategy has to be deliberate. Success will require a great deal of research and planning - see tips to help you prepare for business growth.

    You can also get free advice and guidance from your local council to help you grow your business and scale up operations. To request support, complete a short enquiry form or call the Go Succeed helpline on Tel 0800 027 0639.

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  • Market penetration strategy

    Understand what market penetration is, how to measure it and tactics to use to help you gain market share or grow revenue through sales. 

    Market penetration is one of the four main business growth strategies. It involves selling your existing products or services into your existing markets with the aim of increasing your market share. 

    According to the Ansoff matrix, this growth strategy typically carries the least risk, especially in the early stages of starting a business.

    Market penetration tactics

    For an effective market penetration strategy, you must have a successful product and a detailed understanding of your market and competitors. Common tactics include:

    • increasing the market share of current products
    • increasing the usage by existing customers
    • dominating growth markets
    • driving out competitors from a saturated market

    Different strategies can help you to increase the market share of existing products, including:

    • price adjustments
    • sale promotions
    • targeted advertising
    • opening of new distribution channels, such as online sales

    You can also segment your customers to identify a new demographic for your product, eg a different age group. Businesses often rely on advertising and marketing to attract and sell to specific demographic groups in their markets.

    If your market is saturated, you may need to find another approach to drive out competitors. For example, raising or lowering your prices and heavily promoting your products can help make the market unattractive or inaccessible to smaller competitors.

    If you can compete on price and offering, you may look at ways of increasing usage by existing customers. For example, you can introduce loyalty schemes or add value to the existing product or service to encourage more frequent use.

    How to measure market penetration

    Market penetration is often expressed as a rate or a ratio that measures your product's performance against the total market. It also relates to the number of potential customers that buy your product instead of a competitor's product.

    As a metric, market penetration is expressed as a percentage. You can calculate it by taking the current sale volume of your product and dividing it by the total sale volume of all similar products on the market. The result is then multiplied by 100 to move the decimal and create a percentage. As a formula, this looks like:

    Market penetration rate = (Number of customers/Target market size) x 100

    You should regularly monitor your market penetration to identify any upward or downward trends. The higher the market penetration rate, the more likely it is that your business will be considered a market leader in the industry. 

    If market penetration isn't suitable for your product, service or business, you may want to consider other business growth strategies such as market development or diversification.

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  • Product development strategy

    How to create a product development strategy and use tactics such as brand expansion to increase your sales and market share.

    Product development strategy relies on developing new products or modifying existing products so they appear new, and offering those products to current or new markets. When executed successfully, it can lead to growth in sales and market share.

    Typically, businesses may look at product development if they've run out of opportunities for growth with their current product or within their current markets.

    Growth through product development

    With product development, a business usually has one of three choices. You can:

    • create an entirely new product
    • evolve your existing product for its existing market
    • enhance your existing product to introduce it to new markets

    Steps to create a new product or enhance an existing one are likely to include detailed research and development, a full assessment of customer needs, product design and analysis, design documentation, prototyping and production.

    Each company approaches its product development strategy differently. Some businesses outsource product development and buy-in another product to sell it under their own brand. Others acquire the rights to sell someone else's product or work with another business to jointly develop new products. 

    The key to a successful new product development process is continuous research, as well as the ongoing assessment of customer needs.

    Brand extension strategies

    Brand extension, or brand stretching, is a useful tactic in product development. It involves using your established brand name for a new product or new product category.

    You can extend your brand in many ways, including:

    • offering the original product in a new form
    • combining two well-known products into one
    • applying the existing brand to a different product category
    • creating complementary products

    Brand extension is a popular strategy within product development because it is usually easier to achieve than creating entirely new products.

    It allows you to leverage your reputation and popularity of an existing product to launch a new one. The costs are also generally lower than they would be for introducing a new product without any brand identity.

    However, to work, the brand extension must provide a logical link between the original product and the new item. If there is a mismatch, or the new product creates a negative association, this can lead to brand dilution. Find tips on using and managing your brand.

    Keep in mind that product development is only one of four key business growth strategies. Others include market penetration, market development and diversification.

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  • Market development strategy

    How to create a market development strategy and use pricing, distribution and promotional tactics to increase your sales and market share.

    Market development is a growth strategy that involves selling your existing products or services to a new group of customers. It begins with market research where you:

    • carry out a segmentation analysis of your existing market
    • shortlist those market segments which you feel you should pursue

    A segment is simply a smaller sub-group of a larger population. To identify a target market segment, you should look at factors like:

    • new geographical areas
    • new demographic segments
    • new customer needs
    • customer preferences, interests and lifestyle

    You may want to look at customers typically served by your competitors, or customers currently not served by anyone. 

    Once you identify your target segment, you should create a promotional strategy and find ways to attract and sell to customers within it.

    Common market development strategies

    Key market development strategies you could consider include:

    • pricing - you could implement competitive price structures with offers and discounts or, to command a higher price, provide a product with more value than the competitor's
    • distribution - you could develop new channels to reach target customers, eg sell online if you currently only have a 'brick and mortar' shop
    • branding - you could create a new brand for products aiming to reach a target market or a specific customer segment
    • promotion - you could consider tailoring promotional messages to entice customers with offers, vouchers, loyalty schemes, etc
    • sales - you could target a different demographic segment or type of customer to create new leads and opportunities
    • product development - you could alter an existing product or develop a new one for the untapped market

    See more on product development strategy.

    As well as attracting new customers, market development also looks at expanding sales through new or alternative uses for your product. Think about how you can get your current customers to use your product in a new way. 

    Market development vs market penetration

    The key difference between market development and market penetration is that market development strives to increase market potential. It does this by expanding into untapped market segments. With market penetration, the market size is fixed so the strategy focuses on maximising the potential of an already existing marketplace.

    See more on market penetration strategy and other business growth strategies.

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  • Business growth through diversification

    Risks and rewards of diversification, the different strategies you can use, and how to diversify your business for growth.

    Diversification is a growth strategy that involves entering into a new market or industry - one that your business doesn't currently operate in - while also creating a new product for that new market.

    Different types of diversification strategies

    There are several different types of diversification:

    Horizontal diversification

    Horizontal diversification is when you acquire or develop new products or services that are complementary to your core business and appeal to your current customers. For example, an ice cream business adds a new type of confectionary into its product line. You may require new technology, skills or marketing approach to diversify in this way.

    Concentric diversification

    Concentric diversification involves adding new products that have technological or marketing synergies with existing product lines or industries, but appeal to new customers. For example, a PC manufacturer starts producing laptops. You may be able to leverage your existing technologies, equipment and marketing to diversify in this way.

    Conglomerate diversification

    Conglomerate diversification occurs when you add new products or services that are entirely different from and unrelated to your core business. For example, a film studio opening up an entertainment park. The risks are high, as this approach requires you not only to enter a new market, but also to sell to a new consumer base.

    Vertical diversification

    Vertical diversification or integration is when you expand in a backward or forward direction along the production chain of your product. In this approach, you may control more than one stage of the supply chain. For example, a film distributor produces its own content, or a technology manufacturer opens its own retail store.

    Deciding how and when to diversify will require:

    See how to diversify your business.

    Advantages and disadvantages of diversification

    There are pros and cons to each of the different diversification strategies. A successful diversification can help you:

    • increase sales and revenue
    • grow market share
    • find new revenue streams
    • achieve higher margins compared to existing products
    • limit the impact of changes in the market

    On the other hand, diversification will incur development, sales and marketing costs. It will also require additional skills, management and operational resources. If these demands exceed the potential revenue and profit gains, diversification can put your business at risk. For example:

    • diverting funds and resources into diversification may limit potential growth in core areas of your business
    • lack of knowledge or expertise in the new industry or market may lead to costly delays or mistakes
    • diversifying too quickly may cause you to lose track of or dilute your core products or services
    • if you stretch your resources too widely, you may struggle to provide a consistent level of service, which can lead to dissatisfaction and customer losses

    In general, diversifying with similar products or services and selling them to a familiar customer base is less risky than some other business growth strategies, such as creating a product for a completely new market.

    Diversification can be a great way to maintain business stability. It allows you to hedge your bets and, if one of your markets or products fails, you have another to back you up until you recover.

    Find tried and tested tips to help you prepare your business for growth.

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  • Business growth through acquisition, mergers and partnerships

    Understand the power of partnerships in business and how to use acquisitions, joint ventures and mergers to grow your company.

    As well as growing your business organically, you can also expand by joining forces with another business. While this can create problems around decision-making and possible management and staff issues, there can be clear advantages.

    Benefits of business cooperation

    Successful business cooperation can deliver:

    • more resources
    • sharing of the managerial load
    • larger skills and talent base
    • bigger pool of contacts
    • increase in markets
    • diversification and organic growth using increased resources
    • reduced commercial risk

    The right partner should complement your core brand and business development goals, so consider carefully the type of partnership you plan to pursue to ensure the best chances of success.

    Partnerships and joint ventures

    Joint ventures and partnerships can offer both partners significant benefits, including sharing experience, skills, people, equipment and customer bases. Through a partnership or a joint venture arrangement with a complementary, non-competitive business, you may be able to open new markets or improve your offer to existing ones. But it's important to choose your partner carefully.

    An agreement or contract defining the terms of the partnership or joint venture is essential and further legal protection is advisable. See how to create a joint venture agreement.

    Teaming up should be a win-win situation for both parties. Businesses involved with complementary activities or skills are usually the most appropriate candidates. For example, a group of sole traders - a carpenter, builder and gas installer/electrician - could form a company to:

    • increase their credibility in the construction trade
    • allow them to bid for larger contracts
    • appeal to customers looking for a 'one-stop-shop' service

    Find out more about joint ventures and business partnerships.

    Mergers and acquisitions

    Growth through acquisition or merger is a common tactic used to achieve diversification and market positioning. It can help:

    • increase market share
    • expand the workforce
    • widen the existing service or product offering
    • grow revenues
    • achieve economies of scale
    • reduce costs through shared budgets and greater purchasing power

    However, combining two businesses can pose challenges that did not exist before, such as:

    • maintaining a presence in multiple markets
    • managing a complex product and services portfolio
    • retaining a larger and more diverse customer base
    • managing more people and operational complexity

    Find out more about mergers and acquisitions.

    Acquisition and merger may not be suitable business growth strategies for all businesses. They are more suited to established enterprises, as transactions may involve commercial lawyers and considerable legal work.

    You should thoroughly plan, research your options and strategically pursue the right type of growth for your business. If you decide that growth through partnerships isn't the right fit for your business, you may want to grow your business organically.

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  • Planning for business growth (video)

    Watch our short video tutorial to find out how to carry out a business review and prepare your business for growth.

    This short video explains what you must consider as you prepare your business for growth. The tutorial tells you how to:

    • carry out a business review - covering things like premises, location, equipment, staffing, current financial situation, staffing, customers, competitors, etc
    • know if you are ready to grow - discussing some common business growth implications and suggesting how to avoid problems during business growth
    • explore different ways to grow your business - eg through market penetration, market development or product development, or other business growth strategies
    • put together some concrete goals - by planning strategically and preparing a business plan for growth

    For quick takeaways from this video, see our tips to prepare your business for growth.

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  • Financing for business growth

    Introduction to financial planning for growth, including equity, venture capital and funding from business angels.

    Sound financial planning is the foundation of any business growth strategy. Firstly, you should establish:

    • how much investment you will need to fund the venture
    • when you will need it
    • when it will be available
    • how soon you will be able to repay the capital

    It's important to detail all the costs incurred in getting your growth option underway and compare them against the anticipated profits. You must be realistic and practical when setting business growth objectives.

    Financial forecasts

    A detailed cashflow forecast is essential, not least because outgoings are almost certainly going to rise sooner and faster than revenues. You must have enough money in the pot to keep the core business running. It's a good idea to build in some surplus too, since projects of this nature often run over.

    As well as cashflow, you may need to draw up detailed forecasts regarding sales, working capital and sources of seed funding, or any subsequent funding. See how to tailor your business plan to secure funding.

    Financial investment

    Apart from bank finance, businesses looking for capital investment have three main sources:

    • Equity finance is money invested in a business that is not directly repayable. It could be your own, most likely raised through remortgaging a property, or money from others taking a share in the ownership of the business. 
    • Venture capital is also known as private equity finance. Unlike business angels, venture capitalists look to invest large sums of money in return for equity in (ie a share in the ownership of) your business. 
    • Business angels are private investors taking a minority or majority stake in a business, often contributing valuable business experience in the form of advice and contacts.

    There may also be some development or enterprise grants or loans available in your area.

    Return on investment for growth

    A common way of measuring the profitability of a business is by calculating the return on investment or ROI. This ratio tells you what percentage of return you can expect to get over a specified time. Many expanding businesses use three to five year timescales.

    To determine your ROI, you should take the total investment figure, work out the increased sales for each year and the resulting net profit, and calculate that as a percentage of the investment.

    For example, suppose a business wants to add a new product line. It will require an investment totalling £200,000 in development costs, plant, marketing and promotion. The new line should generate £400,000 in sales and £40,000 in net profit each year. The table below explains how to work out the growth ROI:

    Timescale Additional net profit in period ROI calculation (net profit/investment x 100) ROI (%)
    One year £40k 40k/200k x 100 20
    Three years £120k 120k/200k x 100 60
    Five years £200k 200k/200k x 100 100

    It's a good idea to test the ROI with a number of different sales figures. While you may think additional sales could reach £400,000 a year, a number of factors - such as development problems, delays or sales and marketing issues - may result in lower sales in the early stages. You may also wish to adjust your calculation to allow for annual inflation.

    See also how to measure your financial performance.

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  • Top tips to prepare your business for growth

    Practical suggestions to help you maximise your business potential and plan an effective and sustainable growth strategy.

    Expanding your business and achieving sustainable growth is an exciting prospect. However, it requires careful planning and preparation to ensure success. Here, we offer some practical tips to help you to optimise your business' potential and prepare for growth.

    Assess your current performance

    Understanding the strengths and weaknesses of your business is necessary for growth. Analysing your business' performance will give you valuable insight to start planning your growth strategically. It will also enable you to seize the right opportunities and address any shortcomings going forward. See how to measure performance in business.

    Set clear goals and strategies

    To prepare your business for growth, it is essential to outline clear goals and develop strategies to achieve them. Take time to define desired outcomes, identify target markets, choose the right growth strategy and establish actionable plans to reach your objectives.

    Consider your resources

    Growth uses up a lot of time, money and talent. Operational issues can hinder progress, so decide early on how you will finance growth. Look at processes to streamline operations for efficiency, and invest in talent to ensure that you have the right staff to support growth.

    Embrace technology

    Technology is critical to driving innovation and growth. Assess your current systems to identify areas where upgrades (such as new software, automation or data analytics) could make the greatest difference in terms of efficiencies, customer experience and decision-making. Find ways to use technology for better productivity in your business.

    Explore strategic partnerships

    Collaborating with the right partners can open doors to new markets, resources and expertise, and greater competitive advantage. To accelerate growth, seek partnerships that align with your growth plans, complement your offerings and combine complementary strengths for mutual benefit. Read more about business growth through partnerships.

    Focus on customer experience

    Take time to fully understand your customers' needs, preferences and pain points. Customer retention and loyalty are paramount to any scaling plans, so keep their satisfaction a priority as you prepare to grow. Tailor your products and manage your customer service to help drive growth and distinguish you from your competitors.

    Stay agile

    If you're planning to expand, but the market trends and customer preferences are changing rapidly, build strategic agility into your plans. Being agile while maintaining a growth mindset will help you overcome obstacles, build resilience and manage change.

    Remember to stay proactive and strategic in your approach to preparing your business for growth. For more tips, see how to grow your business successfully.

    Support to grow and scale

    You can get free advice and guidance from your local council to help you grow your business and scale up operations. To request support, complete a short enquiry form or call the Go Succeed helpline on Tel 0800 027 0639.

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  • Improve the way your business operates (video)

    Video explaining how to change the way your business operates to improve performance.

    This short video explains how to change the way your business operates to improve performance by focusing on personnel, infrastructure and strategy.

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  • Assess your options for business growth

    Growing a successful business - OutsideIn

    David Johnston, founder and CEO of OutsideIn, explains how his company has grown and shares key lessons from its journey.

    OutsideIn is one of the UK's fastest-growing streetwear brands. The business has focused on addressing homelessness since launching in 2016 and has grown from a single-person start-up to a recognisable brand sold across the UK, Europe and US markets.

    David Johnston, founder and CEO of OutsideIn, discusses ways his company has grown and shares key lessons from its journey.

    Getting started

    "Before I started the business, I had volunteered at homeless charities and helped run a street photography page in Edinburgh. Through this, I met many people experiencing homelessness. I felt a strong desire to help and realised their need to feel valued and deserving of new clothing."

    "I formed OutsideIn and created our 'Wear One, Share One' initiative where, for every item of clothing that our customers purchase, we donate another item to someone experiencing homelessness. We have now donated hundreds of thousands of products across the globe."

    "In 2017, we won a competition and got a free stall at the Belfast Christmas Market. Despite preparing for weeks to ensure we had enough stock, we sold everything within days."

    "People seemed to love our products and also wanted to support rewriting homelessness. It made me realise there was room to grow because homelessness is not just a Northern Ireland problem."

    Diversifying our products

    "The business has changed much since the beginning. We started as an online business selling only winter headwear. Once winter ended, our product was no longer in demand, and we realised we needed to diversify our range to keep running the company. We now sell t-shirts, fleeces, sweatpants, hoodies, socks and much more."

    "That said, we try not to launch too many things together. We prefer to focus on and perfect one product to ensure we don't compromise quality before developing the next one."

    Diversifying our sales

    "From starting online, we now sell through events and pop-up shops across the UK. We also have a small permanent shop in Belfast."

    "Some of our early events flopped. There were times when we sold two products over five hours. In contrast, when we found people interested in our range, we could sell two hundred products in that same timeframe. Every setback has come with great learning."

    "The pandemic hit us hard, like many businesses. Events generated 50% of our revenue at that stage, so we had to refocus on online sales. We strengthened our social media presence, improved our website and coordinated online advertising. This shift allowed us to grow into new markets and quickly adapt to external factors outside our control."

    Devising our growth strategy

    "We knew we had to prepare for growth from a logistical and cash flow perspective."

    "We looked at our hiring capabilities, HR, warehousing and products. We ensured we created systems and workflows that were fit for the future and can accommodate our growth - this has been critical."

    "Had we not strategised or planned for growth, we wouldn't be here."

    "Focus groups have been helpful for new markets such as America or Europe. They have helped us understand the different needs of customers there, whether it be online shopping experience or fashion choices."

    "Analytics data has helped with the strategic planning of where we should try a pop-up shop, telling us where our customers are from and which cities we need to target."

    Mitigating risks

    "It's important to take time to assess every opportunity. The larger you grow, the greater the cost of it going wrong. The bigger the risk, the more time we typically spend assessing."

    "Having people in your team that don't think as you do has been critical. I want to take risks, but having someone on my team who is risk-averse has helped us grow at a safe rate and prevented us from going off track."

    "Establishing different revenue streams has been another way to lower risks."

    "Other things, like getting help from Invest Northern Ireland with recruitment and exports and learning from experienced mentors and other businesses along the way, have been vital in supporting our growth."

    Lessons learned

    "If there's one key learning I would share with other business owners, it would be to make sure to breathe and switch off. Trying to do it all yourself can lead to burnout. I think getting key roles into our business quicker and taking that risk sooner would have helped to structure it at a better point."

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Thinking about growing your business (video)

In this guide:

  • Is my business ready to grow?

    Common reasons why you may want to grow your business and how to tell if you're ready to expand.

    Growing a business is a strategic goal for many ventures, but it isn't always easy. You should only grow your business when you have clear reasons to do so, and the right indicators show that you are ready to achieve and sustain growth.

