Friday, 20 October 2017

What must every SME business head know about his business?




As we are working with more SME organizations, we are observing two kinds of business heads or owners.One type of business owners involves themselves almost full time on managing all aspects of operational activities on a daily basis and not giving much focus on the business aspects of profitability and growth.The other type of business owners or heads delegate entire activities to second levels and not much familiar with business aspects. In both types of personalities, we see benefits and drawbacks as well. Only a few smart business heads able to balance the priorities between survival and growth-related activities.

The point is irrespective of the personal style of management, the business head must know some of the aspects of the business at a macro level, and in a fixed interval he must review along with his team. His macro level business acumen and reviews will help the organization to prepare proactively for any uncertainties or opportunities which impact profitability and growth.

The following business aspects the business head must be familiar and review frequently.

  1. Profitability
  2. Cash flow
  3. Capacity constraints 
  4. People capability and development
  5. Next level growth plan 


1. Profitability :

He must have a practice of reviewing P&L once in a month along with the team. Reviewing P&L will give a fair idea about the healthiness of the organization regarding cost, product mix, and pricing

Also, he must be aware of his cost structure or value chain and its impact on the profitability.

He must have a clear idea of the product mix or customer mix which gives maximum profitability. This clarity will help him to focus on customer or product rationalization

2. Cash flow : 

One of the pain areas for most of the SME organization is poor cash flow management result into affecting day to day operations, sometimes, finding difficult to pay even salaries on time. This delay seems to be a regular event from the management point of view as multiple transactions happening across the supply chain, but from an employee point of view, these delays some time affect the morale and engagement. Better cash flow management is required to avoid hand to mouth situation of cash flow.

The business head must know his breakeven point, cash flow transactions, and payables/ receivables outstanding in a regular frequency through MIS so that he can intervene at right time with right people to mitigate the risk before it occurs

3. Capacity constraints : 

One of the competitive edges for the organization is speed and delivery flexibility, and this is going to be a major expectation from customers. The business head must know his organization constraint points and work continuously on debottlenecking or improving the capacity to stay ahead of the competition. The constraints could be anywhere in his operational and business processes.

Meeting the customer’s expectation on time must be one of the key performance indicators of business head

4. People capability and development : 

Today one of the significant challenges for SME’s is people management. It includes selecting the right people, compensating them at par with industry and retaining them. As most of the organizations realize the cost of replacement and training the new entrants, it is one of the critical priorities for business head to identify the people talent on time and develop them for cost efficiency and future fit point of view.As a business head, he must continuously invest in people capability development initiatives. 

5. Next level growth plan  : 

Since most of the team members in SME’s are working on operational issues and someone must think about sustainability, the growth of the organization. It is the responsibility of the business head to think ahead and work on the growth opportunities. To work on growth, he must be aware of the external environment, trends, customer’s expectation.

Organizational profitability and growth depend on the amount of time, the energy the business head spends in all aspects of business !!!

Monday, 4 September 2017

Three important rituals a (SME) business head must do in the first week of every month?



Getting into business is relatively easier than running it successfully by fulfilling all the stakeholder's expectations.It requires disciplined approach in managing business processes. As we witness in most of the small, medium size organizations, the business head seems to be busy in managing the business outcome, but with little focus on the business performance review.Despite multiple priorities and engagement with different stakeholders, the business head must do some important ritual or activities which he can not entirely rely on others.

This important ritual or activities can be classified into monthly, weekly and daily basis.When the business head is missing the routine or not doing at a specified interval, it brings chaos into the system and pulls his time, energy to bring back the business to healthy.

Let us discuss only the three important rituals or activities a business head must do in the first week of every month 

1. Reviewing monthly operational profit & loss 
2. Reviewing outstanding payables & receivables
3. Reviewing the operational plan & performance

1. Reviewing monthly operational profit & loss :

Evaluating monthly profit and loss statement is the most important job of a business head as this gives the overall performance of his operations of the previous month. As this review will give clarity on what product mix made him make profit or loss, what kind of expenses he is incurring to realize the profit and losses.

