Posted by: rongeri | October 12, 2009

The Challenge of Changing Times–Part IV

IV.       Diagnostic Tools 

We know that what gets measured, gets managed. But what gets measured also defines a company’s culture. Why? Because it describes what is valued.”[i]

 “If you can’t measure it, you can’t manage it”[ii]

 “If you don’t measure it, it won’t get done.  If you don’t measure it right, it won’t get done right.”[iii]

 “If a performance measure is hard to understand, it’s not a good one.  Use ratios whenever possible in creating measures such as revenues per employee, staff resources compared to line resources and the like.”

 “The greatest enthusiasm in the world won’t make up for a business plan that doesn’t work.”[iv]

 Diagnostic tools are important in many professions. Accountants and lawyers may both use compliance audits as a diagnostic tool. Doctors routinely take a patient’s blood pressure and blood samples as a diagnostic tool. In a similar manner, a business should use a BGPS as a diagnostic tool to assess the business health of the enterprise.. Knowing where to look and what to do when you find something is a valuable skill. But to do this, one needs to employ the right diagnostic tools.

 A critical function in your business planning and operations is staying on top of the numbers.  If you don’t stay on top of the numbers, you will be buried under them. Make sure that internal controls and critical numbers are on target. Monitor your numbers. They are like the blood pressure of your business. You have to know what they numbers are, and what the numbers mean in both absolute terms and in ratios (liquidity; leverage; activity; profitability). Look at your pricing, inventory, collections, selling expense, general and administrative expense, product lines—perform variance analysis on each and if there is a variance, determine whether the variance is positive or negative and why. Look at your current cash burn rates, your accounts receivable and accounts payable. Also look at the assumptions on which your plans rest. 

 As part of your contingency planning component, you of course need to know what is happening in your market niche. Has the market demand[v] for your product or service remained the same or has it changed? If it has changed, and especially if the change is negative, have you updated your marketing plan?

 As part of the process of developing an action plan, review and implement responsive action plans to address the three key principles of business economics.

 

[i]           Robert Lynch, Business Alliances Guide: The Hidden Competitive Weapon, at 148

 

[ii]           Id.

 

[iii]          Attributed to George Dacey, The Bell System

 

[iv]          Jeff Cannon and Ltd. Cmdr. John Cannon, Leadership Lessons of the Navy Seals: Time-Tested Strategies for Creating Successful Organizations and Inspiring Extraordinary Results, at 7.

 

[v]           Philip Kotler defines market demand this way: “Market demand for a product [or service] is the total volume that would be bought by a defined customer group in a defined geographical area in a defined period under a defined marketing program.”


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