    Reasons to grow your business

    There are several reasons that motivate most businesses to grow. These include:

    • higher profits - increase in sales usually leads to more revenue
    • more customers - the volume of customers may give you greater security
    • cost savings and efficiencies - achieved through economies of scale
    • greater market dominance - to guard against smaller competitors
    • risk mitigation - achieved through diversification of production and sales

    Read more about the advantages and disadvantages of growing your business.

    When is the right time to grow your business?

    Over their lifespan, businesses go through several phases. It takes a while to start a business and get it established. Then you need to decide whether to continue to run your business as it is or to grow it. This will partly depend on your business goals and exit strategy.

    Trying to grow too early or trying to grow when your business is busy with other things - eg the development of a new product - can be a mistake. Make sure that if you do decide to grow your business, you expand at the right time.

    Types of business growth

    As well as your timing, it is also important that you choose the right sort of business growth. You can grow organically by selling your existing products to new markets or by selling new products to your existing customers. Alternatively, you can grow rapidly by buying another business. Learn more about rapid and organic business growth.

    SWOT analysis for business growth

    To make sure that you go for the right sort of growth, at the right time, you need to work out how your business is currently performing. There are several ways to do this and one way is to perform a SWOT analysis, which stands for:

    • Strengths
    • Weaknesses
    • Opportunities
    • Threats

    See a SWOT analysis example.

    As well as analysing your own business, you should also examine the market you operate in and your competitors. 

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  • Advantages and disadvantages of growing your business

    Consider all the advantages and disadvantages of business expansion before investing in growth.

    For many businesses, growth signals success. It creates new opportunities, brings in more customers and generates greater profits. However, expanding your business isn't without risks. You should carefully consider the pros and cons of expansion before pursuing business growth.

    Advantages of growth

    Possibly the greatest competitive advantage of business growth is the ability to capitalise on economies of scale. As you increase your production output, you can bring down costs per unit and achieve savings across:

    • purchasing - by getting discounts for buying in bulk
    • marketing - by spreading the cost of promotion over larger sales
    • overheads - by spreading the staff or administrative costs across a greater output

    Business growth can also enable you to:

    • increase your resources and stock
    • generate more sales and profits
    • reach new customers or markets
    • put more money back into your business
    • influence market price
    • reduce external risks (eg from competition, market or technology changes)

    Expansion can also give an impression of greater financial viability of the business. Financial institutions often see larger businesses as more credible and stable than their smaller competitors.

    Diversifying into new markets, products and services means that if one part of your business is exposed to market changes, you can rely on other income streams. 

    Disadvantages of business growth

    Larger businesses tend to be more complex than smaller businesses. Some of the common disadvantages of business expansions are:

    • shortage of cash - you may need to borrow money to meet expansion costs, eg buy new premises or equipment
    • compromised quality - increasing your production output may lead to a decline in quality, which can lead to loss of customers or sales
    • loss of control - as your business grows, you may need to delegate management duties or divide the workloads between different locations
    • increased capital requirements - a larger business means a larger workforce, more facilities or equipment, and more investment
    • increased staff turnover - for example, if staff are given extra work, their morale could drop, their productivity could decrease or they could leave your business

    It's important to understand that growth can be a disruptive force. It can affect every single aspect of your business and put pressure on your staff, resources and finances. This is why you need to plan carefully and ask yourself the key question - is my business ready to grow.

    If you're ready, follow some tried and tested tips to help you prepare your business for growth.

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  • Types of business growth: rapid and organic

    There are many different ways to grow your business, and at different paces - some strategies are riskier than others.

    Determining the best way to grow your business requires a strategic plan and a good understanding of the different ways a business can grow. Slow, organic business growth is basic, but arguably the most effective means of growth. Rapid business growth, on the other hand, may be more profitable but often involves significant risks.

    It is worth considering all types of business growth when assessing the best route for expansion.

    Organic business growth

    Organic growth typically takes longer than other growth strategies but tends to be safer. This is because you are growing by doing more of what you are already good at. You also have more time to develop the right capabilities to support and manage your expansion.

    You can follow several paths to achieving organic growth. You can grow organically by selling:

    • your existing product range to new customers
    • your products in new geographical areas
    • via additional distribution channels - eg the internet or a wholesaler

    In order to sell your existing product range to new customers or in new territories, you may simply need to launch an advertising campaign or expand your sales team. See more on market research and market reports.

    If you decide to use new distribution channels, make sure that this generates new sales rather than simply takes sales from your existing distribution channels. Find out how to increase your market share.

    Another way to grow organically is to sell new products to your existing customer base. For example, if you are a travel agent you could also start selling travel insurance to your customers.

    Rapid business growth

    Rapid growth occurs within a short time, often in response to an unexpected opportunity or a successful growth strategy. In this period, your staff, production levels or customers may greatly increase at speed. This can lead to certain risks and challenges, such as:

    • cashflow shortfalls
    • operational inefficiencies
    • customer service issues
    • outgrown premises

    Businesses often have to take on a lot of debt to finance their growth. As well as this, fast growth increases the rate at which cash leaves your business - your costs will grow to accommodate increased demand. All this means that, if growth spirals out of control, it can put your business' financial solvency at risk.

    Find tips to help you avoid problems during business growth.

    One way you can achieve rapid growth whilst minimising risk is by buying another business. You could buy the whole business or you could just buy part of it. The business could be one of your competitors or it could be a business that would complement the range of goods and services that you supply.

    Growing a business is exciting but it will only be worthwhile if you can actually achieve and sustain growth. Before you rush into things, ask yourself first - is my business ready to grow.

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  • Business growth implications

    Growth can have many implications for your business - it will affect your premises, equipment, staff and IT systems.

    If you have decided to grow, there are several things you will need to consider.

    Finding new business premises

    Firstly, you may need larger business premises to:

    • store extra raw materials and finished stock
    • accommodate new staff
    • house any extra machinery that you will need
    • accommodate extra visitors that may come to your business premises

    You may be able to extend your existing premises to give you this extra space. Alternatively, you might need to consider moving to larger premises.

    Finding new employees

    You may also need to hire additional staff. If you are growing organically you will need to allocate resources to:

    • advertise for staff
    • conduct interviews
    • train your new recruits

    Read more about your options when recruiting staff.

    If you are growing by buying another business, you may be legally responsible for the staff from the business you are buying. Read about the responsibilities to employees if you buy or sell a business.

    Scaling up your IT systems

    You will also need to think about your IT systems. You should consider whether you need to:

    • upgrade your accounts, stock control and customer relationship management systems
    • buy additional licences for your existing software
    • expand your IT network

    See how to plan your business IT systems.

    Finding finance for growth

    Sustainable growth will need an investment of both time and money. If you are growing, and especially growing rapidly, you may find that the increased demand is affecting your cashflow. Learn the basics of cashflow management.

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  • Avoid problems during business growth

    Common issues that businesses often face during growth, and tips for overcoming these difficulties through proper planning and management.

    There are many reasons why a growth strategy can cause problems for a business. Common challenges of growth include:

    • poor market research
    • insufficient planning
    • drop in customer service levels
    • lack of control
    • inadequate management systems
    • staff morale affected by increased workloads

    Below are some key pieces of advice to help you overcome the challenges and problems associated with growth.

    Plan your business growth

    Poor planning is one of the main obstacles to growing a business. You should research the market you intend to break into thoroughly and don't set your sights too high. 

    Financial planning is also vital. You have to invest money up front during the growth phase and the return on that investment can take a while to be realised. See more on financing growth and how to prepare a business plan for growth.

    Maintain business relationships

    It is also important that you don't forget to look after your existing customers while you are looking for new ones. Your competitors won't stop trying to take business away from you. Make sure you maintain your customer service levels and communicate with your customers regularly if it's appropriate to do so.

    Another common problem during business growth is poor control, especially in the supply chain. The relationship with your suppliers is likely to be under strain during the growth phase. You may require increased stock, raw materials and other assets, so you need to ensure you have systems in place to manage all of these.

    Manage and motivate staff

    Employees are important in any business, but during the growth phase, you may need to hire additional staff. It is vital that you get the right people, so allocate enough time and resources to select skilled staff and train your new recruits.

    You will also need to manage your existing staff carefully to ensure that your growth strategy doesn't lower their morale. To lead your staff through growth, communicate with them regularly, be clear on what you are trying to achieve and what you expect from them.

    Manage your own workload

    Finally, when a small business grows, the owner's workload increases. The larger the business, the more time it takes to manage it. Consider which of your tasks you can delegate to other members of your staff in order to free up your time to concentrate on key issues.

    See more tips on how to grow your business successfully.

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  • Thinking about growing your business (video)

    Short video tutorial covering some important points to consider before growing or improving your business.

    Watch this short video tutorial to understand what you should consider before growing or improving your business.

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Choose between single or multiple supplier strategy

In this guide:

  • How to find the right suppliers

    Where to find prospective suppliers that can provide you with the goods or services you need at the price you want.

    Finding the right supplier is vital for building a successful business. Think of suppliers as your business partners. Whether they provide you with services like internet, with distribution or raw materials, your supplier is an essential link in the chain of your business operations.

    Where to find suppliers?

    You can find suppliers through a variety of online and offline channels. Looking at different sources may give you more options to shortlist possible suppliers. No matter where you look, the search is likely to be easier if you know exactly what you're looking for.

    Decide in advance what type of supplier you need and consider the levels of service, quality and price you are willing to accept.

    Seek referrals and recommendations

    Word of mouth can be a good place to start searching for a supplier. Ask friends and business acquaintances about their experiences. You're more likely to get an honest assessment of a supplier's strengths and weaknesses from someone who has used a supplier before.

    Search business directories

    If you're looking for a supplier in your local area, it's worth trying online directories. For example, the High Value Manufacturing Catapult operates a free-to-use UK Supply Chain Directory. You can use this online tool to: 

    • find new suppliers and customers
    • map the UK's capability in their sector or area
    • inform national programmes in manufacturing

    Find out more about the UK Supply Chain Directory.

    Consult business advisers

    Business advisers can help steer you in the right direction when it comes to finding an experienced, well-regarded supplier.

    You may want to approach local enterprise agencies and Chambers of Commerce, or services such as Invest NI's Business Information Centre where you can use market research reports, company databases and worldwide business directories to help you find suitable suppliers.

    Contact trade associations

    If your needs are specific to a particular trade or industry, there will probably be a trade association that can match you with suitable suppliers.

    Visit trade shows and exhibitions

    These offer a great opportunity to talk to a number of potential suppliers in the same place at the same time. Before you go, check that the exhibitors are relevant and suitable for your business. Use the nibusinessinfo.co.uk Events Finder to find business events near you.

    Check trade press

    Trade magazines feature advertisements from potential suppliers. A selection of trade publications and trade press listings should be available at your local business library.

    When you identify a number of potential suppliers, you'll have to assess their offering against your business' needs and requirements. Discover how to set and use criteria for selecting a supplier.

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  • Criteria for selecting a supplier

    Critical factors you should consider when searching for potential suppliers for your business – including whether to choose single or multiple sources of supply.

    Suppliers play a critical role in helping companies succeed. In order to find the right ones, businesses need to consider a number of critical factors, including:

    • price
    • value for money
    • quality
    • reliability
    • responsiveness
    • flexibility

    Shared culture and location can also play a key role in a successful partnership. Effective purchasing should focus on what your business needs and what you want to achieve.

    Value for money

    If you are a start-up, a key consideration in choosing a supplier may be affordability. However, cheap suppliers don't always represent the best value for money. If you want reliability and quality from your suppliers, you'll have to decide how much you're willing to pay for your supplies. It is important to strike a balance between cost, reliability, quality and service.

    Quality and reliability

    The quality of your supplies needs to be consistent - your customers associate poor quality with you, not your suppliers. Equally, if your supplier lets you down with a late delivery or faulty supplies, you may let your customer down.

    Speed and flexibility

    Being able to place frequent, small orders lets you avoid tying up too much working capital in stock. Flexible suppliers help you respond quickly to changing customer demands and sudden emergencies. If you want to cut down the time it takes you to serve your customers, suppliers that offer you a quick delivery service will rate higher than those that compete on other factors - for example, on price alone.

    Strong service and clear communication

    Communication is important in ensuring a good working relationship with your supplier. From the initial briefing, through continual feedback and routine meetings, your supplier should communicate openly and regularly. You need your suppliers to deliver on time, or to be honest and give you plenty of warning if they can't.

    Financial stability

    It's always worth making sure your supplier has sufficiently strong cashflow to deliver what you want, when you need it. A credit check will help reassure you that they won't go out of business when you need them most. You can run a company search via GOV.UK.

    How many suppliers do you need?

    It's well worth examining how many suppliers you really need. Buying from a carefully targeted group could have a number of benefits:

    • it will be easier to control your suppliers
    • your business will become more important to them
    • you may be able to make deals that give you an extra competitive advantage

    However, it's important to have a choice of supply sources and carefully weigh up the advantages and disadvantages of single or multiple supplier strategy.

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  • Choose between single or multiple supplier strategy

    Advantages and disadvantages of single sourcing vs multiple sources of supply, and when two or more suppliers may be better than one.

    One of the key questions to ask when creating a supply chain strategy is whether to buy from one source or more. There are pros and cons to both approaches.

    Working with more than one supplier adds complexity to the supply chain, but it also provides protection against certain risks. Finding a balance between these two concerns is a key factor in deciding your optimal supply chain strategy.

    Advantages of using a single source of supply

    Single supplier strategy commits to purchasing a given resource from just one supplier. If the supplier is well-matched and reliable, this can offer some benefits to businesses. For example:

    • forging a relationship is easier with one supplier than with multiple ones
    • partnership approach may help build trust and shared benefits
    • costs may fall due to economy of scale if you order from just one supplier
    • integration of systems may be easier with a single supplier

    Disadvantages of single supplier strategy

    Relying on single sourcing can expose you to the possibility of not being able to get critical supplies if the supplier's operations are disrupted. Common drawbacks of this strategy include:

    • increased vulnerability of supply
    • increased risk of supply interruption
    • greater dependency between your business and the supplier

    If you decide to source from a single supplier, and they let you down, go out of business or become unable to meet the demand, you may find yourself in difficulties.

    Exclusivity may spur some suppliers to offer you a better service, but others may simply become complacent and drop their standards. This sometimes happens in cases of lopsided dependency, when the buying company becomes more dependent on the supplier than the other way around.

    Advantages of using multiple sources of supply

    Multiple sourcing strategy can benefit businesses that prefer to spread demand across a number of suppliers that, collectively, have more capacity and are more responsive to the buyer. It is also necessary when one supplier is unable to meet the total requirements of the buying organisation - for example, when a product has multiple components that no one supplier can produce.

    Common benefits of multiple sourcing include:

    • less reliance on any one supplier providing a safety net if a supplier runs into difficulties
    • more flexibility to cope with unexpected events that could jeopardise capacity
    • fewer bottlenecks as more suppliers are able to meet peak demand
    • competition often provides an incentive for suppliers to improve cost and service
    • competition between suppliers also often provides the buyer with more bargaining power

    Disadvantages of multiple supplier strategy

    Multiple supply sourcing may benefit dependency, flexibility and capacity, but it can complicate supplier relationships and require greater resources to manage them. As supplier numbers grow, the price tag often goes up and the following drawbacks can occur:

    • information sharing may become more complex
    • higher costs for contract negotiation, management, and process execution
    • lower order volumes reduce bargaining power
    • the ability to save through economies of scale in reduced
    • challenges can come up in terms of quality control and efficacy

    In general, smaller businesses tend to have less flexibility than larger ones when it comes to choosing suppliers. If you're considering multiple supply sources, you should balance the potential disadvantages of this strategy against the risks of supply interruption that could arise from having just a single supplier.

    Remember to consider all other relevant criteria for selecting a supplier.

    Focus your efforts on choosing and managing strategic suppliers who provide goods or services that are essential to your business. A strong relationship will benefit both sides. See more on managing supplier relationships.

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  • Shortlisting potential suppliers

    How to shortlist reliable suppliers and choose the right ones that could meet the needs of your business.

    The way in which you procure, brief and interact with potential suppliers is vitally important. It sets the foundation for your future relationship and, to a certain extent, the success of your partnership.

    To begin shortlisting candidates, draw up a list of your fundamental business requirements first. Include the products or services you need, the level of quality, stock requirements, delivery times and, finally, price. Check your list against the common criteria for selecting a supplier.

    What to look for when shortlisting suppliers

    Once you have determined your supplier criteria, research and identify suppliers that have a good track record of providing the products or services you need. If you don't know where to start, here are some tips on how to find the right supplier.

    When creating your supplier shortlist, ask yourself the following questions:

    • Can these suppliers deliver what you want, when you want it?
    • Are they financially secure?
    • How long have they been established?
    • Do you know anyone who has used and can recommend them?
    • Are they on any approved supplier lists from trade associations, local or central government? Find a supplier to central government.

    Try to narrow your supplier list down to no more than four or five candidates. It's a waste of time for you and the potential supplier if you approach them when there's little chance of them fulfilling your requirements.

    How to approach a supplier?

    Once you create a manageable shortlist, contact the candidates to see if they are interested in forming a business arrangement. Provide a clear brief, summarising what your requirements are and giving an idea of the level of business you hope to place.

    Rather than specifying exactly what you want to purchase, you may want to ask suppliers for their suggestions. For example, you might explain to technology suppliers what you want your new IT system to be able to do and ask them to come up with recommendations within your budget.

    Compare potential suppliers

    Once suppliers respond, evaluate their offers in terms of what matters most to you. For example, the quality of their product or service may be most important, while their location may not matter.

    Price is important, but it shouldn't be the only reason you choose a supplier. Lower prices may reflect poorer quality goods and services which, in the long run, may not be the most cost-effective option. Be confident that your supplier can make a sufficient margin at the price quoted for the business to be commercially viable.

    Avoid common pitfalls when choosing a supplier

    Wherever possible, meet potential suppliers face to face and see how their businesses operate. Check if they will be outsourcing any work to subcontractors, or rely on other suppliers for critical components or services. If so, you may want to assess these suppliers as well.

    Finally, remember that the labour practices and environmental record of your suppliers may affect your business' reputation. Read more about ethical trading.

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  • Carry out supplier due diligence

    What due diligence checks should you run on prospective suppliers before you enter into contract negotiations with them.

    Due diligence is a significant part of finding suppliers. Before entering into a contract, it's essential to make enquiries and carry out research on prospective suppliers to ensure that they are legitimate and trustworthy.

    How to run checks on a new supplier

    As a starting point, you should credit check potential suppliers to ensure they have the cashflow to deliver what you want, when you need it. This is especially important if you're entering into a long-term contract.

    For example, if there is a single supplier in a certain market, and there are no substitutes for the product or services they are offering, you need to be sure that it isn't at risk of going out of business. The supplier will probably also run checks on you to ensure you have the means to pay for its goods or services.

    As part of carrying out due diligence, you may also want to:

    • check business registrations and public documents
    • validate standards or quality accreditations
    • ask for samples, if applicable, to assess the quality of their supply

    The process can be as extensive or as brief as you want it to be. How much detail you go into should depend on how critical the supplier's product or service is to your business.

    Check customer reviews and references

    It's a good idea to get references for the supplier from other customers. The supplier should be happy to put you in touch with some of its existing or previous clients. If not, ask yourself what they might be trying to hide.

    It is unlikely that the supplier will put you in touch with a dissatisfied customer, so make sure that you do some independent searching. You may uncover some information online, or across some supplier forums - it may be subjective, but it should give you an indication at least of how a supplier operates.

    Sometimes a manager in a business bids for contracts and then passes the account to someone else. If this happens, make sure that you're happy with the person tasked to do the work - and that you can still deal with the manager if any problems arise.

    See how to build strong supplier relationships.

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  • Managing supplier relationships

    Key considerations around working with suppliers, including building and managing a successful relationship based on mutual gain.