Once he knows this trend or pattern on a regular basis, he can take right call on the following

1. Choosing a right product mix
2. Right initiative on cost optimization projects
3. Knowing his cost drivers and plan accordingly 

Since most of the #SME ‘s equipped with enterprise software like Tally, it is easy to fetch the P&L statements.Sometimes, it may not be as accurate and covered all the transactions as business units used to get at the end of the financial year. However, it will give a fair idea about the health of the organization on a monthly basis.

2. Reviewing outstanding payables and receivables :

      Cash flow management as this is one of the pitfalls most of the business head trap and spends most of the time to run the day to day affair.The reason could be lack of structured review and follow up on the receivables and payables areas. Timely intervention of business head on receivables and payables will help in managing the business smoothly as well improve his creditability in the suppliers.Like profit and loss statement, it is easy to get instant data on the outstanding payables and receivables from any accounting software.

We have seen from our experience, wherever business head is keen on the cash flow improvement, he runs the overall business very well.I think managing cash flow very well gives much quality time to concentrate in other value additions.Hence, this needs to be reviewed by business head at-least once in a month if he delegates to his second level on a daily basis.

3. Reviewing the operational plan & key performance indicators (KPI's) :

During the first week, it is the prime responsibility of the business head to review the previous month key performance of operations like delivery, customer ‘s service, project performance and also set the direction for the current month. It includes reviewing the operational plan week-wise, ensuring capacity availability or giving decisions on outsourcing or extending hours, etc.
This review ensures the clarity on the direction and sets the team to perform as there is certainty in the expectation. Most of the time, the team struggles on priority and decision making.In fact, this ritual plays a major role in improving the morale of the team, in turn, engagement.

Initially, this practice of operational performance seems to be difficult. However, we have witnessed in most of the organizations; it helps the team in a big way like 

1.Clarity on the target or direction
2. Improvement in cross functional engagement
3.Improvement in business performance

Ultimately, the business head should know the direction of his #business.More he does the above rituals, more control he has on the business and of course on the business performance.Re look at your rituals for better business performance!

Wednesday, 12 July 2017

How to develop employee engagement culture in SME organizations?

Employee engagement culture can be understood by the way all the employees involve themselves on an organizational day to day processes, interaction with each other, to customers and other stakeholders, continuously improving the technical, functional, managerial process and continuously contributing to the organizational objectives like profitability, growth. In an engaged culture, the focus of the organization would be on "solutions" rather than on the problems, fixing people, complaining and firefighting mode of working.

Bringing the people together towards a single goal and working together is a real challenge in most of the small, emerging medium size organizations and it requires the sustained commitment and hard work from the head of the organization as well as from the team.

In some organization, as long as they are small, engagement is positive under the close supervision or interaction of the business head. When the organization grows big, the employee engagement becomes complex as increased size of people, the quantum of interaction and communication, different priorities make the engagement as a challenge.

Even then the employee engagement challenge can be managed with a long-term focus, driven by top management, well-defined process, and consistency in execution.This execution must be visible in day to day management, in the quality of interaction between all the stakeholders.

To bring the employee engagement, business head or leadership team must inculcate the fundamental principles in place as follows

1.Respect the individual and accept the diversity
2. Treating people as ASSETS rather than COMMODITY
3.Differentiate performer and non-performer
4.Learning and development as lifelong process


Factors facilitate the employee engagement

There are many factors affecting the engagement irrespective of product lines, business nature; those factors can be categorized into two factors namely

1.Physical Environment inside the organization

2.Structured Management Process & Consistency in Execution

The importance of physical environment on employee engagement 

Environment triggers the positive or negative behavior in people and in- turn as action.When the environment is conducive, it will trigger positive, learning behavior whereas if the environment is not conducive, it triggers only negative, low-level activity among the people.

For example, when we visit a temple or library, our behaviors to silent are different than when we visit a local vegetable market.The environment triggers our behavior, in turn, our actions.

Similarly, some of the physical environmental factors inside the organization drive positive behavior and actions like

1.Uniform that promotes equality among employees

2. Basic amenities like washrooms, drinking water facilities

3. Good ventilation and lightings

3. Facilities for eating foods

5.Good housekeeping and safety layouts

6.Visuals promoting positive thinking and teamwork

The list looks like soft issues or infrastructure and those are all considered as expenses.However, their presence makes an invisible impact on the behavior and actions of the people as we have witnessed in many organizations.

The importance of structured management process & consistency in execution:

In some organizations, we are witnessing that employee engagement programmes are initiated with great enthusiasm by having inauguration event, motivational lectures, and celebrations, etc. However, over a period, the momentum fades. The reason could be the process of administrating the engagement process, engagement framework, assigning responsibility, consistent recognition methods and events are not being thought out and articulated.

Some of the management process that enables employee engagement in a consistent manner

1. Setting the targets for the organization/ functions/ cells

2. Clear Communication to the team

3. Expectation set and articulated

4. Periodic review forums to see the progress

5. Recognizing the talent and visibility of the improvements 

6. Standard operating procedure with details on communication, engagement process, rewarding and recognizing methodology and people responsibility.

Since the organization consists of people from different educational / work experience and different motivational needs, different engagement programmes must be created to cater to different levels and needs.

The general framework for employee engagement programmes/initiatives for different levels of people inside the organization is given below




As said, Engaging the people towards organizational objectives and working towards solutions and growth requires a long time focus and commitment from senior leadership team and all employees. This is a difficult process, but once you establish and sustain the positive engagement culture, your organization will survive any external challenges.The positive, winning mindset culture will become a competitive edge and can not be copied by anyone.Are you ready to invest your time, energy on the long-term asset building?

Monday, 26 June 2017

How to evaluate the plant layout options ?


One of the management challenges is to decide right plant layout given the many options.Even though Engineers are trained to design the plant layout considering the material, process, communication flow using a different set of techniques, taking a decision is cumbersome since one layout options may give a set of advantages, time, drawbacks and some other layout options may give a set of advantages and drawbacks.

Most of the time, a making .wrong decision might have taken by team depends on who is influencing the layout options or go by subjective decision making.

To avoid this mistake and consciously take the decision without much bias, Pugh Matrix with Evaluation Criteria will help.

Some of the Evaluation criteria for best plant layout

1. Shortest material flow route
2. Minimal or zero criss-cross movements
3. Ease of communication
4. Flexibility for expansion
5. Cost of layout
6. Ease of Maintenance 
7. Faciliating safety aspects
8. Ease of planning
9. Floor Space Utilization
10. People Utilization 
11. Aesthetics

Each of the above criteria can be given some weight depending upon your industry / organization/type of layout changes, and against that criteria, each layout options can be scored on the 0-5 scale. The overall multiplication of score against weight will give the FINAL score for each layout options.

You can objectively select the layout options with HIGH SCORE as it considers all the parameters with weights.

This techniques Pugh matrix evaluation removes bias to some extent while evaluating and choosing the right layout options.

Monday, 5 June 2017

Ease of managing business with seven fundamental principles

istock.com

        The central challenge for business is to generate profit in a sustainable manner irrespective of external factors like competition, macroeconomic condition, supply demand balance, etc.

         While large companies are capable of handling any adverse economic climate, the most affected business segment is SMALL and MEDIUM businesses. The reason could be their business management process is not robust enough to handle the adverse situation.

         Irrespective of the economic environment and competition, it is possible to make SUSTAINED PROFIT if the business head conducts the business in line with the following seven principles.


  1. Drive business with numbers
  2. Communicate business target to team
  3. Delegate and Review  key performance indicators (KPI) 
  4. Keep the cost structure lean
  5. Invest in People 
  6. Focus on big picture  &  be flexible
  7. Process Innovation mindset


Principle 1: Drive business with numbers 

          The renowned management guru Peter F Drucker said: “What is measured improves”. You cannot manage what you do not measure. In business, any outcome can be quantified and measured. For example, you can measure your entire year effort regarding sales achieved or the profits achieved. Setting a business goal with numbers brings the following benefits.

