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With the recent world economic debacle I guess it would be easy for some to justify their organization’s problems on what has been a major business paradigm shift. It is however true that many organizations weathered to storm quite well while others are still floundering in the doldrums. So what is that management can do to better defend themselves against a more rapidly changing and uncertain business environment and what questions should they ask to start uncovering their businesses’ inherent weaknesses.

According to years of surveys of business failures the most common cause of their demise is the lack of money. OK that’s a ‘no-brainer’ Richard everybody knows that, HOWEVER where does the money come from and what sort of money is critical? Well money comes basically from three places:

1)     Capital (investors) – too little of that and we are obviously doomed from the start

2)     Efficient and effective operations i.e. control of costs and the ability to obtain the maximum outputs for the minimum inputs (the management and the staff) and

3)     Cash flow from sales (the customers).

Assuming that our organisation has adequate capital, lets look at the other two areas.

Firstly to maintain EFFICIENT AND EFFECTIVE OPERATIONS, what are critical money issues for us as managers/leaders?

Record Keeping and Financial Control (the easy stuff first) – do we and our team really understand how to read the trends in the financial reports or… do we just do a yearly budget and wonder at the end of the financial period why we missed the target?

Do we constantly review the budget in light of changing conditions in our industry, technology or our market’s tastes?

How often do we update our projections in light of changing circumstances and do we use adequate financial control mechanisms? Are we still doing obsolete annual budgets or are we engaged in a worthwhile an ongoing process i.e. a living document?

Are we constantly assessing what we do and asking if our activities are real value adders or just habitual energy suckers?

Silly things can happen, are we over controlling the petty cash and under controlling the major purchases or project expenses just because they are approved in the budget? It does happen in real life.

Not too long ago I had a discussion with a senior executive who was dismayed by the fact that their annual budget was being prepared to give the business owners a good dose of “what they wanted to hear” rather than to provide a true indication of the state of the market and the real prediction (or at least best guess) as to the true potential for the upcoming year. This same company was often three or four months behind in balancing its actual figures in spite of it having a “giant accounting department” by its industry standards.

A personal question you may consider: BASED ON WHAT HAS ALREADY BEEN SAID, IS OUR COMPANY HEADING FOR SUCCESS OR FAILURE AND IS IT TIME TO GO SOMEWHERE SMARTER?

Critical company success factors as they relate to competence:

a)     The ability of our team to make the correct money or business decisions – is our business managed by people with sound industry experience and/or are we educating our staff on the industry they belong to or do they just specialise in ‘their job’? Businesses managed by people without prior management experience have a greater chance of failure than firms that are managed by people with prior experience. How well educated and competent are our managers?

b)     Are we hiring or training to make sure we have effective management or are we only promoting from within, mainly based on length of service and loyalty? Are we just handing out big titles to keep the staff happy and give them an unjustified salary increase so they won’t leave and make us start all over again? Don’t laugh in a couple of countries I worked in… it happens all the time! Educated people have a greater chance of making a business succeed than those who are not educated. What is our company’s ongoing education policy do we provide incentives for our critical employees to improve their knowledge and expand their perspective? Also it is important to understand that businesses that cannot attract and retain quality employees have a much greater chance of failure than firms that can.

c)     Do we attract quality staff and are we seen as an employer of choice or do we constantly resort to taking the best of a bad bunch?

A few more searching questions

Do we plan to make money? Businesses that do not develop revenue/profit driven and specific business plans have a greater chance of failure than firms that do.

Does everyone on staff know what our corporate vision and mission is?

TEST: Go outside and ask a few people what the corporate vision and mission are and when you’re though stressing out (or crying) go and kick the corporate communications director/manager/officer in the head.

Do we test our plan against our values, for that matter, do we plan at all, are we ALL really working to a plan… or is it just another day at work?

Do we have an action plan for each strategy and then make sure we know who is to take the action… and by when… and how to measure each action’s success or failure…and do we then replan based on the outcomes? I have conducted a lot of planning sessions with and for a variety of organisations and everybody likes visions, missions, goals, objectives and strategies and participants readily contribute to the brainstorming. Unfortunately as planning sessions progress and when we get to the real work and I ask “who will take the actions”… silence… or at best reluctance.

PLANS WITHOUT STRICTLY IMPLEMENTED AND MONITORED ACTIONS ARE JUST A WASTE OF TIME.

Refs:
10 reasons why businesses fail, Home Office/Jeff Wuorio http://www.bcentral.com/articles/wuorio/150.aspFlusche, Van Beveren, Kilgore, P.C.
http://www.fvbkcpa.com/articles/E-toolbox_ Articles/Why_Small_Businesses_Fail.htm

http://www.tuta.hut.fi/studies/Courses_and_schedules/Isib/TU-91.167/Old_seminar_paper/Ojala_Juha_final.pdf