Published in TISA Dec 2012 Issue
Drive thy
business or it will drive thee. ~ Benjamin Franklin
The difference between an owner
and employees in any kind of business is very straightforward and pivotal – one has a stake and the other does not.
It is the owner and his/ her family that puts in time, effort, money, personal
investments and savings to run the business. It is this stake which
differentiates the approach towards responsibility, accountability, ethical
practice, impacts culture and values and defines each person’s behavior and
attitude towards the business.
In a small business, usually
there is the owner and his/ her family, few staff and workers. The entire business
operates on thin margins with limited resources and quality of workforce. Finance
is always a critical matter and makes or breaks the prospects of a business. There
is a compromise in every possible corner to keep the ship afloat.
With these limitations, some
companies still manage to thrive where others wither. Liquidity is the key. The
companies who manage to do better have lower costs, better margins, less
wastage, more efficiency and productivity, better quality products and a strong
customer focus. But fundamentally, they have strong control system in place for
people’s contribution and output apart from other resources.
The controls ensure that ethics
are upheld, responsibility is rightly allocated and people are made accountable
for their actions. Misuse of power or authority, embezzlement of funds, frauds
and negative work culture are stemmed before they can wreak havoc on the
prospects of a company. If these factors are left unchecked, a single instance
of fraud is enough to eat away the core of the business leaving the owner and
remaining employees to suffer. Newt Gingrich said – You can't trust anybody with power. The solution is simple - the owner has to run a tight ship.
Management Information and
Control Systems
German Philosopher Hegel’s view
of control is achievement of goal through planned activities. Monitoring
business processes and performance on a regular basis (periodicity may differ
based on product, size of business and level of operation) to ensure strategic
objectives are being met is the baseline for designing a control system.
The idea of a control system is
to identify what should be monitored
like financial performance, cash flow, production logs, inventory levels, marketing
data, employee performance and contribution (to determine the rightful compensation and elevation). It should
also include external information like industry dynamics, growth rate,
improvements, competitors, innovation etc. These are also known as critical
success factors. The critical success
factors will need periodic tuning as the company goes through various stages of
its life cycle.
Once the parameters are
identified, the accepted levels and
deviations have to be established. For example: required level of
production maybe 100% but acceptable can be 90% too. Anything below that should
triger a red flag.
As the business operates on an
everyday basis, costs, revenue, production, quality, customers have to be
monitored. The owner needs to have access to this information in the form of well-defined formatted reports at fixed periods to monitor performance and
analyze the data for possible improvements. It also indicates how the
business is performing with respect to the overall growth of the industry and
other competitors. The owner’s prime concern is to understand the implication
of analysis of the data and look for hidden signs, opportunities and
discrepancies.
It is also important to give the feedback of this analysis to
the employees so that they can realign their performance. Exceptions should be
monitored more critically so that they do not become the norm. Feedback is
extremely critical. It tells us where we are heading and allows us to do course
correction. A company might have achieved sales of Rs. 50 lakhs in a particular
month. What does it mean – above average performance or under performance? But
if the collections are less then what happens to the status of cash flow?
Alternately, if sales is high and so are rejections – what does it signal? Owners
must understand the overall implication of all CSF and employees should be
communicated the same so that they are aware of the true position of the
company. It also means that there are internal checks to keep all functions on
their toes.
But designing the system is not
the end on itself. It has to be clearly communicated to all levels with proper
measurable parameters. There should be a synchronization of structure, systems
and strategy. The authority, responsibility, decision making should be aligned
to achievement of objectives and goals while giving due thought to employee
aspiration and motivation.
A crucial necessity for
management information and control is to guide leadership. In Peter Drucker’s
words - Effective leadership is not about making
speeches or being liked; leadership is defined by results not attributes.
Ten points on how to run a tight
ship
It is better to lead from behind
and to put others in front, especially when you celebrate victory when nice
things occur. You take the front line when there is danger. Then people will
appreciate your leadership. ~ Nelson Mandela
Leadership in MSMEs means
ensuring the business is not just afloat but moving and making progress. It is
typical that when a company does well, everyone feels that it is due to their
involvement but a small hiccup is enough to send these people scouring for
cover and starting an all-out blame game trying to protect their own skin. Everyone
looks at the owner to tide over the situation. Here are ten potential options
which are extremely result-driven and effective if implemented diligently to help
owners run a tight ship.
1.
Temper Power: Power is the most deceptive
force. People tend to act in unpredictable ways when in position of power.
Owners therefore should keep complete control over their business, their own
mind, decisions and finance. Author Devdutt Pattanaik wrote – “everyone wants to be indispensable, nobody
is.” Organization structure, authority and duties should be clearly
demarcated with layers of cross control and systemic checks to ensure people
and outcomes do not get derailed. No one apart from the owner should have
excessive power and authority.
2.