•You are mindful of what exactly you require
•It drives your behavior and action
•You can always measure your performance against the target set  at any point of time and take corrective action

We have observed that almost all business owner or leadership team have the top line and bottom-line target for the business every year. But that alone does not drive the organizational action to achieve the result. You need to have target measurements for all the supporting functions like manufacturing, purchase, quality, service, new developments, sales, and marketing. If you have goals for each function with clear quantification in line with your top line and bottom-line, it will bring more focus down the line in the organization.

The point is that it is not only sufficient to have measured at top line and bottom-line and you need to have measurable across the functions and the activities. Once you start to look at your entire organizational performance regarding measurement, you become aware of the direction it is going and you can able to take action at the earliest.

Principle 2: Communicate business target to team

          Communication to all stakeholders is very vital to the business profitability.It may look strange or soft issue, but from our experience with small and medium business houses, we have found that lack of communication or poor communication process within and outside the organization affects the daily deliverables.

 When we refer the term communication, it ranges from sharing business targets to the routine day-to-day sharing of key information within a team. We have witnessed in most of the SME‘s the day to day functional information is held up with a few people and never communicated to the relevant people. Any held up information or delayed communication only makes confusion, speculation and in turn low work performance.

 Most of the SME’s Business owners are not communicating their goals, business aspiration to their second level and down the level. Also, top management is not showing enough interest or effort to communicate the business challenges, past performances, etc. to the team. One of the reasons could be their inner fear about sharing the goals or not having awareness about the power of shared goals. 

The advantage of shared goal and challenges is that it will bring the possibility of achieving faster than if they do not. The benefits of having regular, systematic communication process are as follows

1. It brings top and first line people together, and it increases  relationship
2. When people are involved, engagement increases.
3. There is scope of idea generation to meet the business challenges 

Depending on the organizational size and structure, communication process needs to be structurally designed at each level.That can be regular meeting forums, reviews, and reporting.Management should also ensure the communication process through regular, systematic reviews, suggestion scheme, cross-functional activities, personal touch, etc.

Principle 3: Delegate and Review Key Performance Indicators (KPI) 

           In most of the SME business, the business owner or top management team will be performing all the work even though they have second level support.The reasons could be a lack of delegation skill, the tendency of doing all by self. This attitude will affect the growth and the engagement of people.Even management delegates the responsibility to down the level, but they will be lacking on monitoring the progress with key performance indicators. Both delegation and tracking people performance through KPI reviews should work hand in hand. Delegating responsibility without measurement or measurement tracking without people ownership does not serve the organization to accomplish business ends. 

As we have discussed in principle one on driving the business with numbers, each function, activities, and person in the organization must be measured with key indicators. Management must review the key performance indicators (KPI) against the target.

As we said in Principle 2, through the effective communication process, those KPI ‘s can be reviewed. In the absence of measured KPI  and delegation, meetings become one-way communication.

The benefits of tracking and reviewing KPI’s

•It  reflects  the status of the organizational performance at any point of time
•Brings people together on common goals and enhances engagement
•Allows the management to take counteraction on time to bring back the performance 

Principle 4: Keep the cost structure lean 

          One of the key reasons, the business struggles with profitability or loss is its inability to keep the cost structure lean. Lean cost structure means that incurring the expenses that are essentially required and eliminating unnecessary cost elements or low return expenses. Each expense in the organization must have a reasonable rate of returns. Waste or unnecessary expenses make the cost structure very fat, and overall product cost becomes uncompetitive in the market especially in the buyer’s market.

Approaches to keep the cost structure lean as follows.

1.Track the each expense 
2.Get convinced about each expense and its  return on investment
3.Set the cost efficiency target for each cost element  
4.Continually look for waste elimination  opportunities through lean system thinking

One of the trap most of the SME business slips is an increasing overhead due to asset acquisition and utilization. From our experience with hundreds of business owners, they are very enthusiastic in going for expansion when they see the light of opportunities. When there is an indication for new business or incremental volume, the tendency of business owners is to add the capacity even at the cost of borrowing.While it may be logical to go for investment when the opportunity comes in, but the hidden fact that the existing equipment or facilities are not even effectively utilized 85 % as a rule of thumb for capacity utilization in manufacturing industries. 

