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Bottleneck-Oriented
Business Management
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by:
Stephan Szugat
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Simple and effective Business Management
In every enterprise there are, at every time, one or more bottlenecks,
which have influence to the commercial situation. Bottleneck-oriented
business management has the purpose to early track the bottlenecks and
to remove them, to allow an optimum of commercial development. To know
at any time, what a business lacks of and to be able to add the missing
things, is today a determining competition advantage. Bottlenecks can
be, e.g.:
low sales proceeds
high due or overdue accounts receivables
low liquidity (Cash on Hand, etc.)
high amount of liabilities
low number of customers
too many new customers
too high capacity utilization
defective administration or management
and a lot more.
These example show that bottlenecks not only concern negative
circumstances, but also can apply to positive commercial development.
If an enterprise takes up many new customers, this results in new
orders, which lead to other circumstances, like a possible excess in
capacity utilization. In case the excess of capacity utilization stays
for a longer time, this may result in a lower employee motivation,
because of a slump in working atmosphere within the company, which then
could lead to less qualtiy of the work performed.
Due to a TIMELY reporting system many companies take care of reaching
the desired commercial development. However, a regular analysis of
expenses or the annual reports are not enough to control a business
today. In the today's dynamic markets these evaluations are too
statical, too much oriented on the past commercial development, which
had been achieved. Also cost accounting only shows what has happened in
the past. The actual direction in which a business is running could not
be seen.
Imagine a business to be a car. If you sat down in a car, do you like
to receive information from the instruments from the last year or
month? Probably not. You would like to have actual information about
fuel tank content, coolant temperature and a lot more.
Bottleneck-oriented business management should exactly bring the most
important and actual information about a business to you, including
so-called early warning signals (Screenshot abenetis ERS-Diagram).
Data oriented to the past for early-warning-systems?
A working early-warning-system needs data which are not oriented to the
past, like from cost accounting or year-/month-end-closeings. It needs
data from so-called early indicators, which has to be gathered from
different areas of an enterprise. Of course, figures from the finance
and accounting department belong into an early-warning-system, but they
only have a subordinated role, because they are oriented to the past.
Nowadays the reporting must show the present situation of a business.
In many businesses the expenditure of time for the reporting rose
considerably, due to the today's flood of information. Aggravatingly
added to this, is the selection of the really relevant business ratios,
which allow an appropriate overview of the actual business situation.
Too often reports are prepared, which are not perceived by anybody, due
to the lack of necessary statements about the business development.
There are already proven business-ratio-systems, that enterprises only
need to take over. Get back into the car again, imagine you have only
one instrument in front of you, which shows the value "35". What does
this signify? It is not recognizable how many fuel exists, how the
Temperature of the coolant is or how fast the car is driving, etc.
At this example you could recognize the little expressiveness of only
one business ratio. It shows the importance to use the right business
ratios, which must have a connection to each other and which have a
different temporal origin. Nevertheless, many business ratio systems
are mostly based on data which originate from the past.
This turns often to the problem, that immediate information are not
available, to indicate the actual situation of a business. However,
there is still the alternative, to reduce the period of the past. How
would it be with one week instead of analysing business data every 4
weeks? This would lead to the fact that you could act a few weeks
earlier, if something should run a little bit inclinedly.
Only very few data are needed to receive an informative evaluation.
This again is comparably with a car. If you are driving with your car,
you only receive a small, well-chosen number of information and
nevertheless, have an actual picture of the situation. This is also
possible for businesses, as well!
As a motorist we receive only one fraction of the data which is
acquired by the system of the car, and just these fraction of
information is enough for us to reach the desired destination. When
traveling usually we are well prepared, but the principle of the
preparations is often neglected in business operation. As it is with
traveling, the final goal has to be clearly stated by the business
management. This could be done by having planing data available. Only
by target/actual comparison divergences of the commercial development
will be recognized.
Unfortunately, many small businesses renounce to use plan data.
Besides, it is not about, to cut plan data into the smallest pieces,
but only to get a rough picture, what the business is going to achieve.
It is absolutely possible to run a business on the basis of the figures
from the previous year, however, to use these figures, the past
commercial development should be taken into consideration. So the
figures from the previous year should be improved to fit with the new
goals. And finished are the planning data and the basis for an
operational risk management are laid. Still if it is most important to
know the actual bottlenecks in business operation.
Recognize problems and act!
One of the most important factors in business management is the early
recognition of problems and potentials. There are bottlenecks in every
business, which could have serious results. Pecuniary difficulties
could lead to bankruptcy for example. Therefore symptoms must be
recognized early, in order to turn a possible crisis away and to secure
the future of your business. Also to use available potentials, regular
analyses should be done. Nowadays products and services could not be
sold forever, because product cycles become shorter and shorter due to
market dynamism. The recognition and development of potentials is
exceptionally important, to avoid losing the already achieved basis of
a business.
About the author:
Stephan Szugat is founder of abenetis a web-based service about
Business Management Solutions focusing on the core needs of business
management. This includes operational and strategic analysis especially
Early-Recognition-Systems, Knowledge-Management and other Services for
small and mid-sized businesses. He has approx. 15 years experience in
the Finance and Accounting Area from companies of different size and
from various industries. http://www.abenetis.com
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