Why portfolio clarity is required among family members in the small ,emerging organization?

In most of the family business, one of the common patterns I see is that all the family members use to get involved in all the business matters. Still, at the end of the day, either decision never gets taken or decisions deferred as no one will have the final say. In this process, the organization remains mediocre, or the growth opportunities are not leveraged as supposed to be.

There is no doubt that the organization had grown from startup to significant size due to the mew hardworking family members. However, if you want to take the organization to the next level growth or if you want to make the organization more of the professional firm by bringing external talent, the first step would be restructuring at the senior leadership level, ie family members level.

One of the restructuring processes is bringing clarity on the portfolio among the family members

What does Portfolio clarity mean?

• For each family member, define the roles and responsibilities according to their qualification, strength, and experience.
• Assigning the particular functions or set of functional deliverables 
• Empowering an individual to make decisions in their respective functions or domain. To continue the inherent, inclusive way of working, the information to be shared among family members periodically. 
• Making people accountable for the result

Benefits of portfolio clarity among family members:

1. Mainly, organization growth can be accelerated as inherently, and the business has resources. Still, due to a lack of clarity on portfolio clarity, resource's time is getting wasted by involving in all business matters and enriched with only information.

2. Duplication of roles and responsibility can be avoided, and the resources can be utilized effectively

3. Gives clarity to the people of the organization on whom they should report for what purpose. The clarity at a higher level will remove the ambiguity among the employees, and also we can avoid the manipulation of communications by the employees.

4. The decision can be taken faster which helps the organization to respond quickly to the external world.

5. Bring out the extraordinary talent of the individual when they work under pressure to deliver the results


When the business is growing from small to large size, professionalism will help to accelerate the growth and for the benefit of the organization's growth, relationship and accountability need to be balanced through portfolio clarity among the family members!.

Business Head's Mindset for Sustainable Growth

In any business, there are peak and valley in terms of sales growth and profitability. However, a few organizations thrive well all the cycles and been in the business for a longer time, some organizations exist even beyond the third generation. 

When I observe those organizations, when I deal with them as a consultant and coach, there are some typical patterns among the founders or the business heads. I can call those patterns as the mindset of the founder or the business head, which makes the business to manage through all the struggles and sustaining the growth.

I can classify the mindset into three areas

1. Mindset towards the Business

2. Mindset towards the People or Employees

3. Mindset towards the Customer

1. Mindset towards the Business:

In a sustainable business, the business head looks at the business with a larger purpose than just survival alone. He/ she is looking at the business as a means to maximize all the stakeholder's interests or expectations. The stakeholder could be financial institutions, employees, customers, even the promoters, suppliers, government, and the society in which business is operating. It does not mean that profit motive is absolutely absent, they also realize that rich cash reserve only will do all the activities to maximize the stakeholder's expectation. The point is they look at the business more than themselves. Their thought process, behaviors and decision making are all pointed towards meeting or maximizing the stakeholder's interest.

2. Mindset towards the People or Employees:

In a sustainable business, the business head always looks at the employees as an Asset rather than Commodity. This mindset is essential in making decisions on development, training, allowing the people to experiment, taking the risk, empowering people to make decisions, and providing an opportunity for learning and to grow along with the organization. Alternatively, if the business head looks at the people as a commodity, he treats them also in a low-level dignity, because he believes that there is abundance in people resources, even if x leaves the organization, Y can be recruited quickly from the market. With the mindset, no effort would be taken towards people's development and engagement aspects. 

I know in one of the organizations, the CEO looks at each people as an asset, and some of the people are staying in the organization for more than 30 years and also had grown along with the organization by developing themselves and contributing to the organizational growth.

3. Mindset towards Customer:

In a sustainable business, the business head looks at each customer from a long term perspective even though there is a loss of monetary benefit in the short term. The focus of the business head would be meeting or exceeding the customer's expectation, maintaining a cordial relationship with the customer irrespective of the customer's representative that is changing at the customer's end.