Without effectively utilizing the current asset and adding new assets with the same efficiency loss, the business overhead would become fat. When the business environment is flourishing, the cost can be absorbed, but if the business is in recession or even the competition is aggressive on pricing, the business cost structure will not be attractive in the market. You will be losing the opportunity as well your internal cost will go up. 

So next time, when you think about investment in capacity or facility, think twice, ensure that you are effectively utilizing the existing asset.

Principle 5: Invest in People

           One of the highest return on investment is investing in people. Competition can copy your technology, process, cost structure, marketing strategy and it cannot copy your organizational culture. The positive, winning culture is cultivated only by people working in the organization. Investing in people consists of four components viz

1.Recruit right people  for the position at best cost 
2.Develop the person's competency on technical, managerial and behavioral skill 
3.Engage them through aspirational organizational targets 
4.Empower them for extraordinary performance 

It is common in many  SME, to recruit people of any background just to fill the short-term need. This creates an imbalance in organizational requirement and people capability which will affect business profitability. While recruiting people, do the double check that job requirements match with person ‘s potential, past performance to deliver the result. Enhance your standard of expectation from people and your affordability to better pay to attract the best talents.

Most of the SME‘s owners have the wrong belief that providing training and education make the people leave the organization for a better job opportunity. Remember that if you are not spending your energy., money, time to develop your people on technical up gradation, managerial skill development, and positive behavioral aspects, people anyhow stay in the organization and deliver lower performance.

One of the research findings on people engagement reveals that people like challenging environment and looks for new learnings from work. People are leaving the organization when they feel that there is less scope for learning and less challenging environment, even though the pay and perks are relatively better. Engage your team through shared organizational aspirational goal and empower each one doing their job with freedom and accountability.

Compared to any physical assets, the only human asset is not depreciating as years go by and this is the only asset brings more returns on investment and profitability to the business. Invest in it…!

Principle 6: Focus on big picture & be flexible

            Most of the small, medium business remain in the same category for a longer duration due to the leader’s mindset and their focus on daily routine management.As business owners are pride about their core skill competency and they enjoy spending their most of the time in micro management.Managing a business is all about balancing all aspects of marketing, development, manufacturing, people, sales and finance management. As business owners, you must overview all aspects of business management and ensure that you are taking the organization to the next level with your big picture perspective rather than behaving as functional experts.

A simple rule to remember that LEARN TO UNLEARN and do not forget that the micro-management, which brought you to this level may not guarantee you for next level growth. Hence, focus on business development, exploring new opportunities, people development, and finance management rather than managing your core functional expertise.

Also, be flexible and open enough to accept the latest trends in technology, marketing techniques, customer’s expectation, manufacturing, and quality assurance systems. Change your management practices in line with market expectation rather than only cherishing on legacy, which may not guarantee profitability and growth. Valuing legacy with futuristic thinking does your business fit.

Principle 7: Process Innovation mindset:

      While the organization is small, it is manageable with "SOMEHOW" mentality. But it is difficult to manage all the cross-functional deliverables without PROCESS BASED APPROACH while the organization is emerging into big. Even in a small organization for sustaining the profitability, consistency of process is essential. The process can be manufacturing, customer quality, internal quality assurance,  recruitment, development, order fulfillment, etc. Establishing standard processes, educating the people in the process, ensuring process adherence is the prime responsibility of business owners for achieving sustainable profitability and taking the organization to next level growth.

Bringing process excellence approach may take time and energy, but the result is significant and enables you to think about principle 6, big picture thinking, and taking your business to next level growth...!

Friday, 2 June 2017

Why is Ergonomics application not given much importance in SME organization?

Even though Ergonomics can be used as a micro productivity tool in shopfloor to improve the productivity, safety aspects, most of the small, medium size organizations are not fully leveraging ergonomics application in process design.