    Suppliers play a central role in the success of your business and your ability to grow profits. It is therefore important to manage your suppliers carefully, to maximise the value of these relationships.

    Negotiate with your suppliers

    Before entering into a contract, you will have to negotiate a deal with your suppliers. Negotiation commonly focuses on costs, but this doesn't necessarily mean that you must pursue the cheapest possible price. You may want to negotiate other factors such as delivery times, payment terms or the quality of the goods.

    When you finish negotiating the terms and conditions of your relationship, it is important to draw up written contracts. See how to negotiate supplier contract.

    Agree service levels

    It's a good idea to agree service levels before you start trading so you know what to expect from your supplier - and they know what to expect from you. Make it clear what your priorities are and how you will assess their performance. A written contract can help you avoid uncertainty and minimise the risk of disputes.

    Maximise the value of your supplier relationship

    From the start, aim to build a good relationship with open communication between yourself and your suppliers. Regular contact allows you to deal with any problems before they escalate and find opportunities to work together more effectively.

    Look for opportunities to deepen the relationship with key strategic suppliers. Explain the direction of your business, any new plans you intend to pursue, and consider how the supplier could participate. For example, your suppliers may be able to give you advice on new technologies and materials that you could use to improve your products.

    Supplier performance reviews

    Regularly review your suppliers' performance. The reviews are a key component of supplier performance management, which can help you reduce costs, mitigate risks and drive continuous improvement in your business.

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Decentralised organisational structure

In this guide:

  • Flat organisational structure

    Understand the features, advantages and disadvantages of flat organisational structure and find out why you may need to flatten your organisation.

    Flat organisational structure is an organisational model with relatively few or no levels of middle management between the executives and the frontline employees. Its goal is to have as little hierarchy as possible.

    How does a flat organisational structure work?

    For a small business with a handful of employees, having a flat or horizontal structure is often the logical approach. The staff-level employees usually report directly to the business owner. There is typically no formal management structure.

    If a management level does exist, the chain of command from top to bottom in a flat structure tends to be very short. The span of control is wide with each management level controlling a broad area or group. Employees all report to one or few overall managers and are empowered to contribute to decision-making. Managers have the authority to make business decisions with little to no involvement from the top.

    What are the advantages of a flat organisational structure?

    While it will not suit all types of organisations, the benefits of a flat structure are:

    • better communication and relationships between different roles
    • better team spirit as there is less hierarchy
    • simple, faster decision making as the chain of command is shorter
    • better ability for the business to change and adapt
    • greater job satisfaction when employees are given more autonomy
    • more self-direction can lead to more innovation and efficiencies
    • ability to lower operational costs

    Flat structure is suitable for small to medium-sized organisations or companies that start flat and scale this approach gradually as they grow. The lack of hierarchy is rarely practical or scalable for larger organisations with hundreds or thousands of employees. Those types of companies tend to have a hierarchical organisational structure.

    What are the disadvantages of a flat organisational structure?

    Like any other organisational model, flat hierarchies have their downsides. The common disadvantages of a flat organisational structure are:

    • risk of generalisation and confusion if it's not clear who to report to
    • lower sense of accountability as employees may have more than one boss
    • risk of power struggles arising in absence of a formal system
    • lack of employee specialism and specific job functions
    • lack of long-term growth or opportunity for promotion
    • difficulties in scaling up and growing the company

    If they want to flatten their organisational structure, hierarchical organisations will need to invest significant time, resources and investment to achieve this.

    What does flattening an organisation mean?

    Flattening an organisation or transforming a hierarchical organisation into one with a flatter structure is known as delayering. This process involves:

    • opening up lines of communication and collaboration
    • removing one or more levels of hierarchy from the organisational structure

    Often, it is the middle management layer that is removed. Delayering doesn't necessarily mean cutting jobs and overheads, but it does usually increase the average span of control of the senior management within the business.

    Although challenging and time-consuming, flattening can be an effective strategy for boosting operational efficiency, decreasing wage costs and removing red tape.

    If you decide to change your organisational structure, make sure that you manage the process correctly. See best practices in change management.

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  • Hierarchical organisational structure

    Understand the features, advantages and disadvantages of hierarchical organisational structure and find out how tall hierarchy could benefit your business

    Organisational structures define a hierarchy within an organisation. The two most common arrangements include:

    • a flat organisational structure
    • a hierarchical organisational structure

    Each structure has its advantages and disadvantages. The most appropriate arrangement will depend on the size and the type of your business, and the number of management levels that you need. See reasons for changing your organisational structure.

    How does a hierarchical organisational structure work?

    A hierarchical structure is typical for larger businesses and organisations. It relies on having different levels of authority with a chain of command connecting multiple management levels within the organisation.

    The decision-making process is typically formal and flows from the top down. This creates a tall organisational structure where each level of management has clear lines of responsibility and control. As the organisation grows, the number of levels increases and the structure grows taller.

    Often, the number of managers in each level gives the organisation the resemblance of a pyramid. This structure gets wider as you move down - usually with one chief executive at the top, followed by senior management, middle managers and finally workers. Employees' roles are clearly defined within the organisation, as is the nature of their relationship with other employees.

    What are the advantages of a hierarchical structure?

    A hierarchical structure can provide benefits to businesses. For example, it can help establish:

    • clear lines of authority and reporting within the business
    • a clearer understanding of employee roles and responsibilities
    • accountability for actions or decisions at different management levels
    • clear career paths and development prospects which can motivate employees
    • opportunities for employees to specialise and develop expertise in their field
    • close supervision of employees through a narrow span of managerial control
    • a culture of loyalty towards teams, departments and organisation as a whole

    What are the disadvantages of a hierarchical organisational structure?

    Workplace hierarchies are not always effective. Common disadvantages of hierarchical structures include:

    • complicated chains of command which can slow down decision-making
    • inconsistencies in management at different levels which can impede work
    • delays in communicating vertically through the levels and horizontally between teams
    • less flexibility to adapt and react to environmental and market pressures
    • disconnect of employees from top-level management
    • a strain on the employee-manager relationship due to lack of autonomy
    • difficulties collaborating outside of the team 'silo' or dealing with team rivalry
    • considerable amount of corporate overhead to support the many management layers

    Generally, tall organisations are very complex. Strategies should be in place to deal with the challenges that are likely to occur under this structure. This could include creating a decentralised organisational structure - one in which senior management assigns the authority for limited decision-making to lower levels in the organisation.

    For some businesses, a tall organisational structure will not be appropriate at all. Find out more about the flat organisational structure.

    If you decide to change your organisational structure, make sure that you manage the process correctly. See best practices in change management.

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  • Organisational structure by product

    Pros and cons of product organisational structure or organising your business in separate divisions based around specific products or services.

    Product organisational structure is a framework in which a business is organised in separate divisions, each focusing on a different product or service and functioning as an individual unit within the company.

    What is a product-based structure?

    In a product-based structure (also known as a divisional structure), you assign employees into self-contained divisions according to:

    • the particular line of products or services they produce
    • the customers they deal with
    • the geographical area they serve

    The structure may have several layers of managers and employees. Each layer (ie division) can have its own marketing team, its own sales team, and so on. A manager typically reports to the head of the company by product type. Certain key functions (eg finance or human resources) may be provided centrally.

    For example, a computer software business may divide its structure according to its two distinct customer groups - home users and business users. In such an arrangement, all employees working on the development, sales or promotion of business software would be in one division, while everyone working on software for home users would be in another.

    Product structure advantages and disadvantages

    Product organisation may not suit everyone, but is likely to provide distinct advantages to those businesses that:

    • have particular product lines that are substantially different
    • require specialised expertise for production or distribution
    • target a few major customers that make up most of your business

    Product structure can also help your business:

    • focus on specific market segments
    • meet customer needs more effectively
    • extend knowledge or expertise within specialised divisions
    • respond to market changes more flexibly and quickly
    • encourage positive competition between each department
    • coordinate and measure the performance of each division directly

    Product organisational structure does have certain disadvantages, including being difficult to scale and potentially:

    • duplicating functions and resources, eg a different sales team for each division
    • dispersing technical expertise across smaller units
    • nurturing negative rivalries among divisions
    • over-emphasising divisional, rather than organisational goals
    • losing central control over each separate division

    Product or divisional structure is mainly suitable for larger companies with two or more key product lines, strategic customers or markets.

    For businesses operating in different markets or requiring distinct units, see also organisational structure by geographical area and decentralised organisational structure.

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  • Organisational structure by geographical area

    Pros and cons of geographical organisational structure for businesses that have offices or units in different geographical locations.

    Some businesses organise their activity according to geographical area or location. This is common in large multinational companies, but it may also suit medium-sized businesses. For example, a group of taxi firms, a small retail chain or a fast-food chain with several branches.

    What is a geographical organisational structure?

    A geographical organisational structure suits businesses that have offices or units in different regions or geographical areas. This form of structure enables businesses to:

    • have a reporting and functional system across multiple locations
    • operate separate sites according to local demand but still be directed by business policy

    Depending on the size of the business, each geographic unit may report to an executive who oversees several locations. Alternatively, it may report directly to top management located at the business' headquarters. The reporting structure can adapt to the size and industry of the business.

    The advantages of a geographical structure

    A geographical structure can offer several operational and strategic advantages, including:

    • close communication with local customers
    • strong collaborative teams at each location
    • the ability to better serve local needs and tailor their approach to the local market
    • the ability to encourage positive competition between different departments

    It makes sense to divide an organisation by region if different cultures, rules, languages and customer preferences exist in the area where the business operates. Logistics relating to shipping, resources and staff also sometimes make the geographical structure a good choice.

    The disadvantages of a geographical structure

    The main downside of a geographical organisational structure is the potential conflict between local and central management, as individual divisions often take on a great deal of autonomy. Other disadvantages include:

    • potential duplication of jobs, resources and functions
    • some economies of scale may be lost

    Geographic organisational structure suits mainly industries like retail and hospitality, transportation and other businesses that need to be near sources of supply and customers (eg for deliveries, production or on-site support).

    There are other ways of structuring a multi-national business. For example, a suitable alternative can be a decentralised organisational structure or organisational structure by function. Both of these function as hierarchical organisational structures. For a simpler arrangement, see flat organisational structure.

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  • Organisational structure by function

    Pros and cons of functional organisational structure and dividing your business into specialised departments such as IT, marketing or operations.

    Functional structure is one of the most common types of organisational structure in business, especially in larger companies, where groups of employees are organised according to the function they perform.

    What is a functional organisational structure?

    In this type of organisational structure, businesses are organised according to their roles and skills into smaller groups or departments. This may include, for example:

    • sales
    • marketing
    • production
    • IT
    • finance
    • operations

    Individuals, teams and line managers are grouped into a specialised department where they report to the head of the department, eg the sales director. The business' top management team typically consists of several functional heads, eg the chief financial officer, the marketing director or the head of operations.

    Read more about the hierarchical organisational structure.

    Advantages of a functional structure

    Functional structure arguably achieves greater operational efficiencies, as employees with shared skills and knowledge work together and perform similar functions.

    The advantages of this type of structure are:

    • specialisation - departments focus on one area of work
    • productivity - specialism means that staff are skilled in the tasks they do
    • accountability - there are clear lines of management
    • clarity - employees understand their own and others' roles

    However, the nature of departmentalism within a functional structure can present certain risks.

    Disadvantages of a functional structure

    The vertical separation of divisions and teams can lead to the creation of 'organisational silos' - a mindset where one team hesitates to share information or knowledge with other teams within the same organisation.

    This silo mentality can cause problems around:

    • aligning priorities across the business
    • the flow of information and communication
    • collaboration
    • co-ordination of decision-making
    • embedding and managing change across departments

    Functional structures are common in a wide range of businesses across many sectors. They work best within large companies, especially those that produce products or services continuously, such as in manufacturing.

    Smaller companies may find functional structures too rigid, preventing them to adapt to changes quickly and easily. In this case, project management organisational structure or flat organisational structure may be better options.

    Depending on your business needs, a matrix organisational structure or decentralised organisational structure may also be a suitable choice.

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  • Matrix organisational structure

    Definition and types of matrix organisational structure, its advantages and disadvantages, and use of matrix management in business.

    A matrix organisational structure doesn't follow the traditional, hierarchical model. In the matrix structure, you share resources and staff across teams and projects, as well as within departments or functions.

    What is a matrix organisational structure?

    A matrix structure is a combination of two or more types of organisational structures. It is a way of arranging your business so that you set up reporting relationships as a grid, or a matrix, rather than in the traditional hierarchy.

    In this structure, employees usually have dual reporting relationships - generally to their functional manager as well as the project manager. Typically, one reporting line will take priority over the other (eg staff may have to report to their functional manager before reporting to the project manager).

    Examples of matrix structure

    Different forms of matrix structure exist. These fall under three main categories, depending on the level of power of the project manager:

    • Functional or weak matrix - the functional manager retains most of the power and is in charge of the people and resources. The project manager has a minimal role and tends to carry out administrative or coordinating tasks.
    • Strong matrix - the project manager holds most of the power and authority, controls the project budget and manages staff. The role of the functional manager is limited.
    • Balanced matrix - the functional managers and the project managers share the power and the authority over staff and budget.

    In large organisations, it is possible to involve all these types of matrix structure at different levels within a business. This is sometimes referred to as a 'composite organisation'.

    The advantages of a matrix organisational structure

    The main advantage of the matrix structure is that it can:

    • improve decision-making, since there are two chains of command
    • help break down traditional 'silo' barriers
    • improve communication across the business
    • allow staff to apply their skills in different roles
    • help share best practice and ideas across teams
    • increase efficiencies due to sharing resources across departments

    The matrix structure can also help businesses achieve quick market adaptation to changing customer needs, as it can decrease the lead time to produce a new product. This structure is most suitable for businesses operating in a dynamic environment.

    The disadvantages of a matrix organisational structure

    A matrix structure may not be well suited for businesses working in a more settled environment, with set customer requirements. Because of its complexity, and the need for employees to report to two bosses, it can lead to:

    • confusion regarding roles, responsibilities and priorities
    • divided loyalties between project teams
    • blurred lines of accountability
    • difficulties in coordinating tasks or functions
    • power struggle between the project manager and the functional manager
    • large overhead costs, on account of having multiple managers

    Matrix organisational structure vs functional

    A matrix organisational structure often exists alongside a traditional functional structure. It is common in large and multi-project organisations that relocate employees when and where they need them. For smaller businesses with limited resources, organisational structure by function may be more suited.

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  • Decentralised organisational structure

    Understand the features, advantages and disadvantages of a decentralised organisational structure, and when to decentralise decision-making.

    Organisational structure in business is either centralised or decentralised. Centralised organisations rely on one individual to make decisions and provide direction for the whole business. A clear chain of command travels from the top down through the levels of their hierarchical organisational structure.

    In contrast, decentralisation retains the hierarchy but relies on sharing of decision-making across various levels in an organisation.

    How does decentralisation work?

    Decentralised organisations assign decision-making to lower-level management and even individual teams, giving them the autonomy to take the necessary actions.

    The top tier of the organisation retains a small span of control for making major, organisation-wide decisions. For example, they set the company's mission, vision, strategic plan, etc. The remaining decisions, as well as the authority and the responsibility to carry out daily operations, are delegated as much as possible down the ranks to the lower tier of management and sometimes even employees.

    Examples of a decentralised organisation

    In most businesses, there is a degree of both centralisation and decentralisation. For example, franchises often embody a combination - individual stores have control over hiring, but headquarters makes decisions about branding, marketing, etc.

    Decentralisation may also be effective in businesses that:

    • need individualised customer service, usually at the point of contact with customers
    • have different locations, eg stores they need to monitor and make decisions for
    • need to respond rapidly to market changes or competitor actions
    • change their business model constantly, making centralised control impossible

    A lot of small businesses start centralised and gradually decentralise as they grow - with expanding workloads and workforce putting pressure on one individual to manage it all. Decentralisation may offer several benefits to a growing business, although giving up control may be difficult for an owner used to making all the decisions.

    What are the advantages of a decentralised organisation structure?

    Delegating decision-making to the lower-levels of the organisation can help:

    • allow top management to focus on long-term goals rather than day-to-day problems
    • encourage accountability and taking ownership of the work
    • enable talent development and leadership skills in the workforce
    • improve the quality and speed of the decisions being made
    • foster innovation and open exchange of ideas
    • reduce staff turnover and improve staff satisfaction

    What are the disadvantages of a decentralised organisation structure?

    Decentralisation can negatively impact processes and the flow of information within a business. It can also present challenges if:

    • strong leadership is not established to give direction to the organisation
    • administrative or service functions are duplicated across decentralised units
    • 'silos' and unhealthy rivalry is emerging between units
    • too much focus is placed on the needs of the unit, rather than the business as a whole
    • uniform and consistent policies are required across the various units

    Using a balanced approach between centralised and decentralised structures is the key to successfully managing most types of organisations.

    You may also want to read about other common ways of structuring a business, including a matrix organisational structure, a project management organisational structure or organisational structure by product.

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  • Project management organisational structure

    Pros and cons of project management organisational structure, and how having separate project teams can benefit certain businesses.

    Project management structure is becoming increasingly common. In a project organisational structure, you arrange your business around dedicated teams that work on a particular project.

    What is a project-based organisational structure?

    The project structure involves taking a member of staff out of each functional department and placing them in a temporary project team. This team then works on one specific task.

    This structure can be useful when developing a new product or entering a new market. A business that usually has a functional or customer-based structure can use project management to complete short-term objectives. In this structure, a project manager usually:

    • has the decisive authority over the task
    • leads a team of staff from different departments to complete a project

    The individuals on the team work directly for the project managers.

    The advantages of a project organisational structure

    Some businesses may benefit from using a project management organisational structure all the time, especially if they need to be flexible and agile in their operations.

    A clear benefit of a project structure is that you have more control over the team. However, there are many other advantages. For example, such a structure can:

    • facilitate a multi-disciplinary or cross-functional way of working
    • flatten a business' hierarchy
    • create a strong team culture and sense of identity
    • ensure a business is organised according to its core activities
    • make better use of employees' skills
    • make it easier to schedule work with dedicated resources

    The disadvantages of a project organisational structure

    While the project structure is probably the simplest structure of all, it's worth keeping in mind some possible downsides. For example, project organisational structure can:

    • blur organisational lines, since it effectively removes staff from their functional jobs
    • suck up resources and staff to work on a single project, rather than wider objectives
    • confuse lines of accountability as employees may report to several different managers

    Project organisational structure can also prove expensive, as having a dedicated project team can often lead to high costs. This is likely to work best for big and short-term projects.

    Other common ways of structuring a business include hierarchical organisational structure, a matrix organisational structure or organisational structure by product.

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  • Reasons for changing your organisational structure

    Understand what triggers organisational change in business, the common causes and early signs of change.

    Typical reasons for organisational change vary. They range from disruptive technologies and changing market conditions to the need to improve quality, productivity or profit.

    Many types of organisational change exist. Change can be:

    • planned or unplanned
    • transformational or incremental
    • remedial or developmental

    Different external or internal factors can cause or trigger organisational change.

    What causes organisational change?

    The main reason for restructuring a business is to execute a new strategy. A strategy sets out a plan that determines how a business will use its major resources to meet its strategic objectives.

    When you change your strategy, you often have to adapt your business structure to ensure that the two elements continue to support each other. This may happen, for example, when you:

    • transition from a start-up to a scale-up company
    • take on a partner, or introduce change in management
    • move into new product lines
    • prepare your business for growth
    • expand your business overseas

    Find out more about strategic planning for business growth.

    External factors affecting organisational change

    External factors that might prompt a change in your business' structure include having to:

    • address new markets
    • react to changes in product or service demand
    • keep up with new technologies or products from competitors

    Other external events that can affect either your business or your rivals can also stimulate organisational change. These include, for example:

    Internal factors affecting organisational change

    Internal business needs can also prompt business change. For example, these may include the need to:

    • raise capital, improve cash flow or profitability of your business
    • improve working practices and processes
    • eliminate excess job positions and duplicate management roles
    • reorganise internal functions, such as sales and marketing, for efficiencies

    Prepare for organisational change

    Being able to recognise the signs of oncoming organisational change can help you prepare for the change and implement policies that will ensure your business' growth.

    If you wait until your business' position is threatened, it may result in defensive and ineffective management. Proactive business change is much more effective. This is when management foresees a change in the market or economy, which will affect the business and makes changes to improve its position. Read more about change management.

    Analysing your strengths and weaknesses can help you identify potential changes. You can use SWOT, PESTLE and other models for strategic analysis.

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Flat organisational structure

In this guide:

  • Flat organisational structure

    Understand the features, advantages and disadvantages of flat organisational structure and find out why you may need to flatten your organisation.

    Flat organisational structure is an organisational model with relatively few or no levels of middle management between the executives and the frontline employees. Its goal is to have as little hierarchy as possible.

    How does a flat organisational structure work?

    For a small business with a handful of employees, having a flat or horizontal structure is often the logical approach. The staff-level employees usually report directly to the business owner. There is typically no formal management structure.

    If a management level does exist, the chain of command from top to bottom in a flat structure tends to be very short. The span of control is wide with each management level controlling a broad area or group. Employees all report to one or few overall managers and are empowered to contribute to decision-making. Managers have the authority to make business decisions with little to no involvement from the top.

    What are the advantages of a flat organisational structure?

    While it will not suit all types of organisations, the benefits of a flat structure are:

    • better communication and relationships between different roles
    • better team spirit as there is less hierarchy
    • simple, faster decision making as the chain of command is shorter
    • better ability for the business to change and adapt
    • greater job satisfaction when employees are given more autonomy
    • more self-direction can lead to more innovation and efficiencies
    • ability to lower operational costs

    Flat structure is suitable for small to medium-sized organisations or companies that start flat and scale this approach gradually as they grow. The lack of hierarchy is rarely practical or scalable for larger organisations with hundreds or thousands of employees. Those types of companies tend to have a hierarchical organisational structure.

    What are the disadvantages of a flat organisational structure?

    Like any other organisational model, flat hierarchies have their downsides. The common disadvantages of a flat organisational structure are:

    • risk of generalisation and confusion if it's not clear who to report to
    • lower sense of accountability as employees may have more than one boss
    • risk of power struggles arising in absence of a formal system
    • lack of employee specialism and specific job functions
    • lack of long-term growth or opportunity for promotion
    • difficulties in scaling up and growing the company

    If they want to flatten their organisational structure, hierarchical organisations will need to invest significant time, resources and investment to achieve this.

    What does flattening an organisation mean?

    Flattening an organisation or transforming a hierarchical organisation into one with a flatter structure is known as delayering. This process involves:

    • opening up lines of communication and collaboration
    • removing one or more levels of hierarchy from the organisational structure

    Often, it is the middle management layer that is removed. Delayering doesn't necessarily mean cutting jobs and overheads, but it does usually increase the average span of control of the senior management within the business.

    Although challenging and time-consuming, flattening can be an effective strategy for boosting operational efficiency, decreasing wage costs and removing red tape.

    If you decide to change your organisational structure, make sure that you manage the process correctly. See best practices in change management.

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  • Hierarchical organisational structure

    Understand the features, advantages and disadvantages of hierarchical organisational structure and find out how tall hierarchy could benefit your business

    Organisational structures define a hierarchy within an organisation. The two most common arrangements include:

    • a flat organisational structure
    • a hierarchical organisational structure

    Each structure has its advantages and disadvantages. The most appropriate arrangement will depend on the size and the type of your business, and the number of management levels that you need. See reasons for changing your organisational structure.

    How does a hierarchical organisational structure work?

    A hierarchical structure is typical for larger businesses and organisations. It relies on having different levels of authority with a chain of command connecting multiple management levels within the organisation.

    The decision-making process is typically formal and flows from the top down. This creates a tall organisational structure where each level of management has clear lines of responsibility and control. As the organisation grows, the number of levels increases and the structure grows taller.

    Often, the number of managers in each level gives the organisation the resemblance of a pyramid. This structure gets wider as you move down - usually with one chief executive at the top, followed by senior management, middle managers and finally workers. Employees' roles are clearly defined within the organisation, as is the nature of their relationship with other employees.

    What are the advantages of a hierarchical structure?

    A hierarchical structure can provide benefits to businesses. For example, it can help establish:

    • clear lines of authority and reporting within the business
    • a clearer understanding of employee roles and responsibilities
    • accountability for actions or decisions at different management levels
    • clear career paths and development prospects which can motivate employees
    • opportunities for employees to specialise and develop expertise in their field
    • close supervision of employees through a narrow span of managerial control
    • a culture of loyalty towards teams, departments and organisation as a whole

    What are the disadvantages of a hierarchical organisational structure?

    Workplace hierarchies are not always effective. Common disadvantages of hierarchical structures include:

    • complicated chains of command which can slow down decision-making
    • inconsistencies in management at different levels which can impede work
    • delays in communicating vertically through the levels and horizontally between teams
    • less flexibility to adapt and react to environmental and market pressures
    • disconnect of employees from top-level management
    • a strain on the employee-manager relationship due to lack of autonomy
    • difficulties collaborating outside of the team 'silo' or dealing with team rivalry
    • considerable amount of corporate overhead to support the many management layers

    Generally, tall organisations are very complex. Strategies should be in place to deal with the challenges that are likely to occur under this structure. This could include creating a decentralised organisational structure - one in which senior management assigns the authority for limited decision-making to lower levels in the organisation.

    For some businesses, a tall organisational structure will not be appropriate at all. Find out more about the flat organisational structure.

    If you decide to change your organisational structure, make sure that you manage the process correctly. See best practices in change management.

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  • Organisational structure by product

    Pros and cons of product organisational structure or organising your business in separate divisions based around specific products or services.

    Product organisational structure is a framework in which a business is organised in separate divisions, each focusing on a different product or service and functioning as an individual unit within the company.

    What is a product-based structure?

    In a product-based structure (also known as a divisional structure), you assign employees into self-contained divisions according to:

    • the particular line of products or services they produce
    • the customers they deal with
    • the geographical area they serve

    The structure may have several layers of managers and employees. Each layer (ie division) can have its own marketing team, its own sales team, and so on. A manager typically reports to the head of the company by product type. Certain key functions (eg finance or human resources) may be provided centrally.

    For example, a computer software business may divide its structure according to its two distinct customer groups - home users and business users. In such an arrangement, all employees working on the development, sales or promotion of business software would be in one division, while everyone working on software for home users would be in another.

    Product structure advantages and disadvantages

    Product organisation may not suit everyone, but is likely to provide distinct advantages to those businesses that:

    • have particular product lines that are substantially different
    • require specialised expertise for production or distribution
    • target a few major customers that make up most of your business

    Product structure can also help your business:

    • focus on specific market segments
    • meet customer needs more effectively
    • extend knowledge or expertise within specialised divisions
    • respond to market changes more flexibly and quickly
    • encourage positive competition between each department
    • coordinate and measure the performance of each division directly

    Product organisational structure does have certain disadvantages, including being difficult to scale and potentially:

    • duplicating functions and resources, eg a different sales team for each division
    • dispersing technical expertise across smaller units
    • nurturing negative rivalries among divisions
    • over-emphasising divisional, rather than organisational goals
    • losing central control over each separate division

    Product or divisional structure is mainly suitable for larger companies with two or more key product lines, strategic customers or markets.

    For businesses operating in different markets or requiring distinct units, see also organisational structure by geographical area and decentralised organisational structure.

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  • Organisational structure by geographical area

    Pros and cons of geographical organisational structure for businesses that have offices or units in different geographical locations.

    Some businesses organise their activity according to geographical area or location. This is common in large multinational companies, but it may also suit medium-sized businesses. For example, a group of taxi firms, a small retail chain or a fast-food chain with several branches.

    What is a geographical organisational structure?

    A geographical organisational structure suits businesses that have offices or units in different regions or geographical areas. This form of structure enables businesses to:

    • have a reporting and functional system across multiple locations
    • operate separate sites according to local demand but still be directed by business policy

    Depending on the size of the business, each geographic unit may report to an executive who oversees several locations. Alternatively, it may report directly to top management located at the business' headquarters. The reporting structure can adapt to the size and industry of the business.

    The advantages of a geographical structure

    A geographical structure can offer several operational and strategic advantages, including:

    • close communication with local customers
    • strong collaborative teams at each location
    • the ability to better serve local needs and tailor their approach to the local market
    • the ability to encourage positive competition between different departments

    It makes sense to divide an organisation by region if different cultures, rules, languages and customer preferences exist in the area where the business operates. Logistics relating to shipping, resources and staff also sometimes make the geographical structure a good choice.

    The disadvantages of a geographical structure

    The main downside of a geographical organisational structure is the potential conflict between local and central management, as individual divisions often take on a great deal of autonomy. Other disadvantages include:

    • potential duplication of jobs, resources and functions
    • some economies of scale may be lost

    Geographic organisational structure suits mainly industries like retail and hospitality, transportation and other businesses that need to be near sources of supply and customers (eg for deliveries, production or on-site support).

    There are other ways of structuring a multi-national business. For example, a suitable alternative can be a decentralised organisational structure or organisational structure by function. Both of these function as hierarchical organisational structures. For a simpler arrangement, see flat organisational structure.

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  • Organisational structure by function

    Pros and cons of functional organisational structure and dividing your business into specialised departments such as IT, marketing or operations.

    Functional structure is one of the most common types of organisational structure in business, especially in larger companies, where groups of employees are organised according to the function they perform.

    What is a functional organisational structure?

    In this type of organisational structure, businesses are organised according to their roles and skills into smaller groups or departments. This may include, for example:

    • sales
    • marketing
    • production
    • IT
    • finance
    • operations

    Individuals, teams and line managers are grouped into a specialised department where they report to the head of the department, eg the sales director. The business' top management team typically consists of several functional heads, eg the chief financial officer, the marketing director or the head of operations.

    Read more about the hierarchical organisational structure.

    Advantages of a functional structure

    Functional structure arguably achieves greater operational efficiencies, as employees with shared skills and knowledge work together and perform similar functions.

    The advantages of this type of structure are:

    • specialisation - departments focus on one area of work
    • productivity - specialism means that staff are skilled in the tasks they do
    • accountability - there are clear lines of management
    • clarity - employees understand their own and others' roles

    However, the nature of departmentalism within a functional structure can present certain risks.

    Disadvantages of a functional structure

    The vertical separation of divisions and teams can lead to the creation of 'organisational silos' - a mindset where one team hesitates to share information or knowledge with other teams within the same organisation.

    This silo mentality can cause problems around:

    • aligning priorities across the business
    • the flow of information and communication
    • collaboration
    • co-ordination of decision-making
    • embedding and managing change across departments

    Functional structures are common in a wide range of businesses across many sectors. They work best within large companies, especially those that produce products or services continuously, such as in manufacturing.

    Smaller companies may find functional structures too rigid, preventing them to adapt to changes quickly and easily. In this case, project management organisational structure or flat organisational structure may be better options.

    Depending on your business needs, a matrix organisational structure or decentralised organisational structure may also be a suitable choice.

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  • Matrix organisational structure

    Definition and types of matrix organisational structure, its advantages and disadvantages, and use of matrix management in business.

    A matrix organisational structure doesn't follow the traditional, hierarchical model. In the matrix structure, you share resources and staff across teams and projects, as well as within departments or functions.

    What is a matrix organisational structure?

    A matrix structure is a combination of two or more types of organisational structures. It is a way of arranging your business so that you set up reporting relationships as a grid, or a matrix, rather than in the traditional hierarchy.

    In this structure, employees usually have dual reporting relationships - generally to their functional manager as well as the project manager. Typically, one reporting line will take priority over the other (eg staff may have to report to their functional manager before reporting to the project manager).

    Examples of matrix structure

    Different forms of matrix structure exist. These fall under three main categories, depending on the level of power of the project manager:

    • Functional or weak matrix - the functional manager retains most of the power and is in charge of the people and resources. The project manager has a minimal role and tends to carry out administrative or coordinating tasks.
    • Strong matrix - the project manager holds most of the power and authority, controls the project budget and manages staff. The role of the functional manager is limited.
    • Balanced matrix - the functional managers and the project managers share the power and the authority over staff and budget.

    In large organisations, it is possible to involve all these types of matrix structure at different levels within a business. This is sometimes referred to as a 'composite organisation'.

    The advantages of a matrix organisational structure

    The main advantage of the matrix structure is that it can:

    • improve decision-making, since there are two chains of command
    • help break down traditional 'silo' barriers
    • improve communication across the business
    • allow staff to apply their skills in different roles
    • help share best practice and ideas across teams
    • increase efficiencies due to sharing resources across departments

    The matrix structure can also help businesses achieve quick market adaptation to changing customer needs, as it can decrease the lead time to produce a new product. This structure is most suitable for businesses operating in a dynamic environment.

    The disadvantages of a matrix organisational structure

    A matrix structure may not be well suited for businesses working in a more settled environment, with set customer requirements. Because of its complexity, and the need for employees to report to two bosses, it can lead to:

    • confusion regarding roles, responsibilities and priorities
    • divided loyalties between project teams
    • blurred lines of accountability
    • difficulties in coordinating tasks or functions
    • power struggle between the project manager and the functional manager
    • large overhead costs, on account of having multiple managers

    Matrix organisational structure vs functional

    A matrix organisational structure often exists alongside a traditional functional structure. It is common in large and multi-project organisations that relocate employees when and where they need them. For smaller businesses with limited resources, organisational structure by function may be more suited.

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  • Decentralised organisational structure

    Understand the features, advantages and disadvantages of a decentralised organisational structure, and when to decentralise decision-making.

    Organisational structure in business is either centralised or decentralised. Centralised organisations rely on one individual to make decisions and provide direction for the whole business. A clear chain of command travels from the top down through the levels of their hierarchical organisational structure.

    In contrast, decentralisation retains the hierarchy but relies on sharing of decision-making across various levels in an organisation.

    How does decentralisation work?

    Decentralised organisations assign decision-making to lower-level management and even individual teams, giving them the autonomy to take the necessary actions.

    The top tier of the organisation retains a small span of control for making major, organisation-wide decisions. For example, they set the company's mission, vision, strategic plan, etc. The remaining decisions, as well as the authority and the responsibility to carry out daily operations, are delegated as much as possible down the ranks to the lower tier of management and sometimes even employees.

    Examples of a decentralised organisation

    In most businesses, there is a degree of both centralisation and decentralisation. For example, franchises often embody a combination - individual stores have control over hiring, but headquarters makes decisions about branding, marketing, etc.

    Decentralisation may also be effective in businesses that:

    • need individualised customer service, usually at the point of contact with customers
    • have different locations, eg stores they need to monitor and make decisions for
    • need to respond rapidly to market changes or competitor actions
    • change their business model constantly, making centralised control impossible

    A lot of small businesses start centralised and gradually decentralise as they grow - with expanding workloads and workforce putting pressure on one individual to manage it all. Decentralisation may offer several benefits to a growing business, although giving up control may be difficult for an owner used to making all the decisions.

    What are the advantages of a decentralised organisation structure?

    Delegating decision-making to the lower-levels of the organisation can help:

    • allow top management to focus on long-term goals rather than day-to-day problems
    • encourage accountability and taking ownership of the work
    • enable talent development and leadership skills in the workforce
    • improve the quality and speed of the decisions being made
    • foster innovation and open exchange of ideas
    • reduce staff turnover and improve staff satisfaction

    What are the disadvantages of a decentralised organisation structure?

    Decentralisation can negatively impact processes and the flow of information within a business. It can also present challenges if:

    • strong leadership is not established to give direction to the organisation
    • administrative or service functions are duplicated across decentralised units
    • 'silos' and unhealthy rivalry is emerging between units
    • too much focus is placed on the needs of the unit, rather than the business as a whole
    • uniform and consistent policies are required across the various units

    Using a balanced approach between centralised and decentralised structures is the key to successfully managing most types of organisations.

    You may also want to read about other common ways of structuring a business, including a matrix organisational structure, a project management organisational structure or organisational structure by product.

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  • Project management organisational structure

    Pros and cons of project management organisational structure, and how having separate project teams can benefit certain businesses.

    Project management structure is becoming increasingly common. In a project organisational structure, you arrange your business around dedicated teams that work on a particular project.

    What is a project-based organisational structure?

    The project structure involves taking a member of staff out of each functional department and placing them in a temporary project team. This team then works on one specific task.

    This structure can be useful when developing a new product or entering a new market. A business that usually has a functional or customer-based structure can use project management to complete short-term objectives. In this structure, a project manager usually:

    • has the decisive authority over the task
    • leads a team of staff from different departments to complete a project

    The individuals on the team work directly for the project managers.

    The advantages of a project organisational structure

    Some businesses may benefit from using a project management organisational structure all the time, especially if they need to be flexible and agile in their operations.

    A clear benefit of a project structure is that you have more control over the team. However, there are many other advantages. For example, such a structure can:

    • facilitate a multi-disciplinary or cross-functional way of working
    • flatten a business' hierarchy
    • create a strong team culture and sense of identity
    • ensure a business is organised according to its core activities
    • make better use of employees' skills
    • make it easier to schedule work with dedicated resources

    The disadvantages of a project organisational structure

    While the project structure is probably the simplest structure of all, it's worth keeping in mind some possible downsides. For example, project organisational structure can:

    • blur organisational lines, since it effectively removes staff from their functional jobs
    • suck up resources and staff to work on a single project, rather than wider objectives
    • confuse lines of accountability as employees may report to several different managers

    Project organisational structure can also prove expensive, as having a dedicated project team can often lead to high costs. This is likely to work best for big and short-term projects.

    Other common ways of structuring a business include hierarchical organisational structure, a matrix organisational structure or organisational structure by product.

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  • Reasons for changing your organisational structure

    Understand what triggers organisational change in business, the common causes and early signs of change.

    Typical reasons for organisational change vary. They range from disruptive technologies and changing market conditions to the need to improve quality, productivity or profit.

    Many types of organisational change exist. Change can be:

    • planned or unplanned
    • transformational or incremental
    • remedial or developmental

    Different external or internal factors can cause or trigger organisational change.

    What causes organisational change?

    The main reason for restructuring a business is to execute a new strategy. A strategy sets out a plan that determines how a business will use its major resources to meet its strategic objectives.

    When you change your strategy, you often have to adapt your business structure to ensure that the two elements continue to support each other. This may happen, for example, when you:

    • transition from a start-up to a scale-up company
    • take on a partner, or introduce change in management
    • move into new product lines
    • prepare your business for growth
    • expand your business overseas

    Find out more about strategic planning for business growth.

    External factors affecting organisational change

    External factors that might prompt a change in your business' structure include having to:

    • address new markets
    • react to changes in product or service demand
    • keep up with new technologies or products from competitors

    Other external events that can affect either your business or your rivals can also stimulate organisational change. These include, for example:

    Internal factors affecting organisational change

    Internal business needs can also prompt business change. For example, these may include the need to:

    • raise capital, improve cash flow or profitability of your business
    • improve working practices and processes
    • eliminate excess job positions and duplicate management roles
    • reorganise internal functions, such as sales and marketing, for efficiencies

    Prepare for organisational change

    Being able to recognise the signs of oncoming organisational change can help you prepare for the change and implement policies that will ensure your business' growth.

    If you wait until your business' position is threatened, it may result in defensive and ineffective management. Proactive business change is much more effective. This is when management foresees a change in the market or economy, which will affect the business and makes changes to improve its position. Read more about change management.

    Analysing your strengths and weaknesses can help you identify potential changes. You can use SWOT, PESTLE and other models for strategic analysis.