As stated above organization, the business head works with only a few customers for more than 25 years and grown along with the customer. Even when the business head expands his business beyond the old customers, the customer is keen to work with the organization. The relationship is based on the long term, and the bonding helps both of them in terms of mutual growth.

The point is the business head's mindset towards business, customers, people make a significant impact on the sustainability of the business!

Loyalty vs Intolerance to low performance

A dilemma most of the family-owned business head has is how to deal with a mediocre performer who is coincidentally the relative or loyalist to the family.

This is a real concern for the business head as today's mediocre performer might have been with the organization from early-stage and might have contributed to the growth of the organization even at tough periods. In today's scenario, the person may not be able to cope with business challenges and modern business practices. Sometimes the behavior and performance of the person affect the decision making capability in the organization and may impact the morale of the people who strive for delivering performance.

What should be the way out for the business head to deal with those people?

1 First, the business head must realize the fact that the purpose of the business to maximize all the stakeholder's interests. The organization exists to serve all, and the organization will exist only when it is competitive.No individual is vital than the bigger purpose of the organization. This realization is a must for the organization's head.

2. Second, the business head spends quality time with the mediocre person by giving the perspective about the change in the way an organization works in early times and the now in the competitive environment. The person's challenges to cope with the current business challenges need to be understood, and the necessary exposure can be given by training, coaching, and mentoring.

3. Also, the person must be given some time to perform well as per expectation mutually set. This time duration can be a year or a couple of years, depending upon the role the person plays in the organization.

4. If the person copes up with the modern business practices and delivering the expected results, that is a piece of good news for all, and the person can be groomed for further development.

Incase even after meticulous training, coaching, and development efforts, if the person is not willing to unlearn and learn, not intending to deliver the result as expected, the business head must speak up to the person and be prepared to separate the relationship and business.

If the business head prolongs the decision to separate the business and relationship, it will inevitably affect the overall business performance, which is not suitable for anyone. The survival itself will be challenging for the business head and the entire stakeholders of the organization.

The key is balanced, quick decision making from the business head is vital for the meeting the larger purpose of the organization.

Factors for Next Level Growth

Each organization is striving for next-level growth from its present status. The next level of growth could be

1. An exponential increase in Turnover
2. Getting into new market/customer
3. Getting into new  product line/services


Factors for next-level growth


Potential + Strategy + Leadership mindset + Practices = Next Level Growth

Potential:

the potential is a measure of the market size for the product or service, the unique value proposition of the product or service to the customer and the evergoing demand for the product or service not only in the existing customer or in exiting demography, but scalable to new customers and demographics

In my opinion, all the business is highly potential, given the worldwide customer base unless the product/service is made obsolete through technology.

Strategy:

A strategy is nothing but clarity on the resources, competency requirement, and action plan to get into next level growth. It is more about internal organizational capability development to cater to higher level growth. The action plan must answer the typical questions as below.

1. Resources required in terms of the fund, equipment, infrastructure, and people
2. Plan to reach out to new customers/ developing new product or services
3. Personal and organizational competency required to manage the challenges in the growth phase


Leadership Mindset:

This aspect is one of the prerequisites for any organization that looks for next-level growth. Mainly, the business head or CEO's mindset is essential. When I refer to mentality, it is more about the aspiration and belief of the business head is vital. For example, in one of the client operations, the service they offer is scalable to the global level due to their quality and price point. However, the founder is not interested in going for international reach as he believed that his organization is capable of serving only the local market. Even though he is very passionate about his product and service,  his contentedness and beliefs never allowed him to grow exponentially.

Practices and Action:

Even though the organization is highly potential, aspiration, and strategy, if the methods and actions are not in line with the plan, the organization will never get into next level growth. While aspiring for next-level growth, the organization should learn to give up some of the legacy practices and to learn new practices.

To sum up,

when the leader is aspirational, believed in the potential of the product or service given the global market, if the organization draws the master plan and adapts itself to change to new practices and action, NEXT LEVEL growth is always possible one.

