Quality: A Prelude


Even the best marketing in the world won’t motivate a customer to purchase a poor product or service more than once. In fact, brilliant marketing can speed the demise of an inferior offering, since people will learn of the shoddiness that much quicker. So do everything in your power to ensure the quality of whatever it is you’ll be selling. And you’ve got that quality, you’ll be ready for marketing. It is also mandatory for success that you have adequate capitalization – that is, money. You will need enough cash or cash reserves to promote your business aggressively, for at least three months, and ideally for a full year.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

 

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Managing Cash and Liquidity


In a turbulent environment, cash returns are important, if not more important, than reported profit returns. Cash returns lead to liquidity, and liquidity is a top priority consideration whenever risks and uncertainties surround a business situation, as they do in so many cases today. Cash and liquidity put any company in a better position to withstand a surprise blow, adapt to sudden changes, and capitalize on the narrower windows of opportunity that are commonplace in a turbulent environment.

This doesn’t mean that profits and profit growth are not important. The whole purpose of any business enterprise is to maximize profits and profit growth, but this objective will  not be achieved if business unit managers do not focus more time and attention on managing their cash and liquidity. Any entrepreneur that has lived through a start-up knows the importance of cash and liquidity. The entrepreneur knows from experience that a business can go bankrupt even while it is reporting profits. But it will never go bankrupt as long as its cash and liquidity positions are strong. Most corporate executives understand this point also, but many do not follow through to make sure it is sufficiently stressed or understood at the operating level. This is where the problem lies. Most business unit managers who operate under a corporate umbrella tend to overlook the importance of managing their own cash and liquidity and look instead to the corporation as a never ending source of funds.

The results are apparent in most corporations. Capital expenditure proposals tend to be a “wish list” often justified on project volume gains or cost savings that never occur. Working capital is allowed to build without adequate regard for carrying costs on the cash commitment. In short, overinvestment in plant and equipment, and working capital often serves as a buffer to cover sloppy business practices and control. These are practices that inevitably lead to an investment base that is too big for the business and to marginal profit returns.

Many operating managers in a corporation are not even aware of the costs incurred while excess capital is tied up in the business. This is not an exaggeration. Just ask any four or five business unit managers how much it costs to carry their inventory. Most of them will acknowledge an interest cost of, say 7—8 percent, but few will recognize that total carrying costs, which include storage, taxes, obsolescence, and shrink, actually run closer to 30 percent in today’s environment. We would also bet that none of them have such charges against their earnings, even though it is a very legitimate cost of doing business.

Not every company operates this way. Most corporate executives are not tough minded or rigorous enough in challenging cash commitments, and most business unit managers have more cash tied up in their business than required.

Ideally, every manager should think like a small business entrepreneur with his or her own money at risk. If this were the case, we would not see so many companies with bloated balance sheets and marginal returns. Left on their own, most business unit managers do not think this way, however. Life is not easier when you can draw almost at will on coroprate resources to meet the payroll, build inventories, and buy supplies, tooling and a lot of equipment. Under such conditions you don’t have to worry very much about how to make ends meet.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

Vision and Decision


This phase is really a process of moving from awareness to commitment, especially among the key managers who must prepare to drive the rest of the organization. The aim here is to convince key people that a great opportunity—or looming problems—lies ahead and that radical thinking around a new paradigm is necessary to make real progress. All the work a company does during this phase—reckoning where it stands competitively on time-based performance, building a vision, and deciding how to proceed—is preparation for the big moves to follow. Some changes in how the company works occur naturally in this phase—good analysis always produces some early obvious action steps. But the real purpose of this phase is to build commitment to a new way of looking at the competitive game and how the managers must play it.

 

Reckoning where the company stands includes looking hard at its own current performance and direction in relation to what the best companies are doing and what the near future will surely bring. So the process has both an internal and an external analytic component. The internal part involves putting together moving pictures of how the company actually works in time—how it processes information, manages projects, moves materials, engages customers, and so on, and how all this is influenced by the firm’s briefs, practices, policies, and systems. The external part involves describing what customers what now and how they would be served ideally, and pacing together moving pictures of how the best time-based competitors operate. Together these two parts allow management to self-discover in concrete fashion the new time-based paradigm and the capabilities the company must build to gain control of it.

 

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight