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Bottleneck-oriented Business
Management |
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by: Stephan
Szugat |
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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