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Operational risk

In this guide:

  • Types of risk your business faces

    Understand the main types of business risk - what they mean and how they can affect your business

    Business risk is a broad category. It applies to any event or circumstance that has the potential to prevent you from achieving your business goals or objectives. Business risk can be internal (such as your strategy) or external (such as the global economy).

    Different types of risk should be managed and treated differently. You should understand exactly what type of risk you are facing before you consider how to deal with it.

    Types of business risks

    The main four types of risk are:

    These categories of risks are not rigid and some parts of your business may fall into more than one category. The risks attached to data protection, for example, could be considered when reviewing both your operations and your business' compliance.

    Other sources of business risk

    Other factors can present certain threats to your business, including:

    • environmental risks, such as natural disasters
    • political and economic instability in any foreign markets you export goods to
    • health and safety risks - see health and safety risk assessment
    • commercial risks, including the failure of key suppliers or customers
    • workforce risks, eg maintaining sufficient staff numbers and cover, employee safety and up-to-date skills

    See how to evaluate business risks.

    Importance of understanding risk

    Risk is often posed by an event, a change in circumstances or their consequences. A common definition of risk suggests that risk is the effect of uncertainty on achieving or surpassing business objectives. This effect may be positive, negative or a deviation from the expected, for example in forecasts and projections.

    Without identifying risks, it is difficult to successfully define your objectives and set out strategies for achieving them. It is best practice to integrate business risk management with your strategy formulation and business planning processes.

    Understanding and managing risks allows you to control, and often prevent, the financial, organisational, legal and other ramifications associated with risks.

    See more on strategic planning for business growth.

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  • Strategic risk

    What is strategic risk management and how to identify and mitigate strategic risks in your business

    As your business attempts to achieve your strategic objectives, internal and external events can deter or prevent you from accomplishing them. This is known as a strategic risk. You can define strategic risks as:

    • the potential impact of strategic decisions, or of a defective or inappropriate strategy
    • lack of responsiveness to industry changes
    • risks related to future plans, eg entering new markets, expanding existing services, etc

    Managing strategic risks shouldn't just focus on challenges that might cause a particular strategy to fail, but on any major risks that could affect a company's long-term positioning and performance.

    Identifying strategic risks

    Sources of strategic risk can be any of the following:

    • mergers, acquisitions and other competition
    • market or industry changes
    • changes among customers or in demand
    • change management
    • human resource issues, such as staffing
    • financial issues with cashflow, capital or cost pressures
    • IT disasters and equipment failure
    • relationship issues, eg with suppliers
    • reputational damage

    For example, the possibility of a US company buying one of your UK competitors would constitute a strategic risk. Such an acquisition would give the US company a distribution arm in the UK, making them a direct competitor. In this situation, you might want to consider:

    • any US companies which have the cash/share price to do this
    • any UK competitors that are likely takeover targets - eg due to financial problems
    • the prospect of the US company cutting prices or launching new products to compete against you

    Where there's a strong possibility of this happening, you should prepare some sort of response.

    What is strategic risk management?

    Strategic risk management (SRM) is a process that can help you to identify, assess and manage the risk in your business strategy. It also allows you to take quick action when risks materialise. It involves evaluating:

    • how possible events and scenarios may affect your strategy and its execution
    • the ultimate impact of these risks on the company's value

    See how to evaluate business risks.

    SRM requires you to define tolerable levels of risk as a guide for making strategic decisions. Rather than a one-off effort, SRM is a continual process that you should embed into your strategy setting and execution. See how to develop a strategic plan.

    Other categories of risk you should prepare for include compliance and regulatory risk, financial risk and operational risk.

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  • Compliance and regulatory risk

    How to identify and manage compliance and regulatory risks in your business

    Compliance and regulatory risks arise from laws and regulations that rely on penalties or sanctions to regulate the operations of a business.

    What is a regulatory risk?

    Regulatory risk is the effect of a change in laws and regulations that could potentially cause losses to your business, sector or market. Regulatory risks could, for instance:

    • increase the costs of running a business - eg costs to achieve compliance
    • change the competitive landscape - eg perhaps invalidating your business model
    • make your business practices illegal - eg new law changing rules on marketing
    • reduce the attractiveness of an investment

    For example, your products or services could become less marketable if new laws or taxes are introduced. This was the case with tobacco and asbestos products in the past.

    The introduction of tougher food labelling regulations has similarly disrupted the food industry, pushing up costs and reducing the appeal of certain types of food.

    New and emerging regulations can have a wide-ranging impact on your strategic direction, business model and compliance system. It is, therefore, important to consider regulatory requirements when you evaluate business risks.

    What is the difference between compliance and regulatory risk?

    While regulatory risk relates to a potential change in laws and regulations, compliance risk relates to the potential of your business to violate existing laws or regulations. Often, compliance risk results from:

    • insufficient control systems
    • lack of training
    • lack of due diligence
    • human error

    Compliance risks can potentially expose your business to a range of consequences, including:

    • legal penalties
    • voided contracts
    • financial forfeiture
    • material loss
    • loss of business opportunities
    • damaged reputation

    While compliance risks mainly involve the need to comply with laws and regulations, they can also relate to the need to act in a way that investors and customers expect. For example, by ensuring proper corporate governance.

    Find strategies to manage business risk.

    Other categories of risk you should prepare for include strategic risk, financial risk and operational risk.

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  • Financial risk

    Understand the main types of financial risks to your business and find ways to mitigate and reduce them

    Financial risk refers to your business' ability to manage your debt and fulfil your financial obligations. This type of risk typically arises due to instabilities, losses in the financial market or movements in stock prices, currencies, interest rates, etc.

    Difference between business risk and financial risk

    Business risk relates to the basic viability of a business. It refers to your ability to turn a profit and cover your operating expenses, such as salaries, rent, production costs and office expenses. Financial risk, on the other hand, is concerned with the costs of financing and the amount of debt you incur to finance your operations.

    Types of financial risk

    Common categories of financial risk include:

    Market risk

    Market risk relates to the probability of incurring a loss due to things like market volatility, hikes in interest rates or raw material costs, fluctuation in foreign currency values, etc. For example, exchange rate changes affecting your debt repayments and the competitiveness of your goods and services compared with those produced abroad.

    Credit risk

    Credit risk is the probability of failing to pay a creditor (such as a bank or a lender) or another party (eg a supplier). You may also incur credit risk by extending credit to customers, due to the possibility of them defaulting on payment.

    Liquidity risk

    Liquidity risk affects your ability to meet short-term financial demands to execute your business transactions. Key sources of risk are potential cashflow problems, because of things like the seasonal downturn in revenue, lack of buyers for your assets or an inefficient market.

    Operational risk

    Operational risk is the likelihood of incurring a loss due to the negative effects of procedures, systems or policies you have in your business. Common sources include technical failures, fraud activity, employee errors, etc. Find out more about operational risk.

    Financial risk management

    Managing financial risks is a high priority for businesses, irrespective of their size or industry. In order to take control of the financial risks, you need to:

    • identify and measure the risks
    • decide on the level of risk you are willing to accept
    • consider insurance to protect against business risk
    • identify potential issues with cashflow
    • review your financial arrangements with creditors
    • be careful if extending credit to customers
    • diversify your income sources
    • regularly reassess your risks

    Factors affecting financial risks

    Make sure to consider the various factors affecting financial risk. Broadly, these fall under two categories:

    • external factors - including economic downturns, market rates, industry changes, law changes, etc
    • internal factors - including underperformance, poor cashflow management, bad investments, new competition, staff issues, etc

    Take into account both external and internal factors when carrying out a financial risk assessment. Find out how to evaluate business risks.

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  • Operational risk

    Understand the sources of operational risk and how to minimise the impact of operational problems in your business

    Operational risk is the possibility of business operations failing due to inefficiencies or breakdown in your internal processes, people and systems. Human error and external events (such as regulatory changes) are a few of the common sources of such risk.

    Types of operational risk

    Operational risk focuses on how you accomplish things in your business. It is typically associated with how your business functions internally and broadly covers the following categories:

    • fraud - eg bribery, misuse of assets and tax evasion
    • other criminal activity - eg data theft, hacking, etc
    • workplace policies and safety - eg discrimination, staff health and safety
    • products and business practice - eg product defects or market manipulation
    • physical assets - eg vandalism, natural disasters, equipment maintenance, etc
    • business disruption - eg utility downtimes, IT system failures, etc
    • process management - eg accounting errors, data entry errors, non-reporting

    These risks present varying levels of threat to business - from minor inconvenience to potentially putting its very existence in jeopardy. You should not underestimate the potential impact of operational risk.

    Impact of operational risk

    If operational risks materialise, they can cause significant damage to your business, including:

    • outright loss - eg costs of dealing with system failure or processing error
    • regulatory overhead - eg costs of audits or mandated investigations
    • reputational damage - eg as a consequence of fraudulent activity or unfair practices

    Contrary to other types of business risks, operational risks are not typically revenue-driven or willingly incurred. Some organisations accept them as an unavoidable cost of doing business. However, you can reduce risk exposure and your operating costs by developing an operational risk management strategy for your business.

    What is operational risk management?

    Operational risk management is a continual process of assessing risks and implementing relevant controls that lead to either acceptance, mitigation or avoidance of risk. To manage operational risk, you must first understand the nature of your business and the particular risks associated with it. This understanding will help you to identify, assess, monitor and adequately control or mitigate the risks.

    Effective operational risk management can also help to:

    • prevent unexpected operational loss
    • cut compliance or auditing costs
    • detect unlawful activities
    • minimise exposure to future risks

    Find out how to evaluate business risks and structure your risk management process.

    You can insure against certain operational risks to help provide additional protection against the cost of operational events. Find out more about business risk insurance.

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  • Risk management process

    Risk management process involves five crucial steps that can help you identify, assess and mitigate risks to your business

    Risk management helps you to detect and address the risks facing your business. It is a key part of the strategic management of any organisation.

    Steps in the risk management process

    The risk management process typically involves six core components:

    • recognition or identification of risks
    • evaluation and assessment of risks (and how likely they are to occur)
    • responding to significant risks
    • reporting and monitoring risk performance
    • contingency and recovery planning
    • reviewing risk management approach and controls

    Identification and evaluation of risks are generally known as risk assessment. This activity is critical to determining suitable risk responses. It can also be legally required in some business areas, eg health and safety. See how to evaluate business risks.

    Types of risk responses

    Risk responses can include tolerance, treatment, transfer or termination of risks. If a risk presents an opportunity, a suitable response may be to exploit it. Discover strategies to manage business risk.

    Risks are incredibly diverse. They can affect any aspect of your business and have short, medium or long term impact. To manage risks effectively, it is crucial to fully understand the types of risks your business faces.

    Benefits of risk management

    Risk management process helps you in achieving your business success. It also allows you to:

    • make informed decisions, plan and prioritise
    • allocate capital and resources appropriately
    • prevent wastage of time and effort in fire-fighting potential problems
    • foresee what may go wrong, pre-empt, prevent or react promptly to risks
    • improve outcomes for your business
    • discover opportunities
    • reduce business liability

    Risk management gives you the strategic basis and the operational framework for handling a crisis within your business. It is a cornerstone of business continuity and crisis management.

    Risk management standards

    A number of standards exist to help organisations implement risk management systematically and effectively. Commonly used risk management standards include:

    Standards are normally voluntary, although adherence to a standard may be required by regulators or by contract. 

    Enterprise risk management

    You should manage risk proportionately to the complexity and type of your business. If you run a large company, you may want to consider an integrated, enterprise risk management approach to managing risk across the whole organisation and its networks.

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  • Evaluate business risks

    Risk evaluation helps you determine the importance of each risk to the business and decide whether to take action

    Risk evaluation allows you to determine the importance of risks to the business. You can then decide to accept the specific risk or take action to prevent or minimise it.

    How to evaluate risks to your business

    First, you should consider all the types of risks your business may face - from strategic and compliance risks to financial and operational threats. Identify these risks and rank them in order to evaluate them.

    You should rank the risks by considering the consequence and the likelihood of each. For many businesses, assessing consequence and likelihood as high, medium or low will suffice. Evaluate these risks alongside:

    • your business plan - to determine which risks may affect your company's objectives
    • any legal requirements, costs and investor concerns - sometimes, the cost of reducing a potential risk may be so high that doing nothing makes more business sense

    Tools to evaluate business risk

    You can use several business tools to help evaluate risks. For example, you can create a risk map by plotting on it the significance and likelihood of the risk occurring. Each risk is rated on a scale of one to ten. If a risk is rated ten, this means a major concern to the company. One is the least important. The map allows you to visualise risks in relation to each other and gauge their extent. This lets you plan what type of controls you should put in place to reduce the risks.

    Importance of prioritising risks

    Prioritising risks allows you to direct time and money toward the most important risks - those with the greatest potential to disrupt your business. By identifying which risks to focus on, you can put systems and controls in place to deal with any fallout. For example, define a decision process and escalation procedures that your company would follow if an event occurred.

    See more on strategies to manage business risk.

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  • Prevent and reduce business risk

    Reducing risk to business involves putting in place processes and methods to deal with the consequences of an adverse event

    Managing and reducing risk involves putting processes, methods and tools in place to deal with the outcomes of events you have identified as threats to your business.

    Internal controls for risk prevention

    Effective internal controls are necessary to mitigate the different types of risks to your business. Two categories of controls exist:

    • preventive controls - help you avoid risk before it occurs
    • detective controls - help you find problems after they occur

    To prevent and reduce risks, you should evaluate your current control activities and amend them if necessary. For example, you may want to:

    • set aside financial reserves to ease cashflow problems if they occur
    • use physical control over assets, eg locks
    • put in place data backup and IT support to deal with potential systems failures
    • screen and train employees before you allow them access to critical systems
    • limit the number of employees with access to critical or sensitive data
    • segregate certain types of duties to different employees, eg financial decisions
    • introduce pre-approval of actions and transactions
    • carry out internal audits, inventory counts, etc
    • review organisational performance regularly

    Maintaining appropriate and effective internal controls will help you to mitigate some of your risks. Developing a risk management plan will also help you to foresee risks, estimate impacts, and define your responses to address them.

    See how to evaluate business risks and use the risk management process to help you detect them.

    Risk management and business continuity

    Programmes which deal with threats identified during risk assessment are often referred to as business continuity plans. These set out what you should do if a certain event happens - for example if a fire destroys your office.

    The foundation of a business continuity plan is typically a business impact analysis. The analysis can help you to:

    • understand how your business would cope during downtime
    • calculate recovery time objectives for your services
    • understand the resources you need to keep critical functions running

    Business impact analysis will form the basis of your disaster recovery and help you create a business continuity plan, potentially reducing disruption to your business.

    Review your risk mitigation practices

    Risk assessments will change as your business grows or under the influence of internal or external factors. This means that the processes you have put in place to manage your business risks should be regularly reviewed. Such reviews will find improvements to the processes and also can indicate when a process is no longer necessary.

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  • Strategies to help you manage business risk

    Common strategies for treating the risks to your business are avoidance, acceptance, sharing, reduction and elimination

    To determine the most effective risk mitigation strategy for your business, you must first identify the risks, analyse them and evaluate their potential likelihood and impact. When you fully understand all the possible risks and their severity, you can begin to treat them.

    The most common strategies for treating the risk are:

    • transfer (sharing)
    • reduction
    • avoidance
    • acceptance

    Risk transfer strategy

    Risk transfer or sharing helps you redistribute the impact of an adverse event over multiple parties. This could include partners or company members, an outsourced entity or purchasing an insurance policy. Sharing works best for risks that are unlikely to occur but could potentially have a big financial impact. Contracts with suppliers or contractors may provide a means to move risk away from your organisation, but keep in mind that this approach may not always suit. For example, if your product is faulty due to a supplier's error, customers may still associate it with you even if your supplier pays for damages.

    Risk reduction strategy

    Reducing risks involves taking measures to minimise the probability and the impact of the risk occurring. The aim is to reduce the risk to an acceptable level, sometimes called a residual risk level. Most businesses should try to reduce the risk whenever possible and economically advantageous. For example, you could introduce new safety measures, strengthen internal control or diversify your operations in order to mitigate the worst risks.

    Risk avoidance strategy

    If the probability and the impact of the risk are too high, it may be best to remove it altogether. This might involve changing the way you produce your product or deciding to avoid certain activities - for example, the launch of a new product or entering a new contract. Whether this is a viable option depends on your particular circumstances. Bear in mind that by stopping activities that carry the risk, you may also forfeit associated potential return and opportunity.

    Risk acceptance (risk retention)

    Accepting the risk assumes not taking any action to mitigate its impact and probability. This 'do nothing' approach accepts that some level of loss is likely to occur - usually the type of loss that can be easily absorbed within the business, at least at the beginning. However, if risk events occur regularly, business disruption and the costs for addressing it will likely mount. It's important to assess risk retention options alongside other possible mitigation approaches, to determine a suitable approach in the long term.

    Choosing your risk management strategy

    The best way of dealing with risk will depend on the situation, as well as the probability and impact of a particular risk. It is unlikely that you will be able to completely eliminate all risks, so your task will mainly be to determine whether the risk is acceptable and, if not, decide how you want to deal with it. Find tips to help you evaluate business risks.

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  • Business risk insurance

    What is risk protection insurance and how to insure your business against financial losses associated with business risks

    Purchasing risk protection insurance is a way of reducing the financial impact of a business interruption, loss or damage to a facility or equipment. Insurance doesn't actually reduce your business' risks. It simply provides coverage and protection against the losses associated with some risks.

    Typical risks you can insure against could be: fire, theft, vandalism, workers compensation, legal costs, protection from injury or property damage to a third party, or business disruption.

    Types of business risk insurance

    Commercial business risk insurance typically covers five basic areas:

    • property insurance
    • crime insurance (including data breach cover)
    • business interruption (or business continuity) insurance
    • liability insurance
    • equipment breakdown insurance

    Some business insurance you must have by law. For example, commercial motor insurance, professional indemnity insurance for certain professions, or employers' liability insurance - designed to cover compensation or legal costs arising from neglect or breach of duty.

    A business interruption policy can help insure against loss of profit and higher overheads resulting from, say, damaged machinery. Other types of business insurance exist, such as key man insurance, credit insurance, money policies, legal expenses, etc. Employers can even buy life insurance or private medical insurance for a whole group of employees.

    How do insurance companies mitigate risk?

    Risk insurance provides a level of financial compensation in the event of a loss. Insurers only pay the compensation if the loss is insured by a valid policy.

    Insurance companies increasingly want evidence that business risk is being managed. Before they provide cover, they may want proof that you have processes in place to minimise the likelihood of a claim. You can ask your insurance adviser for advice on appropriate processes - see how to choose an insurance adviser for your business.

    It is important to review your policies regularly to determine if they adequately cover your potential losses. To review your policy, you should:

    • carry out regular risk assessments to identify potential hazards to your business
    • use business impact analysis to quantify potential impacts
    • examine the level of policy and the coverage you currently have
    • consider all the risks and their outcomes to determine the required level of insurance

    Having the right policy in place can be crucial for the survival of your business, but keep in mind that some costs - such as reputational damage - may be uninsurable.

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Compliance and regulatory risk

In this guide:

  • Types of risk your business faces

    Understand the main types of business risk - what they mean and how they can affect your business

    Business risk is a broad category. It applies to any event or circumstance that has the potential to prevent you from achieving your business goals or objectives. Business risk can be internal (such as your strategy) or external (such as the global economy).

    Different types of risk should be managed and treated differently. You should understand exactly what type of risk you are facing before you consider how to deal with it.

    Types of business risks

    The main four types of risk are:

    These categories of risks are not rigid and some parts of your business may fall into more than one category. The risks attached to data protection, for example, could be considered when reviewing both your operations and your business' compliance.

    Other sources of business risk

    Other factors can present certain threats to your business, including:

    • environmental risks, such as natural disasters
    • political and economic instability in any foreign markets you export goods to
    • health and safety risks - see health and safety risk assessment
    • commercial risks, including the failure of key suppliers or customers
    • workforce risks, eg maintaining sufficient staff numbers and cover, employee safety and up-to-date skills

    See how to evaluate business risks.

