September 1999

A note on business management

Every manager which is busy with running a company has to do his or her routine tasks and has to solve several problems and sometimes more importantly problems still to come. Managing is dealing with the present and anticipating on the future at least if you are Schumpeter’s kind of entrepreneur business man or woman.

To assist you in succesfully executing the manager’s job here some ideas and inroads which could be supportive to your company.

Contrary to common belief running a company in booming times is just as difficult, sometimes even more difficult, than in depressing times and markets. Where as in a depression the most important goal is to improve the revenues and cut costs in a booming period it will be maintaining the growth. As most people and companies experienced coming somewhere, like be number one in your sector, is relatively easy but stay up there and still improve is the difficult part of the game.

Managing success is the name of the game and it will demand all skills available to do so. All parts of the company have to be brought in line with this goal and participate to maintain and improve the numbers and products or services which are responsible for the success.

Managing success

A large number of companies, especially in the tech sector, have become very succesful. From virtually nothing they moved themselves into the top league of the business community. Large revenues, high growth and a seemingless never ending demand created companies with a lagging infra-structure which is threatening future growth and the health of the company. But not only the upstarts have this problem also the mid and large size corporations will and have experienced the same kind of problems. Namely inadequate company structures and hierarchies have and will undermine new and very often profitable operations which have been initiated to keep the holding company in the group of high performance companies.

The prime responsible for the position of the company is the management. They have to maintain the current position, seizing opportunities and avoid threats which may damage the performance of the company. A good strategy and a superior implementation of the, tactical, workplan should make it possible to achieve the goals which are stated in the business forecasts.

There are four areas which are very important and necessary to manage success. The management team has to carefully adress or bring the next four important areas in order to avoid the chaos of an inadequate business structure. The areas responsible for the growth and stability of the company are people, systems and organisation, products and services and control, finances.

You can read more about business management, productmanagement, communications and procurement in our reports from May 1998, September 1998 and November 1998.

People

The management of people have become a major issue in booming industries and the very often connected tight labor markets. Without the right people it will prove to be very difficult to maintain a given situation, not to speak about any improvement.

The value of the human resources department has become more important because the retention and the attraction of the right people has become increasingly difficult. It is not enough to offer an attractive pay package and perks but other elements like the working environment, development opportunities and the corporate culture are just as important than the bank account.

Not only the all important creative research, development and design people should be included in the people management but also the sales, production and supportive workforce should be included. The second group of workers might be a little easier to replace but a proper work environment and the corporate identity can never be established if the company is a two track enterprise.

A correct people management is the first condition to maintain and improve the position of the company. And after the good payment package, the above mentioned corporate culture, development opportunities and working environment will stimulate the people to do their utmost to protect and support the company.

Corporate culture

A good corporate culture is not only beneficial in the sales and marketing but it will bind the people, the workforce, to the company. An intimate bound has to be created between the company and its people. They all need and want to belong to belong to the company and need to be proud on their company. To be proud they have to know and be able to identify themselves with the mission, doctrine, of the company. For example we make live easier for the people and we connect the world kind of fundamental ideas.

Development opportunities

The development opportunities will keep the workforce sharp, up to date and committed to the company. The development opportunities do not only mean promotion in the hierarchy but also opportunities to increase their knowledge and skills. This can be done by learning and exchange programmes but also by sabbaticals. As better educated and open minded people will be more flexible and useable but also more willing to explore new ground and opportunities and go the extra mile if it is beneficial for the company.

Working environment

A good working environment is responsible for that the people working in a company get the feel good feeling. If they feel comfortable they will be working harder, will make lesser mistakes and will report the rare mistakes and other possible problems easier and faster so that they can be corrected. A proper working environment can be created by a work or better people friendly workplace, good relations between the people working together to stimulate cooperation and discussion and finally to recognize and reward the achievements of the people working for the company.

Systems and organisation

Systems and organisation in a company are the elements responsible for the execution and the infra-structure. All organisations need good equipment and a proper infra-structure to stay competitive and profitable. If the equipment is not attractive and uncapable the workforce will get dissatisfied as they will loose the confidence in the company and the products they develop / manufacture / sell and it will undermine the company as the current product(s) will very soon be outdated and unsaleable. If the infra-structure of a company is inflexible and rigid it will undermine the adaptablility of the company to use opportunities, for example new products or production methods, and therefore it will raise costs and limit profits on the medium to long term.

A large number of companies have been drawn into the trap of outdated systems and an outmoded infra-structure. The success a company had with a given product or service could have made the management very averse of any change as this would increase the costs and decrease the profits on the short time, change the comfortable structure they know and like and everything is, in their perception, so nice and good.

