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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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