Strategic Planning: Goals and objectives should be
set keeping multiple perspectives on the table. Everyone’s inputs from the
worker, staff, chartered accountant, lawyer, suppliers, to industry association
should be sought to get diverse insight about the business and the environment
in which it intends to thrive. This will help take better decisions through
comprehensive assessment of the forces at play.
3.
Governance: The smaller the organization
the larger the need for good governance. Because the chance of fraud and mismanagement
is higher and detection is lower. Who better than the top management to create
a framework for governance to uphold ethics and values.
4.
Budgeting: Capital is the most crucial
resource and its utilization should be managed with extreme precision and
tenacity. A strong budgeting system will act as a guiding light. Companies need
good software and IT systems to compile various data and create a unified
report to analyze budgeted versus actual expenses which owners must constantly
keep an eye on. Variance, ratios and overheads should be monitored on a
frequent basis.
5.
Expense Control: This is the strongest option to
increase revenue. Many expenditure in the business can be avoided and
especially during healthy periods of business so that the company remains cash
rich. Salary and perks should be moderated. Large expenditures should be carefully
contemplated upon and justified. Decisions should not be taken to feed the
whims and fancies of a selected few.
6.
Strong Operating Systems and
Framework: Companies
that are system and process driven tend to do better than one that is run
arbitrarily. Systems create clarity for everyone involved and people know what
has to be done and when. Systems have good feedback mechanism which creates a
self-controlled loop of control. People should know how to work, for what, what
results are expected, how to monitor for deviation, whom to report and how to
take corrective steps. This is helpful for quality. People should not be
empowered to randomly make changes in processes. Everything has to be
deliberated and justified.
7.
Employee Focused: Invest in good employees,
compensate them adequately and create a positive work environment where
everyone is treated with respect. The whole is always greater than the sum of
parts. Mahabharata was not won by Arjun and Krishna alone. There were many more
soldiers and participants in various roles. If everyone did not perform, the
war would not have been won. Every employee has a role to play and help achieve
organization goals.
8.
Information Network: A strong information system
should be developed to keep an eye on internal and external developments,
changes in the environment so that nothing takes the owner by surprise. Finger
should always be on the pulse.
9.
Soft Skills: How an owner influences
behavior and attitude depends on how good is the communication. It is essential
that employees communicate effectively too to share their views and ideas. What
is the employees’ perception about the company, owners, peers, products? What
motivates strong leadership and team building? Strong communication builds
stronger trust and loyalty. People dealt on a demonstrated equitable ground are
better performers. It is vital that employers understand employee needs and
wants. With processes and systems that can be replicated by competitors too, it
is the strength of soft skills which makes the difference.
10. Feedback
System: Feedback
is an overused, overexposed word. Everyone talks about it but few actually
benefit from it. Human beings by nature are often not open to criticism,
comments or advice. They feel threatened. On the contrary, it is an opportunity
if rightly identified. Let us accept that not all feedback is worth our time
but in this minefield of advice and comments, therein lay few good insights.
Business functions in a complex environment. The more information we have it
might be overwhelming but simultaneously empowering to make good decisions. All
channels of feedback including proactive solicited ones to the corporate
grapevine should be tapped. It is often observed that owners listen to selected
few in the business who start becoming more powerful. They propagate a negative
power center and impact overall productivity. Open yourself to cross-checking
inputs and not toss it aside because you are careless, too trusting or
overconfident. Keep notes for reference and do not trust your memory. Owners
must allow everyone in the company to voice their opinion; there is no harm in
it. The choice to accept or reject is still retained by the listener.
Reflection
Business is not always and only
about emotions. It is about calculation, precision and agility. It is about
performance and results. Your wish to nurture your emotional needs can be
through philanthropy and discharging corporate social responsibility but mixing
it in business and trying to become performance oriented is an oxymoron.
A
business needs both formal and informal control. Keep the grapevine green and
vital. In small businesses everyone knows everything which is good and bad. It
is the owner’s skill on how to tap this information and make correct decisions.
Transparent clear methods and strong open feedback system will help the company
go a long way.
The foremost focus should be
vitality of the business and not just needs of a particular customer or
employee welfare. We exist when the business exists. If the company is healthy
and performing then we have the scope for further actions. Handling human
resource in business is most complex. Owners have to maintain a fair amount of
distance to direct people and make them perform. It ensures that no one becomes
complacent and emotional in their judgment. People are always on the look out
to take advantage of weakness and loopholes. History is replete with examples. Owners
must remain at the helms of affair and be on top of all situations while
continuously monitoring bottom-line. With the best of the intentions, systems
and processes, MSMEs do not have the luxury of decentralized leadership in the
Indian context. There may be exception but they are “exceptions” far and few. That is why owners must be in total control
of the business and exude strong character.
I have only one counsel for you - be master. French General
Napoleon Bonaparte