Some of the misconceptions prevail among manufacturing professionals as we have gathered through our interactions

1.Ergonomics for product design not for process
2.Ergonomics can be applied in large organization
3.Ergonomics study can be done by scholars or external consultants 
4.Difficult to teach to shopfloor people 
5.Ergonomics is more related to Safety, health and environment  and nothing to do with people morale and productivity

In fact, with a simple checklist and little bit awareness on ergonomics principles, shopfloor operators, supervisors, managers can apply and identify the fatigue risk areas and implement simple solutions as we have witnessed in many SME manufacturing organizations.

Wednesday, 24 May 2017

Importance of Key performance indicators (KPI’s) for organizational transformation and the role of business head


As renowned management guru Peter Ducker says “what gets measured gets improved.”

In an organization, there are so many interactions, activities, transactions are happening across the functions or value chain.At the end of the day, only a few activities result in performance. The performance could be productivity improvement, profitability increase, sales increase, morale improvement etc.Some performances are not negotiable, vital for organizational profitability and growth and those performances are called Key performance indicators (KPI's). That means those performance indicators measure the organizational health. 

Even though key performance indicators will vary industry to industry and organization-specific, but most of the KPI’s fall under the broad categories of productivity, quality, cost, delivery aspects only.

Why is Key performance Indicators (KPI's) required?

Identifying and setting the KPI targets helps the organization 
1. To focus on the important deliverables
2. To bring the people together towards one goal
3. To improve the accountability
4. To improve the communication among the stakeholders
5. To know the reality against the desirables target at any point in time
6. To take course correction based on the reality vs target

How to implement Key performance Indicators or performance management for the organization?

Even though KPI and target setting can be done at the business level, functional level and individual level, the organization (especially SME organization) can start with business level .Once the organization becomes familiar with the business level performance management system, they can further deploy down to functional and individual level.

Assuming that SME organization like to implement the Performance management system at the organization level, the following steps would be useful.

1. Identify the Criteria under which key performance indicators (KPI’s) are measured. For example, SME organization can classify the business objectives into criteria like Productivity, Quality, Cost, Delivery, and Engagement.
2. In each criterion, identify the key performance measurements which are important to the business. For example, under productivity, one of the key performance indicators could be OEE (Overall Equipment Effectiveness) or sales per employee.
3. For each of the KPI’s, realistic target can be fixed.This target can be arrived based on historical performance or futuristic aspirations.
4. For each KPI's, people responsibility can be assigned 
5. Once target is fixed for all key performance indicators in each category, it can be tracked every month against the reality or actual performance

Role of Business head or CEO in performance management 

Setting the business goals and showing the direction is one of the prime responsibilities of the business head or CEO.While setting the target, the head must have done his homework and set the target with conviction. The target should not be too much aspiration and unrealistic, it must be achievable by the team in a given time, resource and capability. Also, the target should not be too lenient with incremental increase as this may not be too much motivation for the team to work upon.

In most of SME’s as we use to observe that the CEO or business head himself not convinced about the target, but would like to push the team by giving too much unrealistic target and sometimes he is also pessimistic about the target achievement and set very low. In both cases, CEO or business head’s communication tone, body language would reflect his uncertainty mindset to the team.

If CEO or business head set the target with conviction, he would be more certain about the target and he would drive them by any means to achieve the target. In addition, his conviction would help to grab the opportunity to meet the target. In addition, the team gets motivated when they are working for real, aspirational goals under the visionary leadership.

For example, in one of our SME client organization, the business head set the production target as 10 T / day with conviction and taking into the confidence of his entire team.In the mid of the financial year, when uncertainty happened in the existing customer's demand, his business plan got disturbed.Since he was very firm and convinced about the production KPI of 10 T / day, he went ahead with a different approach with his new customer in a short time to achieve the target of 10 T/ day.That achievement increased his confidence as well as improved the morale of his team.

       Eventually, Performance management helps to build an organization culture with the winning mindset towards solutions, performance and this will become a competitive advantage to the organization.