To succesfully manage a company it demands that the management is open to new ideas and stimulates change to avoid the inertia of relying to much upon a given situation. Opportunities into new products, production methods and advanced research, control and office equipment should be explored and if useful be implemented to stay ahead of the competition.

Organisation

The infra-structure should be open to change. Rigid hierarchies and large complex structures should be avoided as new products and technologies demand a different approach than the old style factories. Small modular business units should be created with their own management structure and responsibilities to stimulate development, optimise production, improve customer relations, control costs, and nurture the internal relations to avoid the ivory tower syndrome of the management.

An additional advantage of a flexible and open organisation is that new ideas will be embraced more easily and effectivily. New or modified products and production methods can be brought forward and by a simulation tested on success or applicability.

The benefits of a proper infra-structure can be summarized as that it creates a good working environment, improves the communication between the workforce and the several departments in a company, stimulates new ideas and optimises development, production and sales.

Systems

The above mentioned open and flexible organisation is a pre-condition to the use of the most advanced and cost effective sytems available. The systems are necessary to improve research, production and the sales and marketing activities. Without being consequently at the forefront of development, outdated equipment will increase costs, minimize profits, destroy opportunities which could be realised and it dispels the workforce and more importantly in the end the customers. And it will be much more difficult to make up a structural shortcoming then continue to swim in the main stream.

The advantages of an advanced systems company are that the systems, office, reseach and production equipment, are needed to keep the work force up to date, interested in the company and the products, stimulate new developments, improve the relations in a company and communication with the customers and ofcourse have advanced cost effective production facilities.

Products and services

The need to have an attractive product package, might it been an actual product or a service rendered, and an effective services department is essential for a company to beat the competition. A lapse in one of both or in both elements will have a dramatic effect on the bottom line.

Product management

The product package should be regularly evaluated, updated and renewed, if necessary into new sectors, to remain a competitive company. A system of product cycles should be introduced to forego any attempt to be sticked to certain product. The product should not outlive its useability or desireability. Improved or new products should be introduced timely to keep the customer, market, satisfied and to remain, as a company, competitive.

Customer relations

In a customer focused market it is of the utmost importance to keep the customer satisfied, the customer is king and should be treated accordingly. The after sales service should belong to the important departments of a company. The services department will be in close contact with the customers and they can find out what is wanted and expected now and in the future. This knowledge is very important to the present product package but even more important to future developments. The efficacy of the services department is responsible for the return of the customer if a new acquisition will have to be made. Consequently complaints should be dealt with immediately, or at least in the shortest possible time, as most customers rely on the products to work. If a customer is satisfied he will be more likely to return.

Conclusion

An attractive product package and an efficient services department, customer relations, are the key, at least external, to remain a succesful company. As the customer will hold those two responsible for their satisfaction and this will translate to the bottom line of the company.

Control

The last area with should be handled with great care is control, or better the financial aspects, of the company. The need to properly manage people, update systems and organisation and innovate products and services should be guided by the financial sense of every important decision. But always remember to much control, risk aversion, is as worse as to little control, a va banque game. A balanced company is using financial control as a supportive instrument not to simply killing off new developments.

A well managed company with several business units which operate semi-autonomous under their own management have the option to explore opportunities with new products and production methods. The semi-independent unit can open up new markets and achieve results beneficial to the whole group. The holding company in turn has to implement an advanced financial control system for all units operating under their aegis to exploit opportunities and avoid threats, or simpler stated to control costs and maximise profits.

The company should also implement a company wide bookkeeping, enterprise resource planning, ERP, system. The business units should have their own ERP system but this should be coupled to the main system of the holding company, also semi-integrated into the group just like the management of the business unit.

An unified financial control system does not only demand the same kind and level of hardware and software but also identical ratio’s. The ratio’s should be tailored to the specific situation of the company. Derivatives of the Net Present Value, Return on Investment, Cost-Benefit, Cost-Performance and Activity Based Costing ratio’s should be used to create a common understanding within the group. Decisions can be made afterwards based on not only on strategic policy but also on fundamental research thus easier acceptable and supportable for all concerning parties.

An unified control system will give each unit the opportunity to work with their own budget and at the same time receive financial support from the holding company. As the holding company is at all times fully aware of the activities and possible shortcomings of the business units. The holding company is also able to collect the necessary information to properly run the company and inform the public and the shareholders about the present situation.

Finally with an unified control system all can be treated equally, cost-benefits can be estimated and can be kept under control and mutual experiences can be shared. If an unit experiences some financial difficulties with a certain project it can be compared with other projects and the correct action can be undertaken.

The main function of the holding company will be financial control to assure that projects succeed and that the same standards and methods will be used. If they succeed to implement this kind of system progress and improved business results will be achieveable.