Business Head's dilemma: Profit or Growth ?

One of the dilemmas some of the small, emerging CEOs have is whether to focus more on profitability or looking for growth opportunities and scale up the business sales turnover.

The reason behind the dilemma is when the organization is small, most of the activities are directly monitored, executed by the business head and he/ she has direct control over profitability. They use to enjoy comfort. At the same time, there is an aspiration to grow big and also the fear of maintaining the same level of profitability and comfort. Because maintaining healthy profitability within a controlled environment is different from maintaining the same profitability when the organization is exposed to different customers, product lines, markets during the growth phase.

In my view, the business head should aspire and balance both profitability and growth for both short term survival and long term sustainability of the business.

Profitability is a measure of your efficiency, effectiveness and the excess cash will give a strength to take the organization to the next level. Whereas Growth, even though it seems to change management in the initial time, is required to generate more cash reserve for sustaining the business. when you ensure the higher or same comfortable profitability in a growth stage, that will help you to grow further into a new orbit. That is cycle and that is the nature of personal and business growth.

Hence both profitability and growth is required. There is no guarantee that the existing comfort or profitability is sustainable if the business is not exploring growth options.

Balanced focus on Value addition and Value creation

In most of the small, emerging organizations, the business head is comfortable in dealing with day to day routine management activities and some extent, in improving one side of the business, that is on value addition or effectiveness improvement initiatives. Nothing wrong in developing in operational capabilities, however in this process, the other side of the business, that is on value creation activities get back seat.

Value creation activities include customer pipeline development, new product development, or improving NPD activities, working on strategic initiatives.

As long as the existing customer gives sales order and business also grows along with a few customers, there is no problem for the business head and his organization. The real problem starts when the current customer slows down in their business due to the economic cycle or reduces the share of the business; the business head feels the impact directly in terms of low sales turnover, profitability and cashflow challenges.

It is always prudent and proactiveness to focus equally on value addition and value creation for both survival and sustainable growth of the business.

The balanced approach calls for the mindset to come out of the comfort zone of the business head during good times.

How to select the right candidate for your organization?

One of the challenges for most of the small, emerging organization is selecting the right candidate for the job and retaining in the organization. There could be many factors contributing to retaining the people, and we discuss in another forum. However, one of the typical scenario we are witnessing in most of the organization is that within a short time, say 1-3 months time, the business head and the incumbent conclude either person is not fit for the job, or the organization is not fit for the new incumbent. This scenario is more common in senior level recruitment.

A strange fact is that the business head had personally involved in shortlisting, interviewed the candidate and inducted for employment. If either one of them concludes " this is not fit for me," we can arrive a logical conclusion that " selection process needs to be improved".

Typical mistakes the business head do during the selection process?

1. On an ad-hoc basis, decide the requirement for manpower 
2. No job description or role clarity/ responsibility/accountability defined before shortlisting the candidate even though there is macro level articulation on the need.
3. Conducting the interview process  with the intent of understanding more about the  candidate's previous experience and not on verifying or calibrating his caliber is matching with the organization's prevailing business practices or the culture
4. No structured questioning to check the attitude/perspective of the candidate to solve the existing organizational challenges or issues
5. Sometimes, selecting the candidate based on the reference from a known circle or filling the position with " somewhat" fit candidates.

Impact of the poor selection process:

1. Attrition rate becomes high, and it affects the stability of the organization.

2. Business head spends his time in routine work which affects his productivity and other aspects of profitability and growth
3. Cost of recruitment keeps increasing with no return benefits.

4. The organization which has grown with old, loyal employees, the high attrition rate signals different communication among employee. Eventually lead to complacent mentality, arrogance, know it all attitude which affects speed and flexibility towards change 

5. Sustaining organization development and gearing up for next level growth with a professional mix of people will become a major challenge for the organization.

