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

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Commitment to Plan


Management commitment to plan is a difficult concept to define and probably the most difficult area to probe. At the same time, it is in many respects the most crucial area. A deep-rooted sense of commitment is why certain management teams are able to overcome all obstacles and still achieve planned results. It is the same ingredient that enables a team to win against tough competition even though their best players are injured or all the breaks in the game go against them.

Without attempting to be a psychologist, there are several things to look for to determine whether this sense of commitment exists. What has been the track record of those submitting the plan? It is a positive sign if they have a history of fulfilling commitments. Conversely, if the group has not met its commitments in the past, it is essential to find out what has changed to make their commitment to the current plan any more meaningful. Is this evidence that individuals understand how a failure to meet their personal or functional commitments would jeoperdize the ability of the whole group to accomplish its plan? Is there any indication that anyone in the group feels that function has overcommitted or that they have been pressured into making commitments that are unrealistic?

 It is unikely that anyone will admit they are not committed to a plan they developed and recommend. But questions directed to each functional area about the certainty or difficulty of achieving their part of the plan help everyone see what musdt be done to successfully implement the plan. Such questioning helps to establish the importance of each individual’s personal commitments not only to the plan but to the rest of the organization. In a sense, it helps to develop a form of peer pressure, which is just as important in the execution of the business plan as it is in other walks of life. No one enjoys being in the position of having let teammates down.

 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

Organizational Compassion


Although little, if anything can be done to avoid certain disasters, fortunately, there is something that leaders and managers can do to help everyone involved return to business as usual. Specifically, company officials should create an environment in which people can express their emotions in which they can do something to alleviate their own and others’ suffering. In other words, they should express organizational compassion.

 

To be as compassionate as possible, organizational officials should pay attention to the four dimensions: greater scope, more generous scale, more rapid speed, and greater specialization of response are indications of an organization’ compassion competence. This is important insofar as it helps employees heal emotionally when times are tough. For example, an organization would show compassion when it (1) treats an ill employee by doing lots of things to help, such as sending flowers, delivering meals, providing financial support, helping with child care, and so on (broad scope); (2) does these things generously, such as providing the amount of help needed as opposed to only limited amounts (extensive scale); (3) acts quickly, such as by leaping into action to provide help right away (rapid speed); and (4) specializes its action, such as by catering to the unique needs of this particular sick individual instead of offering a fixed, standard package of benefits (greater specialization).

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

Characteristics of Managerial Creativity


The creative manager must be a creative human and an effective manager. He/she tends to be characterized by following group of traits:

1) Hunger for knowing curiosity, constant questioning; strong interest in stimulating ideas, theories, and philosophies, always wanting to know the ‘how’ and ‘why of things; strong interest in trying to understand people’s motives and behavior.

2) Sensitivity responsiveness to literature, arts and other fine and delicate things; interest in meeting interesting and sensitive persons; empathy for the suffering; responsiveness to beauty and elegance.

3) Complexity intuitively finding correct solutions; being a visionary; having odd, even conflicting ideas; moodiness.

4) Venturing calculated risk-taking; preference for starting own ventures; aiming big; striking out in one’s own.

5) Independence and courage questions the status quo or established order; sticking to core convictions; listens to experts but makes up own mind; clear and forceful assertion of feelings and viewpoints.

6) Reality contact initiative taking in finding out operating constraints; confidence in managing crisis; quick adjustment to new challenges and information; grip on reality despite fantasying.

7) Self-sufficiency absorbed in challenging tasks; confident in operating in alien situations; tendency to take on tough tasks; persistence in getting ventures accomplished.

The creative manager operates in a fairly tightly regulated system in which creativity failures may be penalized; creativity needs to be directed towards organizational requirements; almost all creative initiatives require approval from superiors and acceptance by colleagues and subordinates to succeed; the cynical need to be won over; opposition of vested interests to these initiatives needs to be neutralized; dedicated teams need to be developed to execute creative initiatives; creative initiatives need to confirm to evaluate and control mechanisms of the organization; changes and creative initiatives need to be synergized for maximum impact—so on and on.

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 contact www.asifjmir.com, Line of Sight

Information and Knowledge Entrepreneurs


People should be proactive in assessing, developing and applying their personal knowledge and experience and thinking through the implications of the information and knowledge society. Assessing its  impact upon others may enable business opportunities to be identified.

Much depends on the energy and imagination of information and knowledge entrepreneurs. They need to identify specific opportunities being created by the greater availability and accessibility of information and knowledge, and craft distinctive i and knowledge based products and services.

All entrepreneurs have to identify opportunities to add value by meeting requirements that are not being addressed, and they must be focused and tenacious and possess a clear sense of direction. Most entrepreneurs need also to be tough, pragmatic and resilient. Additionally, information and knowledge entrepreneurs need the following qualities:

  1. They must know how to acquire, develop, share, manage, exploit and capitalize on information, knowledge and understanding, and be able to help and enable others to use and apply them effectively. This may require combinations of emerging technologies to connect relevant people and organizations together, and the competencies to network with others, work and learn in new ways in order to create value, lead and manage virtual teams, and establish and manage knowledge businesses.
  2. They need curiosity and drive to undertake intelligent searches and to be able to judge or determine the significance, relevance and value of what they uncover. Many more people can access information than assess it or use it effectively. Understanding where information has come from, the underlying assumptions and how it has been compiled can prevent an enterprise or a course of action from being built upon foundations of sand.
  3. They require enough understanding of systems to be able to use an appropriate range of technologies to identify and assess relevant sources of information, knowledge and understanding. However, technical expertise is unlikely to be enough. Communication and relationship building skills are also required to interact with information providers and bring together the combination of experience and knowledge needed to assemble a package that has market value.

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 contact Asif J. Mir.

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