    Importance of understanding risk

    Risk is often posed by an event, a change in circumstances or their consequences. A common definition of risk suggests that risk is the effect of uncertainty on achieving or surpassing business objectives. This effect may be positive, negative or a deviation from the expected, for example in forecasts and projections.

    Without identifying risks, it is difficult to successfully define your objectives and set out strategies for achieving them. It is best practice to integrate business risk management with your strategy formulation and business planning processes.

    Understanding and managing risks allows you to control, and often prevent, the financial, organisational, legal and other ramifications associated with risks.

    See more on strategic planning for business growth.

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  • Strategic risk

    What is strategic risk management and how to identify and mitigate strategic risks in your business

    As your business attempts to achieve your strategic objectives, internal and external events can deter or prevent you from accomplishing them. This is known as a strategic risk. You can define strategic risks as:

    • the potential impact of strategic decisions, or of a defective or inappropriate strategy
    • lack of responsiveness to industry changes
    • risks related to future plans, eg entering new markets, expanding existing services, etc

    Managing strategic risks shouldn't just focus on challenges that might cause a particular strategy to fail, but on any major risks that could affect a company's long-term positioning and performance.

    Identifying strategic risks

    Sources of strategic risk can be any of the following:

    • mergers, acquisitions and other competition
    • market or industry changes
    • changes among customers or in demand
    • change management
    • human resource issues, such as staffing
    • financial issues with cashflow, capital or cost pressures
    • IT disasters and equipment failure
    • relationship issues, eg with suppliers
    • reputational damage

    For example, the possibility of a US company buying one of your UK competitors would constitute a strategic risk. Such an acquisition would give the US company a distribution arm in the UK, making them a direct competitor. In this situation, you might want to consider:

    • any US companies which have the cash/share price to do this
    • any UK competitors that are likely takeover targets - eg due to financial problems
    • the prospect of the US company cutting prices or launching new products to compete against you

    Where there's a strong possibility of this happening, you should prepare some sort of response.

    What is strategic risk management?

    Strategic risk management (SRM) is a process that can help you to identify, assess and manage the risk in your business strategy. It also allows you to take quick action when risks materialise. It involves evaluating:

    • how possible events and scenarios may affect your strategy and its execution
    • the ultimate impact of these risks on the company's value

    See how to evaluate business risks.

    SRM requires you to define tolerable levels of risk as a guide for making strategic decisions. Rather than a one-off effort, SRM is a continual process that you should embed into your strategy setting and execution. See how to develop a strategic plan.

    Other categories of risk you should prepare for include compliance and regulatory risk, financial risk and operational risk.

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  • Compliance and regulatory risk

    How to identify and manage compliance and regulatory risks in your business

    Compliance and regulatory risks arise from laws and regulations that rely on penalties or sanctions to regulate the operations of a business.

    What is a regulatory risk?

    Regulatory risk is the effect of a change in laws and regulations that could potentially cause losses to your business, sector or market. Regulatory risks could, for instance:

    • increase the costs of running a business - eg costs to achieve compliance
    • change the competitive landscape - eg perhaps invalidating your business model
    • make your business practices illegal - eg new law changing rules on marketing
    • reduce the attractiveness of an investment

    For example, your products or services could become less marketable if new laws or taxes are introduced. This was the case with tobacco and asbestos products in the past.

    The introduction of tougher food labelling regulations has similarly disrupted the food industry, pushing up costs and reducing the appeal of certain types of food.

    New and emerging regulations can have a wide-ranging impact on your strategic direction, business model and compliance system. It is, therefore, important to consider regulatory requirements when you evaluate business risks.

    What is the difference between compliance and regulatory risk?

    While regulatory risk relates to a potential change in laws and regulations, compliance risk relates to the potential of your business to violate existing laws or regulations. Often, compliance risk results from:

    • insufficient control systems
    • lack of training
    • lack of due diligence
    • human error

    Compliance risks can potentially expose your business to a range of consequences, including:

    • legal penalties
    • voided contracts
    • financial forfeiture
    • material loss
    • loss of business opportunities
    • damaged reputation

    While compliance risks mainly involve the need to comply with laws and regulations, they can also relate to the need to act in a way that investors and customers expect. For example, by ensuring proper corporate governance.

    Find strategies to manage business risk.

    Other categories of risk you should prepare for include strategic risk, financial risk and operational risk.

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  • Financial risk

    Understand the main types of financial risks to your business and find ways to mitigate and reduce them

    Financial risk refers to your business' ability to manage your debt and fulfil your financial obligations. This type of risk typically arises due to instabilities, losses in the financial market or movements in stock prices, currencies, interest rates, etc.

    Difference between business risk and financial risk

    Business risk relates to the basic viability of a business. It refers to your ability to turn a profit and cover your operating expenses, such as salaries, rent, production costs and office expenses. Financial risk, on the other hand, is concerned with the costs of financing and the amount of debt you incur to finance your operations.

    Types of financial risk

    Common categories of financial risk include:

    Market risk

    Market risk relates to the probability of incurring a loss due to things like market volatility, hikes in interest rates or raw material costs, fluctuation in foreign currency values, etc. For example, exchange rate changes affecting your debt repayments and the competitiveness of your goods and services compared with those produced abroad.

    Credit risk

    Credit risk is the probability of failing to pay a creditor (such as a bank or a lender) or another party (eg a supplier). You may also incur credit risk by extending credit to customers, due to the possibility of them defaulting on payment.

    Liquidity risk

    Liquidity risk affects your ability to meet short-term financial demands to execute your business transactions. Key sources of risk are potential cashflow problems, because of things like the seasonal downturn in revenue, lack of buyers for your assets or an inefficient market.

    Operational risk

    Operational risk is the likelihood of incurring a loss due to the negative effects of procedures, systems or policies you have in your business. Common sources include technical failures, fraud activity, employee errors, etc. Find out more about operational risk.

    Financial risk management

    Managing financial risks is a high priority for businesses, irrespective of their size or industry. In order to take control of the financial risks, you need to:

    • identify and measure the risks
    • decide on the level of risk you are willing to accept
    • consider insurance to protect against business risk
    • identify potential issues with cashflow
    • review your financial arrangements with creditors
    • be careful if extending credit to customers
    • diversify your income sources
    • regularly reassess your risks

    Factors affecting financial risks

    Make sure to consider the various factors affecting financial risk. Broadly, these fall under two categories:

    • external factors - including economic downturns, market rates, industry changes, law changes, etc
    • internal factors - including underperformance, poor cashflow management, bad investments, new competition, staff issues, etc

    Take into account both external and internal factors when carrying out a financial risk assessment. Find out how to evaluate business risks.

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  • Operational risk

    Understand the sources of operational risk and how to minimise the impact of operational problems in your business

    Operational risk is the possibility of business operations failing due to inefficiencies or breakdown in your internal processes, people and systems. Human error and external events (such as regulatory changes) are a few of the common sources of such risk.

    Types of operational risk

    Operational risk focuses on how you accomplish things in your business. It is typically associated with how your business functions internally and broadly covers the following categories:

    • fraud - eg bribery, misuse of assets and tax evasion
    • other criminal activity - eg data theft, hacking, etc
    • workplace policies and safety - eg discrimination, staff health and safety
    • products and business practice - eg product defects or market manipulation
    • physical assets - eg vandalism, natural disasters, equipment maintenance, etc
    • business disruption - eg utility downtimes, IT system failures, etc
    • process management - eg accounting errors, data entry errors, non-reporting

    These risks present varying levels of threat to business - from minor inconvenience to potentially putting its very existence in jeopardy. You should not underestimate the potential impact of operational risk.

    Impact of operational risk

    If operational risks materialise, they can cause significant damage to your business, including:

    • outright loss - eg costs of dealing with system failure or processing error
    • regulatory overhead - eg costs of audits or mandated investigations
    • reputational damage - eg as a consequence of fraudulent activity or unfair practices

    Contrary to other types of business risks, operational risks are not typically revenue-driven or willingly incurred. Some organisations accept them as an unavoidable cost of doing business. However, you can reduce risk exposure and your operating costs by developing an operational risk management strategy for your business.

    What is operational risk management?

    Operational risk management is a continual process of assessing risks and implementing relevant controls that lead to either acceptance, mitigation or avoidance of risk. To manage operational risk, you must first understand the nature of your business and the particular risks associated with it. This understanding will help you to identify, assess, monitor and adequately control or mitigate the risks.

    Effective operational risk management can also help to:

    • prevent unexpected operational loss
    • cut compliance or auditing costs
    • detect unlawful activities
    • minimise exposure to future risks

    Find out how to evaluate business risks and structure your risk management process.

    You can insure against certain operational risks to help provide additional protection against the cost of operational events. Find out more about business risk insurance.

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  • Risk management process

    Risk management process involves five crucial steps that can help you identify, assess and mitigate risks to your business

    Risk management helps you to detect and address the risks facing your business. It is a key part of the strategic management of any organisation.

    Steps in the risk management process

    The risk management process typically involves six core components:

    • recognition or identification of risks
    • evaluation and assessment of risks (and how likely they are to occur)
    • responding to significant risks
    • reporting and monitoring risk performance
    • contingency and recovery planning
    • reviewing risk management approach and controls

    Identification and evaluation of risks are generally known as risk assessment. This activity is critical to determining suitable risk responses. It can also be legally required in some business areas, eg health and safety. See how to evaluate business risks.

    Types of risk responses

    Risk responses can include tolerance, treatment, transfer or termination of risks. If a risk presents an opportunity, a suitable response may be to exploit it. Discover strategies to manage business risk.

    Risks are incredibly diverse. They can affect any aspect of your business and have short, medium or long term impact. To manage risks effectively, it is crucial to fully understand the types of risks your business faces.

    Benefits of risk management

    Risk management process helps you in achieving your business success. It also allows you to:

    • make informed decisions, plan and prioritise
    • allocate capital and resources appropriately
    • prevent wastage of time and effort in fire-fighting potential problems
    • foresee what may go wrong, pre-empt, prevent or react promptly to risks
    • improve outcomes for your business
    • discover opportunities
    • reduce business liability

    Risk management gives you the strategic basis and the operational framework for handling a crisis within your business. It is a cornerstone of business continuity and crisis management.

    Risk management standards

    A number of standards exist to help organisations implement risk management systematically and effectively. Commonly used risk management standards include:

    Standards are normally voluntary, although adherence to a standard may be required by regulators or by contract. 

    Enterprise risk management

    You should manage risk proportionately to the complexity and type of your business. If you run a large company, you may want to consider an integrated, enterprise risk management approach to managing risk across the whole organisation and its networks.

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  • Evaluate business risks

    Risk evaluation helps you determine the importance of each risk to the business and decide whether to take action

    Risk evaluation allows you to determine the importance of risks to the business. You can then decide to accept the specific risk or take action to prevent or minimise it.

    How to evaluate risks to your business

    First, you should consider all the types of risks your business may face - from strategic and compliance risks to financial and operational threats. Identify these risks and rank them in order to evaluate them.

    You should rank the risks by considering the consequence and the likelihood of each. For many businesses, assessing consequence and likelihood as high, medium or low will suffice. Evaluate these risks alongside:

    • your business plan - to determine which risks may affect your company's objectives
    • any legal requirements, costs and investor concerns - sometimes, the cost of reducing a potential risk may be so high that doing nothing makes more business sense

    Tools to evaluate business risk

    You can use several business tools to help evaluate risks. For example, you can create a risk map by plotting on it the significance and likelihood of the risk occurring. Each risk is rated on a scale of one to ten. If a risk is rated ten, this means a major concern to the company. One is the least important. The map allows you to visualise risks in relation to each other and gauge their extent. This lets you plan what type of controls you should put in place to reduce the risks.

    Importance of prioritising risks

    Prioritising risks allows you to direct time and money toward the most important risks - those with the greatest potential to disrupt your business. By identifying which risks to focus on, you can put systems and controls in place to deal with any fallout. For example, define a decision process and escalation procedures that your company would follow if an event occurred.

    See more on strategies to manage business risk.

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  • Prevent and reduce business risk

    Reducing risk to business involves putting in place processes and methods to deal with the consequences of an adverse event

    Managing and reducing risk involves putting processes, methods and tools in place to deal with the outcomes of events you have identified as threats to your business.

    Internal controls for risk prevention

    Effective internal controls are necessary to mitigate the different types of risks to your business. Two categories of controls exist:

    • preventive controls - help you avoid risk before it occurs
    • detective controls - help you find problems after they occur

    To prevent and reduce risks, you should evaluate your current control activities and amend them if necessary. For example, you may want to:

    • set aside financial reserves to ease cashflow problems if they occur
    • use physical control over assets, eg locks
    • put in place data backup and IT support to deal with potential systems failures
    • screen and train employees before you allow them access to critical systems
    • limit the number of employees with access to critical or sensitive data
    • segregate certain types of duties to different employees, eg financial decisions
    • introduce pre-approval of actions and transactions
    • carry out internal audits, inventory counts, etc
    • review organisational performance regularly

    Maintaining appropriate and effective internal controls will help you to mitigate some of your risks. Developing a risk management plan will also help you to foresee risks, estimate impacts, and define your responses to address them.

    See how to evaluate business risks and use the risk management process to help you detect them.

    Risk management and business continuity

    Programmes which deal with threats identified during risk assessment are often referred to as business continuity plans. These set out what you should do if a certain event happens - for example if a fire destroys your office.

    The foundation of a business continuity plan is typically a business impact analysis. The analysis can help you to:

    • understand how your business would cope during downtime
    • calculate recovery time objectives for your services
    • understand the resources you need to keep critical functions running

    Business impact analysis will form the basis of your disaster recovery and help you create a business continuity plan, potentially reducing disruption to your business.

    Review your risk mitigation practices

    Risk assessments will change as your business grows or under the influence of internal or external factors. This means that the processes you have put in place to manage your business risks should be regularly reviewed. Such reviews will find improvements to the processes and also can indicate when a process is no longer necessary.

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  • Strategies to help you manage business risk

    Common strategies for treating the risks to your business are avoidance, acceptance, sharing, reduction and elimination

    To determine the most effective risk mitigation strategy for your business, you must first identify the risks, analyse them and evaluate their potential likelihood and impact. When you fully understand all the possible risks and their severity, you can begin to treat them.

    The most common strategies for treating the risk are:

    • transfer (sharing)
    • reduction
    • avoidance
    • acceptance

    Risk transfer strategy

    Risk transfer or sharing helps you redistribute the impact of an adverse event over multiple parties. This could include partners or company members, an outsourced entity or purchasing an insurance policy. Sharing works best for risks that are unlikely to occur but could potentially have a big financial impact. Contracts with suppliers or contractors may provide a means to move risk away from your organisation, but keep in mind that this approach may not always suit. For example, if your product is faulty due to a supplier's error, customers may still associate it with you even if your supplier pays for damages.

    Risk reduction strategy

    Reducing risks involves taking measures to minimise the probability and the impact of the risk occurring. The aim is to reduce the risk to an acceptable level, sometimes called a residual risk level. Most businesses should try to reduce the risk whenever possible and economically advantageous. For example, you could introduce new safety measures, strengthen internal control or diversify your operations in order to mitigate the worst risks.

    Risk avoidance strategy

    If the probability and the impact of the risk are too high, it may be best to remove it altogether. This might involve changing the way you produce your product or deciding to avoid certain activities - for example, the launch of a new product or entering a new contract. Whether this is a viable option depends on your particular circumstances. Bear in mind that by stopping activities that carry the risk, you may also forfeit associated potential return and opportunity.

    Risk acceptance (risk retention)

    Accepting the risk assumes not taking any action to mitigate its impact and probability. This 'do nothing' approach accepts that some level of loss is likely to occur - usually the type of loss that can be easily absorbed within the business, at least at the beginning. However, if risk events occur regularly, business disruption and the costs for addressing it will likely mount. It's important to assess risk retention options alongside other possible mitigation approaches, to determine a suitable approach in the long term.

    Choosing your risk management strategy

    The best way of dealing with risk will depend on the situation, as well as the probability and impact of a particular risk. It is unlikely that you will be able to completely eliminate all risks, so your task will mainly be to determine whether the risk is acceptable and, if not, decide how you want to deal with it. Find tips to help you evaluate business risks.

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  • Business risk insurance

    What is risk protection insurance and how to insure your business against financial losses associated with business risks

    Purchasing risk protection insurance is a way of reducing the financial impact of a business interruption, loss or damage to a facility or equipment. Insurance doesn't actually reduce your business' risks. It simply provides coverage and protection against the losses associated with some risks.

    Typical risks you can insure against could be: fire, theft, vandalism, workers compensation, legal costs, protection from injury or property damage to a third party, or business disruption.

    Types of business risk insurance

    Commercial business risk insurance typically covers five basic areas:

    • property insurance
    • crime insurance (including data breach cover)
    • business interruption (or business continuity) insurance
    • liability insurance
    • equipment breakdown insurance

    Some business insurance you must have by law. For example, commercial motor insurance, professional indemnity insurance for certain professions, or employers' liability insurance - designed to cover compensation or legal costs arising from neglect or breach of duty.

    A business interruption policy can help insure against loss of profit and higher overheads resulting from, say, damaged machinery. Other types of business insurance exist, such as key man insurance, credit insurance, money policies, legal expenses, etc. Employers can even buy life insurance or private medical insurance for a whole group of employees.

    How do insurance companies mitigate risk?

    Risk insurance provides a level of financial compensation in the event of a loss. Insurers only pay the compensation if the loss is insured by a valid policy.

    Insurance companies increasingly want evidence that business risk is being managed. Before they provide cover, they may want proof that you have processes in place to minimise the likelihood of a claim. You can ask your insurance adviser for advice on appropriate processes - see how to choose an insurance adviser for your business.

    It is important to review your policies regularly to determine if they adequately cover your potential losses. To review your policy, you should:

    • carry out regular risk assessments to identify potential hazards to your business
    • use business impact analysis to quantify potential impacts
    • examine the level of policy and the coverage you currently have
    • consider all the risks and their outcomes to determine the required level of insurance

    Having the right policy in place can be crucial for the survival of your business, but keep in mind that some costs - such as reputational damage - may be uninsurable.

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What is a quality management system?

In this guide:

  • What is a quality management system?

    Different types of quality management systems, their core elements and purpose, and how to choose the right quality approach for your business.

    A quality management system (QMS) is a collection of business processes and procedures which aims to ensure that the quality of products or services meets - or exceeds - customer expectations. Such systems are typically repeatable and measurable, and rely on continuous improvement. ISO 9001 is an example of a quality management system.

    Types of quality management systems

    There are many different types of quality management systems, each with their own advantages and disadvantages. Some of the most common ones are:

    Standardised systems

    These rely on established standards and follow agreed codes and regulations. Examples include ISO certifications such as ISO 9001. To pass the ISO standards, a business needs to satisfy all the requirements relating to quality and documentation, as well as audits. ISO certification is voluntary for most businesses. However, it may be a legal or contractual requirement in certain sectors and industries. See more on quality management standards.

    Total quality management (TQM)

    TQM is a management framework that relies on continuous, organisation-wide efforts to ensure long-term customer loyalty and success. It places a strong focus on process measurement and controls as means of continuous improvement. See more on TQM.

    Continuous quality improvement

    This system, also known as CQI, focuses on continual incremental improvements, rather than processes and functions. The emphasis is on teams and individuals, and their importance in ensuring the quality of products and services. One of the most popular continuous improvement tools is a four-step quality model, the Plan-Do-Check-Act (PDCA) cycle. See more on CQI.

    Six Sigma

    This is a data-driven methodology that focuses on process improvement. Under this approach, the processes are defined, measured, analysed, improved and controlled to achieve maximum quality. See more on Six Sigma.

    Core elements of quality management systems

    At their core, most quality systems will have several key elements:

    • quality policy
    • quality objectives
    • quality manual
    • quality procedures, instructions, and records
    • document control
    • organisational structure and responsibilities
    • data management
    • processes
    • customer satisfaction
    • continuous improvement

    Put together, these elements make up a system which defines expectations, responsibilities and actions needed to achieve the expected quality of products or services.

    Find out more about the advantages of quality management systems.

    Which quality management system to choose?

    Choosing the right quality system depends on the needs of your business. Your business will have a unique set of products, goals, values and quality objectives, therefore certain quality systems may suit better than others.

    An ideal quality management system should be easy to integrate and use, it should meet the desired quality standards and demonstrate compliance with policies, procedures etc. It should also be flexible enough to change and adapt as your processes improve.

    In most cases, you can tailor any quality management approach to satisfy the specific needs of your business. See how to implement a quality management system.

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  • Advantages of quality management systems

    Key benefits of implementing ISO 9001 or another quality management system in your business to increase efficiency, productivity and customer satisfaction.

    Implementing a quality management system, such as ISO 9001, offers numerous benefits to business owners. It typically increases efficiency and productivity, and is likely to give you an edge over your competitors.

    Below are some of the business benefits you should consider.

    Advantages of ISO 9001

    Using ISO 9001 can help ensure that your customers get consistent, good quality products and services. This can, in turn, lead to new business, as well as:

    • greater efficiency and less waste
    • better and consistent control of major business processes
    • a better understanding of customer needs
    • regulation of successful working practices
    • improved risk management
    • increased customer satisfaction
    • improved participation of employees
    • better internal communication
    • greater consistency in the quality of products and services
    • differentiation of your business from its competitors
    • increased profits
    • reduction of costly errors
    • exploitation of new markets, both in the UK and overseas
    • managing growth more effectively
    • an embedded culture of quality

    The ISO 9001 certification is a globally recognised achievement and, as such, may help you raise your international profile and increase business overseas.

    Benefits of ISO 9004:2018 to your business

    ISO 9004 standard focuses on the quality of the organisation, rather than the quality management of products and services as set out in ISO 9001.

    The standard gives recommendations for achieving long-term, sustained success and focuses on meeting the needs and expectations of all relevant interested parties, rather than just customers.

    ISO 9004 is applicable to any organisation regardless of size, type and activity. Its latest revision includes an enhanced self-assessment tool which can help you:

    • assess the level of maturity of the different components of your system
    • identify and prioritise potential areas for improvement

    ISO 9004 is intended as guidance only. It is not intended for certification, regulatory or contractual use. Read more about the 9004:2018 standard.

    Disadvantages of ISO implementation

    Despite the many benefits, possible challenges to implementing the ISO standards include:

    • the cost of getting and keeping the certification (in the case of ISO 9001)
    • the time involved
    • resistance to change from within the business

    You can adapt the standard to your business needs and resources, although you may need the help of a consultant, which can come at an additional cost.

    Certification to ISO 9001 isn't mandatory, but in some cases may be a prerequisite to working with certain clients such as public bodies. You should evaluate carefully if certification makes sense for your business. Many organisations benefit from using the standard without actually seeking certification.

    Find out how to implement a quality management system.

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  • What are quality management standards?

    Introduction to quality management standards, their purpose and examples you can implement in your business.

    Quality management standards establish a framework for how a business manages its key activities. They identify an agreed way of doing something, either making a product, managing a process or delivering a service.

    What are quality standards?

    Quality management standards are details of requirements, specifications, guidelines and characteristics that products, services and processes should consistently meet in order to ensure:

    • their quality matches expectations
    • they are fit for purpose
    • they meet the needs of their users

    Standards are an essential element of quality management systems.

    Purpose of quality management standards

    Businesses use standards to satisfy their customers' quality requirements and for a range of other reasons, such as:

    • ensuring the safety and reliability of their products and services
    • complying with regulations, often at a lower cost
    • defining and controlling internal processes
    • meeting environmental objectives

    Businesses committed to following quality management standards are often more able to:

    • increase their profits
    • reduce losses or costs across the business
    • improve their competitiveness
    • gain market access across the world
    • increase consumer loyalty

    Read also about the advantages of quality management systems.

    Examples of quality management standards

    ISO international standards are by far the most widely accepted set of quality standards in the world. ISO 9001:2015 specifies the requirements for a quality management system that businesses can use to develop their own quality agenda.

    Read about the ISO 9001 quality management standard.

    Other standards related to quality include:

    • the remaining ISO 9000 family, including ISO 9000 and ISO 9004
    • the ISO 14000 family for environmental management systems
    • ISO 13485 for medical devices
    • ISO 19011 for auditing management systems
    • ISO/TS 16949 for automotive-related products

    Standards can be very specific, applying to a particular type of product, or general such as wide-ranging management practices. Find a list of ISO management system standards.

    Use of standards may be voluntary, but certain groups of customers or stakeholders may expect it. Also, some organisations and government bodies may require suppliers and partners to comply with standards as a condition of doing business.

    Other types of best practice standards

    Standards can help you to achieve best practice in a wide range of business activities, not just quality management. For example:

    See how to make best use of standards.

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  • ISO 9001 quality management standard

    Introduction to the ISO 9001 standard, its requirements and the quality principles you must satisfy for ISO certification.

    ISO 9001 is the most popular and most used standard for quality management systems in the world. It is the only standard within the ISO 9000 series to which organisations can certify.

    The ISO standards are published by the International Organization for Standardization.

    What is ISO 9001?

    The ISO 9001 standard is an internationally-agreed set of documented rules and guidelines that provide clear criteria for implementing and maintaining a quality system in your business.

    The latest version of the standard is ISO 9001:2015. Its criteria are based on seven quality management principles:

    • customer focus - to understand and fulfil customer needs
    • leadership - to increase employee motivation
    • involvement of people - to recognise, empower and enhance the competence of people in the organisation and their role in delivering quality products or services
    • process approach - to identify your essential business activities and consider each one as part of a process
    • continuous improvement - to make improvement a permanent business objective
    • evidence-based decision making - to use analysis of data to inform decisions
    • relationship management - to recognise the interdependence of your business and its suppliers

    The principles describe which requirements your products, services and organisation have to meet in order to comply with the standard.

    Key requirements of ISO 9001

    The ISO 9001:2015 standard is broadly divided into ten sections (called ISO clauses).

    Clauses 1, 2 and 3 deal with the scope of the standard, normative references, terms and definitions contained in the standard. Clauses 4 to 10 specify the requirements for the different areas of the quality management system:

    • Clause 4 - establishes the context of the organisation and requires you to determine external and internal issues, the needs and expectations of interested parties, the scope of the quality management system and its processes
    • Clause 5 - requires top management to demonstrate leadership and customer commitment, establish and communicate a quality policy, and assign responsibilities
    • Clause 6 - emphasises the importance of planning and requires you to address organisational risks and opportunities, changes and establish quality objectives
    • Clause 7 - requires that you provide resources and support that are needed, including infrastructure and skilled staff, and document information to support the quality management system
    • Clause 8 - requires planning for product or service provision, to ensure that you deliver what customers want, looking at areas such as sales processes, design and development, purchasing, production or service activities
    • Clause 9 - requires that you carry out performance evaluation, and monitor, measure, analyse and evaluate your quality management system
    • Clause 10 - requires continual improvement of your quality management system, including taking preventive and corrective actions, addressing non-conformities, etc

    Find out more about the key requirements of ISO 9001:2015.

    These requirements can apply to any business in any industry and can guide any organisation in the implementation of quality management.

    ISO 9001:2015 documentation requirement

    To comply with the ISO 9001:2015 standard, you must maintain the following documentation:

    • your quality policy
    • your quality objectives
    • the scope of the quality management system

    The ISO 9001:2015 no longer requires any documented procedures or a quality manual, but refers to 'documented information' instead, as the information that the organisation has to retain, control and maintain.

    The standard requires you to maintain documented information 'to the extent necessary to support the operation of processes'. You have the flexibility to work out what you need and how you want to document it.

    Bear in mind that documented information is used as evidence of conformance, can help provide consistency in processes, help with staff training and preservation of knowledge.

    Download the ISO 9001:2015 documented information guidance (PDF, 236K).

    ISO 9004:2018 standard

    If you have implemented ISO 9001 in your business, and you wish to go further, consider the ISO 9004: 2018 standard. It helps businesses achieve sustained success by using a quality management approach based on continuous improvement. The standard sets out voluntary guidelines and recommendations, and you cannot certify as achieving it.

    Find out more about the advantages of quality management systems.

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  • ISO 9001 certification

    Find out about the ISO 9001 certification process, the associated costs, and what you must do to prepare for ISO 9001 certification assessment.

    ISO certification is the official recognition by a certification body that your business has achieved an ISO 9001 quality management standard. You can choose to implement a quality management system without seeking ISO certification.

    While certification has its benefits, and might reassure your customers that your products and services will meet their expectations, many businesses can benefit from using the standard without actually getting ISO certified.

    Steps to ISO 9001 certification

    ISO 9001:2015 certification process typically involves the following steps:

    1. Start by establishing your baseline status

    Find out where you are and where you need to be to become certified. Consider your objectives and determine which benefits you expect to gain by certification. Carry out an ISO 9001 gap analysis. You can use the results of this analysis to create a plan and schedule for your compliance project. See our project plan for ISO 9001 implementation.

    2. Develop your quality system

    Improve the existing processes and procedures based on the findings from your gap analysis. You may also need to develop new processes, quality controls or documentation to fulfil the requirements of the standard. Be prepared to incorporate quality management systems into every area of your business. See how to implement a quality management system.

    3. Audit your system internally

    Check that your new or improved processes, procedures and documentation meet the ISO 9001 requirements. A thorough audit will enable you to identify problems or weaknesses in your system, so make sure that you address these before engaging an external auditor.

    4. Choose an auditor

    You will ideally want an accredited certification body to audit your business. Accreditation is not compulsory; however, it offers independent reassurance that the auditors are competent, impartial and using relevant standards. Using an accredited certification body reduces the risk of selecting an incompetent evaluator and paying for, or more seriously, acting upon invalid results. Find an accredited certification body in the UK.

    5. Assessment process

    Some certification bodies may carry out a pre-audit assessment to ensure that you have the required documentation in place or to highlight areas in need of improvement. The formal assessment involves a visit from a representative of the certification body, who will check that you have developed the necessary ISO 9001 procedures and controls in your business, and assess their implementation to make sure they are working effectively.

    6. Certification

    If you meet the requirements, the certification body will issue you an ISO 9001 certificate, which is valid for three years. During this period, the auditor will return at scheduled intervals to ensure that your system remains compliant and continually improves. If your ISO audit was unsuccessful, the auditor will suggest corrective action to address any problems and arrange a further assessment if necessary.

    Find out more about ISO 9001 quality management standard and remember to take into account the ISO 9001 certification costs.

    What is ISO accreditation?

    Accreditation isn't the same as certification. Accreditation is a licence that certification bodies gain in order to carry out ISO certification audits and be able to issue certificates.

    Accreditation isn't mandatory, but it shows that the certification body is compliant with international standards. United Kingdom Accreditation Service (UKAS) is the accreditation body for the United Kingdom.

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  • ISO 9001 certification costs

    How to budget for an ISO 9001 project, and what types of costs to consider for QMS implementation and certification.

    There are no typical ISO 9001 costs. If you're budgeting for an ISO 9001 project, you should take into account certification costs, as well as the actual costs of implementation of the standard in your business.

    Different factors will affect the price of ISO implementation and certification. These include:

    • the size of your business
    • the number of employees you have
    • your industry or sector
    • your business' operational structure
    • the extent of existing quality management systems
    • the complexity of the audit required

    If you are looking for a 'ballpark' figure, many consultancy businesses offer 'no obligation' quotes online. To find an accredited certification body, search UKAS accredited organisations.

    How much does it cost to get ISO certified?

    Certification bodies operate a three-year ISO certification cycle. This cycle involves:

    • initial audits and certification
    • surveillance audits (during first and second year)
    • re-certification audit (at the end of the third surveillance year)

    The costs of ISO certification will be spread across these stages. Certification bodies may exercise discretion over how they break these down.

    Example of ISO certification costs

    Typical ISO certification costs may involve the following:

    Implementation costs

    These will depend on whether you are doing the implementation yourself in-house, or hiring a consultant. If you're doing it yourself, you should estimate the costs of staff, time and resources needed for the project, for staff training, developing documentation, and so on. If you are hiring consultants to help with implementation, expect to pay at least £300 per day for a consultant.

    Certification fees

    These will depend on the size of your business, the number of operational sites you have and the level of risk associated with the product or service you provide. As an example, if you have two or three employees, operate at one site and provide low risk product or service, you can anticipate initial assessment fees in the region of at least £1400.

    Post-certification costs

    ISO certificates are issued for a period of three years. You will have to undergo six-monthly or annual surveillance audits to determine ongoing conformance to the standard. In the example given above, you would need to allow for:

    • annual audit costs of approximately £1000
    • 're-certification' audit, which can cost around 60 per cent of the initial assessment fees

    In addition, some certification bodies also charge an annual registration fee of £100-400. For the example above, this could bring the total anticipated costs to £3500-4500 for three years ISO certification, and an additional £1200 for re-certification.

    This is an indication of the costs only. There is no such thing as a fixed ISO price list. You can request quotations for certification services to give you better idea of the costs. You may also want to speak to more than one certification body in order to determine the full costs for certification over three years, as well as the costs for re-certification.

    Keep in mind that adding other standards, such as those relating to environmental or health and safety systems, can significantly increase the costs of ISO certification.

    Costs and benefits of ISO certification

    Although the costs of ISO certification may initially put you off, it's important that you weigh them carefully against the potential savings and improvements your business could make and the additional business you could win. See advantages of quality management systems.

    You can try several things to reduce the costs of ISO 9001 certification:

    • Get quotes, including the cost of surveillance visits, from several certification bodies and compare them for best deals.
    • Ask your certification body if they offer special rates for smaller businesses.
    • Minimise the amount of paperwork in your system.
    • Get a copy of the relevant standard to make sure that any work you do towards the standard meets its requirements. Prices start from around £85.
    • Check if your business qualifies for financial assistance with system or quality management software implementation. Search Northern Ireland business support finder.

    Remember, you can choose to implement a quality management system without seeking ISO certification. See how to implement a quality management system.

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  • How to implement a quality management system

    Key steps you should follow to create and implement an efficient quality management system for your business.

    Implementing a quality management system (QMS) into a business is not always a simple task. Here are some key guidelines to getting a QMS started.

    Steps to quality management system implementation

    Creating a quality management system requires input from employees at all levels of an organisation, starting with top management. Their firm commitment to change and improvement is vital to the success of system implementation.

    After securing the support of top management, you should follow these key steps to implement a quality management system:

    1. Analyse your business by breaking it down into key areas. These will often be areas that are crucial to your customers' satisfaction. Senior staff should determine the needs of the business and design the system around these.

    2. Plan your approach by deciding which resources you need and discussing the effectiveness of existing processes with staff. Conduct a gap analysis to determine what the current processes are and how they need to change. Assemble your team and develop an implementation plan. See project plan for ISO 9001 implementation .

    3. Inform and train employees. Decide if new processes are necessary and tell staff about them. Provide training and explain how the new system will benefit both staff and customers.

    4. Consider supporting documentation, such as quality policies, procedures, training materials, work instructions, etc. Use version control documents to keep your documentation in order. If you are seeking ISO certification, you will have to keep specific documentation to meet the requirements. Download ISO 9001:2015 documented information guidance (PDF, 273K).

    5. Deploy the system and check that the processes are working. Give someone the responsibility for the system and ensure that proper procedures are followed. Set targets for how each process contributes to the success of business goals. Control, measure and monitor your outputs to ensure that they meet the expected quality levels.

    6. Review and revise processes where necessary. Schedule routine product or process audits to monitor compliance with policies and procedures, and any certification requirements. Continue to audit and review regularly to ensure continuous improvement.

    The British Standards Institution (BSI) offers guidance to help you determine if you're ready for ISO 9001 certification :

    See also ISO 9001 certification.

    Implementing a total quality management system

    Unlike the ISO 9000 standards, which are usually restricted to specified business processes, a total quality management applies to the whole business. It addresses work culture, the working environment and the ethics of the business, and aims to ensure complete customer satisfaction.

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  • Project plan for ISO 9001 implementation

    Prepare and plan for your ISO 9001 implementation with our free and easy-to-use project plan template.

    Our free planning template for ISO 9001 implementation will help you prepare and effectively manage all aspects of your ISO project. Use this sample document to:

    • plan your ISO 9001 project milestones and timescales
    • assign roles and responsibilities to individuals and teams
    • oversee and manage your ISO 9001 implementation

    You should develop your project plan based on your gap analysis. Decide in advance the extent of documentation you will need to demonstrate control. See how to implement a quality management system.

    …

    Project Plan: ISO 9001:2015

    Project goals

    Start date: ______________________________________

    Target registration date: _______________________

    Responsibilities

    Project manager: _____________________________________________________

    Management representative: _________________________________________

    Person ultimately in charge: ____________________________________________

    ISO 9001:2015 team: ____________________________________________

    Project timeline:

    Milestones Scheduled date Completed date
    Assign and train project manager    
    Carry out gap analysis    
    Establish implementation team    
    Hold ISO team meeting    
    Provide ISO team training    
    Hold task team meeting    
    Develop documentation and document control    
    Implement the system    
    Conduct internal quality audit    
    Registration audit    
    Certification received    

    See more on the ISO 9001 quality management standard.

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  • Balanced scorecard

    A balanced scorecard is a crucial tool in strategic management that allows you to measure the health of your business from four different perspectives

    A balanced scorecard is a strategic management tool which you can use to manage and measure your business performance in areas that are crucial to its success.

    What is a balanced scorecard?

    A balanced scorecard is a framework for an organisational appraisal that allows you to look at your business from four perspectives:

    • Learning and growth - it considers the infrastructure that supports your employees' skills, capabilities and knowledge. Two common elements are employee training and education.
    • Internal business processes - it takes into account the procedures that drive your business forward, such as the number of new products or services you create and new product development time. These activities aim to maintain good relationships with your stakeholders, as well as your customers.
    • Customer perception - it studies the satisfaction levels of your product or service, eg using surveys, focus groups and hard data. It evaluates a variety of factors such as cost, quality, availability, time management, service and innovation, which can help you to add value and make your business stand out from the competition.
    • Financial health - it provides analysis and monitoring measures that support profitability, growth, value creation and risk assessment.

    For each of these areas, the balanced scorecard allows you to develop metrics, set performance targets, and collect and analyse data.

    Purpose of the balanced scorecard

    Balanced scorecard helps managers keep track of progress towards organisational and strategic targets. It provides a structured report that allows you to:

    • communicate the activities you need to implement for success
    • align the day-to-day work of your staff with your strategy
    • determine objectively if the strategy is working
    • prioritize projects, products, and services
    • measure and monitor progress towards targets, as well as efficiency and effectiveness
    • reduce uncertainty

    Balanced scorecard combines financial measures with other key performance indicators (KPIs) to give you a snapshot of how well your business is doing now and how it may perform in the future. See how to decide which KPIs to measure.

    The scorecard can also help you to review your strategy implementation, or implementation of a new quality management system, based on measured and verified data. See how to implement a quality management system.

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  • Quality management statement template

    Sample quality management policy document with tips on writing a quality policy statement for your business.

    A quality policy statement is a brief document developed as part of a business' quality management system. It declares what you consider 'quality' in your organisation and outlines the processes you have in place to ensure that you meet the agreed standards.

    What is the purpose of a quality policy?

    Quality management policy is important for several reasons. Most importantly, it articulates:

    • your intentions regarding quality of your products or services
    • your commitment to continuous improvement in quality management
    • responsibilities of all staff, especially those with key roles, for maintaining quality of products and services

    A written, well-defined quality policy is also required by the ISO 9001 standard and is essential to creating an effective quality management system.

    Sample quality policy statement

    Below is a template for a typical quality management policy statement which you are welcome to customise for your business.

    Sample company name (XYZ Limited)
    Quality policy statement

    Company XYZ Limited was established in [year] to provide [describe goods, works, services] to the [describe] industry. We are based in [city/town/region] and employ [number] people.

    Quality is important to our business because we value our customers. We strive to provide our customers with products and services which meet and even exceed their expectations.

    We are committed to continuous improvement and have established a Quality Management System which provides a framework for measuring and improving our performance.

    We have the following systems and procedures in place to support us in our aim of total customer satisfaction and continuous improvement throughout our business:

    • regular gathering and monitoring of customer feedback
    • a customer complaints procedure
    • selection and performance monitoring of suppliers against set criteria
    • training and development for our employees
    • regular audit of our internal processes
    • measurable quality objectives which reflect our business aims
    • management reviews of audit results, customer feedback and complaints

    Our internal procedures are reviewed regularly and are held in a Quality Manual which is made available to all employees.

    This policy is posted on the Company Notice Board and can also be found in the staff handbook.

    Although the Managing Director has ultimate responsibility for Quality, all employees have a responsibility within their own areas of work to help ensure that Quality is embedded within the whole of the company.

    The policy review date is [date].

    Signed:................................. (Chief Executive)

    Date:.................................

    Please note: It is good practice to review your quality policy regularly to ensure that it remains suitable and appropriate to your organisation.

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Importance of change management for business continuity

In this guide:

  • Types of organisational change

    Discover the different types of change in business, and their impact on individuals, groups and the whole organisation.

    Many internal and external factors can give rise to organisational change. For example, new technologies, competition, market instability, reorganisation, staff initiatives and many others.

    Types of change

    Depending on what causes it, business change can be:

    • reactive
    • planned

    Planned change is often implemented with the aim of improving the ways a business operates or achieving pre-defined goals. For example, introducing new products and services or carrying out organisational restructure.

    Reactive change takes place in response to an event that is not anticipated and is outside of the organisation's control. For example, a fall in demand for a business' product or service, or a crisis such as the COVID-19 global pandemic.

    A business' response to such an unpredictable event can be profound and can lead to a complete transformation, altering the way people work, innovate and collaborate. In situations like this, good change management practice can be crucial to business continuity.

    As well as planned and reactive, change can also be categorised as developmental, transitional, transformational or remedial. Each type of change has a different degree of complexity and uncertainty, and may require different implementation methods and commitment of resources.

    Levels of change

    There are three main levels where change can occur in a business:

    • individual level - eg change in job assignment, transfer, change in job maturity level, etc
    • team or group level - eg changes due to inefficiencies, lack of communication, etc
    • organisational level - eg changes due to relocation, restructuring, mergers, acquisitions, etc

    Each level has its own considerations, although change can affect one or more levels at the same time. It's important to understand the impact of change across all levels so that you can develop appropriate measures and interventions.

    Categories of organisational change

    Organisational change typically falls into four distinct categories:

    • strategic
    • structural
    • technological or process-oriented
    • people-oriented

    Strategic organisational change is concerned with the overall goals and purpose of the business, and any changes in the vision and mission of the organisation. Process-oriented change focuses on new technologies, new skills and operating processes, while people-oriented change relates to employee performance, skills, attitudes, behaviours and relationships.

    Change in organisational structure

    Structural change in an organisation occurs when the business changes its:

    • organisational hierarchy
    • chain of command
    • management systems
    • job structure
    • administrative procedures

    A structural change may involve, for example:

    • relocation or adaptation of business premises to accommodate extra staff
    • relocation to a cheaper location or one nearer to customers, labour or transport links
    • mergers and acquisitions to allow you to enter new markets, seize new opportunities or increase efficiencies
    • flattening of your management structure

    Read more about the reasons for changing your organisational structure.

    Risks associated with change

    Any type of major organisational change can be stressful and risky. Potential challenges may arise in relation to staff retention, redundancies, relocation incentives, staff communication, merging of organisational cultures and processes, or altering your business structure.

    Before you initiate change, make sure that the benefits justify the upheaval. Following a change management process can help you to minimise potential disruption and risks.

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  • What is change management?

    Introduction to organisational change management and its role in creating and sustaining a successful business.

    Change management is a structured approach to preparing and supporting individuals and organisations in planning and implementing change. It comprises models, procesess and techniques to help ease the impact change can have on a business.

    Change management helps you consider several critical questions:

    • What needs to change within your business and why?
    • What resources will you need to achieve this change?
    • How will you manage and communicate this change?
    • What will the impact be on your employees and organisation?
    • What are the implications for your customers?

    You could be implementing new software, re-engineering a process, redesigning a product or pursuing full business transformation. Navigating change, especially a significant one, can be difficult, so it may help to follow a controlled, coordinated and well-established process.

    Importance of change management

    Change management is critical in today's markets and business environment. Customers, competition, technology and other external and internal drivers may inevitably force your business to respond to changing conditions. A robust change management approach and agile practices can help your business to survive even the most unexpected crises.

    Even when circumstances don't impose change, businesses frequently choose to plan and adopt change to encourage growth and improvement. If you want to succeed and stay ahead of the competition, you have to be able to rapidly and successfully manage change. See more on the benefits of change management.

    It's important to recognise that businesses respond to change in many different ways. Depending on how they manage it, change can either provide a platform for growth and success, or cause problems for individuals, teams and even entire organisations.

    You can follow simple change management principles to help you manage change and achieve lasting impact within your business.

    Ability to manage change in business

    There are varying levels of change management capability across organisations. These can range from little or no formal change management (with the highest rate of failure and productivity loss) to complete change management competency (with the highest profitability and continuous improvement process in place).

    In between these two, there is a multitude of other approaches to change management, which can be used at the individual project level or with multiple projects, or embedded in organisational standards and methods.

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  • Change management process

    Introduction to the organisational change management process, and the steps to effectively managing change in your business.

    Effectively managing organisational change involves following a sequence of well-defined steps. The process involves assessing the changes in the broader business environment, preparing and planning for the necessary adjustment, implementing the changes and their sustainability within the business.

    Key steps in the change management process

    Managing change involves a number of fundamental activities:

    • Step 1: Identify potential change - take time to understand the problem and what is needed to fix it
    • Step 2: Analyse change - determine its feasibility, how long it would take to achieve and at what cost
    • Step 3: Evaluate change - weigh up the benefits and costs and decide if the change is worth it
    • Step 4: Plan change - analyse the impact of change, communicate the benefits and develop an implementation plan
    • Step 5: Implement change - establish a schedule, train staff, assign tasks and deploy and communicate changes
    • Step 6: Sustain change - validate, measure progress, close the process and set up a follow-up review to evaluate success and failures

    See also what is change management.

    Implementing change management process in business

    Implementation is at the heart of the change management process and often includes:

    • communicating the benefits of the change to your employees
    • training staff on the appropriate changes
    • removing resistance or obstacles to change
    • securing organisation-wide buy-in for the change
    • coordinating transformative activities to move the business into a new way of working

    As every change is different, you may find that you need to organise tasks and responsibilities in the process differently. You may also need to carry out other activities specific to your situation or apply different change management models to manage the process successfully.

    Managing change in projects

    Change management process is complementary to project management. There are several established change control systems to help you manage changes within a project, focusing on:

    • scope - eg where a project customer asks for changes or additions to the project scope
    • cost - eg where the price for the items in the scope may increase or decrease
    • schedule - eg when timescales are affected or project milestones delayed
    • contract - eg when the relationship between the project customer and the supplier changes

    Project managers will often use integrated change management control as a way of managing proposed changes within the project.

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  • Change management models

    Overview of the change management models and methodologies, tools and techniques to help you plan and manage change efficiently.

    Change management models describe the different processes of managing change in organisations. They give you a structured outline you can follow, serving as a blueprint to help you apply the common change management principles.

    Many different models exist, however several are considered key and most likely to be used by businesses planning or undergoing change. These are:

    Other popular change management models include Beckhard and Harris's change equation, Burke-Litwin's change model and Leavitt's system model.

    Choosing a change management model

    Each model has a different approach and applies different principles. Some are more complex than others, and all have advantages and disadvantages.

    When considering which change management model to choose, you should take into account:

    • your goals and strategies
    • your corporate structure
    • your staff attitudes
    • the sequence of steps suggested
    • the time allotted for the work
    • implementation and organisational changes

    Depending on the nature of your business, the type of change and the people involved, you may use one or more models or none. Don't feel you have to follow the models precisely. Be flexible if you need to in order to create and sustain actionable change.

    Change management tools and techniques

    In addition to change management models, there are other tools and mechanisms that can help you understand, plan and implement change in your business. For example:

    • the Kübler-Ross Change Curve diagram can help you understand how individuals might react to change and how you can support them through the process
    • impact analysis can help you uncover unexpected challenges or outcomes of change
    • training needs assessment can help you ensure that you give the right skills to the right people at the right time
    • stakeholder analysis and management can help you maintain a good relationship and communication with your stakeholders

    With so many options available to guide change management, finding the right one for your business can be challenging. However, understanding the change management process is key to managing it well.

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  • Change management principles

    Explore the principles of change management to help you plan and carry out organisational transformation.

    You can follow some tried and tested change management principles to help you transform your business quickly and efficiently. These principles form the basis of organisational change management best practice.

    What are the principles of change management?

    The ten guiding principles of change management are:

    • active leadership - lead by example by accepting and embracing change or secure senior-level backing, if appropriate
    • structured approach - use the change management process and established models where possible
    • detailed change plans - specify the change you want to see and what needs to be done to achieve it
    • impact assessment - assess and address how the changes will affect your business and your people
    • strong team - involve every layer, eg executives, middle managers, project managers and make sure they keep their teams focused during the change
    • employee participation and engagement - secure buy-in from everyone involved and affected by the changes, directly or indirectly, train and incentivise your staff
    • open and regular communication - consult with staff and tell everyone what has to happen and what their role it
    • sustainability - start with small, incremental changes and build momentum as you go
    • managing resistance - identify and address common barriers to change
    • evaluating progress - identify what was good, what was bad and use this information to improve your change management practice for future projects

    By following these principles, you will be able to work with many change management tools and adjust your approach according to the size and nature of the change.

    Read more about the importance of communication in change management.

    Main hurdles to change management

    Change can be difficult, but it is important to get it right. The main hurdles include:

    • poor planning
    • lack of understanding of the cause and effects of change
    • insufficient preparation
    • hastened roll-out
    • absence of buy-in and support
    • lack of communication

    The risks of poorly managed change include financial losses, missed opportunities, wasted resources and diminished staff morale and performance. With such possible consequences, it is vital to identify and avoid common barriers to organisational change management.

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  • Benefits of change management

    Effective change management can improve morale and productivity, and create a positive perception of change for staff and customers.

    Change management potentially offers many benefits. It supports a smooth transition from the old to the new and gives you a template to follow for helping your staff and your organisation adapt to change.

    Why is change management so important?

    Change delivers the best results when it's meticulously planned and managed. The benefits of change management allow you to:

    • assess and understand the need and the impact of change
    • align resources within the business to support the change
    • manage the diverse cost of change
    • reduce the time needed to implement change
    • support staff and help them understand the change process
    • plan and execute an effective communication strategy
    • improve cooperation and collaboration in your business
    • minimise resistance to change
    • maintain the routine in the running of your business during change
    • maintain or even increase productivity, morale and efficiency
    • reduce stress and anxiety associated with change
    • reduce disruptive aspects and risks associated with change
    • respond to challenges more efficiently
    • minimise the possibility of change failure

    Finally, the change management process creates a fantastic opportunity for the development of best practice in business.

    To make the most of the benefits of change, you will have to manage many risks and challenges along the way. Find out how to avoid the most common barriers to organisational change management.

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  • Barriers to organisational change management

    Discover common barriers to change management, and where you may experience problems and difficulties with implementing change.

    To develop a successful strategy for organisational change, you must understand the types of barriers your business may face.

    Top reasons for change management failure

    In most cases, failure to achieve organisational change is driven by one of the following factors:

    • limited understanding of the change and its impact
    • negative employee attitudes
    • failure to involve employees in the change process
    • poor or inefficient communication
    • inadequate resources or budget - see cost of change management
    • resistance to organisational culture shift
    • lack of management support for the change
    • lack of commitment to change
    • past experience of failed change initiatives

    Other practical barriers can involve a lack of skills, lack of staff, difficulties in establishing service, absence of equipment required for the change, or inadequate organisational infrastructure. If key employees leave or move around the organisation, it may also be difficult to maintain changes after you've introduced them.

    Consequences of poor change management

    The costs and outcomes of poorly managed change can be significant. They include:

    • financial losses
    • productivity and performance drops
    • a decline in quality of work
    • wasted time and resources
    • inability to retain staff
    • increase in employee sickness levels
    • poor staff morale
    • inefficiencies
    • impact on customers and suppliers
    • missed opportunities

    You should also consider the damage to your business brand, loss of credibility and general change fatigue, as well as risks to your business continuity.

    Overcoming barriers to change management

    To avoid your project slowing down or derailing, you should follow the basic change management principles. These rely on:

    • leading staff through change
    • communicating with staff and stakeholders about the change
    • understanding the need and the impact of change
    • involving all levels of staff in the change process
    • sustaining the change and embedding as part of the new norm

    Read more about the importance of communication in change management.

    Certain factors may nurture a business atmosphere that is conducive to change. For example, a strong leadership team, a culture of continuous improvement and motivated staff. However, it is likely that you will need different approaches to overcome the different barriers.

    Keep in mind that change can take a long time to achieve and resistance is common in many types of change projects. You should consider the scale of change realistically and decide if small, incremental changes are more suitable than a quick, full-scale organisational change.

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  • Cost of change management

    Change comes at a cost - here's how to calculate the cumulative costs of change management and make it worth the investment.

    For modern business, change is not only healthy but it's also essential for success. However, managing change comes at a cost. You will have to allocate time, money and people resources to plan, implement and sustain change.

    What is the cost of change?

    It's important to understand the cumulative costs of change management. Many costs may be hidden or crop up unexpectedly.

    Most costs associated with change management relate to:

    Communication

    You may need to explain openly and frequently the reason for the change and the actual changes themselves. In some cases, a formal public relations strategy can help you keep employees, customers and suppliers informed. In cases such as downsizing, you may have a legal obligation to consult your staff. 

    Branding

    You may need to reflect the organisational change in your branding, eg on stationery or delivery vans. This may happen, for example, in a merger or acquisition situation, or if you relocate, add new product lines, etc.

    Training

    You may have to retrain your employees or carry out development and cultural change programmes to help them adapt to the organisational change and new business practices.

    Resources

    You may need to invest resources such as time, effort, new technologies, infrastructure and particularly human resources to help with the organisational changes. This is likely to add to the costs of change.

    Restructuring

    You may need to consider the costs of restructuring - for example, redundancy payments to staff or costs of relocation to new business premises.

    You may also incur additional costs, eg for consultancy, recognition and general expenses. Some of the costs will be difficult to quantify, but others may be easier to measure. Measuring costs accurately may allow you to find ways to reduce or avoid certain costs entirely.

    A cost-benefit analysis can offer you a methodical structure for assessing the actual costs of change against the benefits of its desired outcomes.

    Budget for organisational change management

    It is a good idea to work out a detailed budget for the business change programme, to avoid any unforeseen expenses that could derail or halt the change. 

    Don't feel you need to follow your original plan or budget precisely when implementing any changes to your business. You may need to modify your proposals, policies and procedures to take into account changing circumstances in the business and in the marketplace.

    Costs of managing organisational change poorly

    Poor change management opens you up to risks of incurring significant costs, both at the project and the organisational level. For example:

    • loss of money needed to address staff issues
    • loss of investment if the change doesn't deliver the right outcomes
    • inability to realise the value you need from the project in the first place

    As well as money, poorly managed change may also result in wasted time and people resources, dented morale and confidence, and increased resistance to change.

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  • Importance of communication in change management

    Find out why planning and communication are the two most important factors during business change and reorganisation.

    Planning and communication are critical for organisational change. Getting top management support in implementing change can significantly improve your chances of success.

    Planning organisational change

    Planning for any business change will help you to ensure that changes happen the way you want them to and that you identify and control the costs of your project. To plan your organisational change effectively, you should:

    • Prepare early. Take time to understand the existing situation, the cause of issues and the need for change, and what the expected impact of the change may be. Follow the tried and tested change management process and models.
    • Be flexible. Assess and agree priorities but don't feel you can't change them if your circumstances change. Follow change management principles to help keep your project on track.
    • Assess and manage risks. Identify potential problems and barriers to organisational change and find ways to overcome them.
    • Draw an organisational chart. This may help you to understand existing processes, workflows and lines of authority. Remember to update the chart if you change your business organisational structure.
    • Develop a vision. Take a long-term view of how the change will affect the company and its competitive position. Communicating this vision can be a great motivator for your staff. See how to lead and motivate your staff.
    • Set objectives. These will help you to measure the success of the change.
    • Plan resources, assign tasks and schedule timing for the change. Assess and identify all the possible costs of change.
    • Plan your communication strategy. Consider ways you will communicate the change to your employees - it demonstrates commitment if the managing director or chief executive talks personally to employees.
    • Monitor and evaluate. Review the progress regularly against the objectives and make adjustments if circumstances change.

    Role of communication in organisational change

    Ongoing communication and employee engagement are vital. Meet managers and employees regularly to explain the reasons for the change, how it will be carried out and how it will affect them. Tackle rumours head-on. Make sure that managers operate an 'open door' policy to any employees who may have questions.

    Talk to suppliers, partners and customers as well, and keep them informed of any changes that could affect them. Try to give this information as far ahead as possible.

    Consulting employees about the change

    Depending on the nature of change, you may need to comply with the Information and Consultation of Employees (ICE) Regulations.

    Under the regulations, employees can request that you set up formal arrangements to inform and consult them on a range of key issues, including:

    • the economic situation of the business
    • job prospects
    • major changes in how work is organised

    At least 15 employees or 10 per cent of employees, whichever number is greater, must make the request for a formal agreement. The regulations only apply to businesses with 50 or more employees.

    If you are planning redundancies as part of your organisational change, you must comply with relevant legislation.

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  • Importance of change management for business continuity

    Having a formal change management strategy can be vital to your business continuity and disaster recovery plans.

    Many things can put your business at risk, including pandemics, market volatility, and changes to your organisation, people or technology. Crises can quickly turn change management from a best practice discipline into an urgent and critical business activity.

    Change management and disaster recovery

    A robust change management approach can help you avoid making unnecessary or rash changes in your business without thorough planning and analysis. This can, in turn, thus help you avoid negative outcomes such as business interruption, loss of productivity and profits, and even closure.

    The aim of change management in business continuity and disaster recovery planning is to:

    • minimise potential disruptions to your business
    • find a cost-effective way to use resources to achieve change
    • reduce the likelihood of returning to pre-change activities

    Business continuity efforts are focused on proactively managing your business processes, assets, facilities, supply chains and human resources to ensure that, as far as possible, your business always functions at its highest capacity.

    Disaster recovery, on the other hand, focuses on ensuring that contingency plans and procedures are in place to return business to usual as soon as possible after a crisis.

    Role of change management in business continuity

    Change management is a key activity in combination with both business continuity and disaster recovery planning. Its purpose is to help you introduce and implement changes to your business, product, process or system in a controlled and coordinated way, avoiding issues and risks along the way. As such, change management can:

    • boost your business' resiliency
    • speed up recovery from critical issues
    • help you create contingency strategies for situations where change doesn't go to plan

    You should review all your management plans and processes regularly to ensure they are fit and ready to use if and when you need them.

    Assess the barriers to organisational change management and address them through risk management and business continuity and crisis management planning.

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