Solutions approach to improving the selection process:

As a business head, before filling and selecting the candidate, you need to be clear on the job description as follows

• Position description
• Age, Experience, and qualification
• what level of competency(Job Knowledge and Skills) you are looking for 
• what is your organizational culture and how would you like to check during the interview
• your affordable pay and structure
• Likely growth path to the incumbent and likely changes in the existing organization structure

Once you are clear on your expectation, circulate the job description to professional recruiters and get the potential candidates.

Scan through the potential people and shortlist a  few who fit into the above requirements.

During Interviewing the candidate:

Look for the attitude which is required for the position or title. Attitude can be tested by asking the following question and look at the response from the candidate.

1. Experience in handling people dynamics and his style of managing the challenges 

2. State some of your organizational scenario or challenges and ask how he would respond in those scenarios.

The quick or momentary response, to some extent, will reflect the person's natural attitude towards work and people as this help you to gauge the suitability of the person to your organization.

Also, You need to note that you are recruiting senior level people to bring a change and sustain the business growth. Hence be balance in your approach to select the person with a track record of change management and fit into your culture.

Since we are dealing with human dynamics, it is challenging to gauge people's capability and attitude in the interview time. However, having a systematic process and improving your interviewing skill will improve the probability of choosing a right people for the organization as it helps both you and the others!

Challanges & Solutions approach to improve synergy among directors or partners

Except for a few organizations, most of the manufacturing organizations are managed by founders supported by other co-founders or directors. The  directors can be family members, friends or joined in the organization as working partners either due to a common interest in the business or some other value proposition. 

Generally, the partnership management provides more advantages than running as individual ownership. However, if the partnership is not governed by clear policies, terms, it will result in chaos, affect the business as well as affect the relationship among the partners.

some of the typical challenges in a partnership firm among the directors or partners

1. Clarity on sharing responsibility and accountability
2. Communication issues  

Above challenges lead to decision dilemma or delay in decision making which affects the business profitability and growth.

1. Clarity on sharing responsibility and accountability :

One of the common practices, we are seeing in most of the emerging organization is that all the directors involved in all management activities. In this process, end of the day, nobody is accountable for the business results as each one aware of the proceedings and get convinced about mediocre performance. Also, as everyone is involved in a particular business issue, the biggest dilemma arises as who has to take a final call or decision on the problem. People love to discuss the problem, challenges, ready to brainstorm and when coming to accountability on result or consequence, stuck on mainly on the decision making.

When we see this pattern in one of our client's operations, we had advised having a clear portfolio for each director by defining roles and responsibilities. (But, already they have a designation for each director with functional orientation !!) Also, we had set the KPI for each one to bring the accountability on the results.

This had resulted in clarity among the directors and they felt their personal productivity also increased. Also when coming to business decision making, the clarity on responsibility and accountability helped them to take quick decisions which affecting their function as well as the business.

2.Communication issues :

one of the reason for everyone to get involved in all activities is due to lack of structured communication process among the directors. Each one of the them wanted to be included in all activities with the intention to avoid communication problem or relationship issues among them.But this leads to only time consumption and delay in decision making. 

Also, the organization instills mediocre performance culture and in some organizations, people at middle management take advantage of the multiple director's management styles.

when we come across in one of the client , we suggested two methods to overcome communication issues

1. Weekly Review Forum for all directors to share, review weekly key performance like sales , financce and other important business issues
2. Common KPI sharing among the directors on Google share 
3. Monthly Executive meeting to review P&L before 10th of every month 

The above solutions approach helped the partnership organization to overcome the typical challenges faced by the partners and also helped them with personal productivity !!

Why is Lost Order Analysis important for Organization?

Keeping continuous order pipeline is one of the healthiest indications of the organization. Even though ensuring order pipeline is perceived as accountability of marketing or sales function, it is actually cross-functional deliverables. 

Typically in a medium size organization, the following functions involved in order procurement process

1. Marketing or customer relationship 
2. Sales 
3. Engineering & 
4. Finance / Cost estimation 
5. Business head or pricing committee

Order procurement process indicates the speed, flexibility in decision making, teamwork, cost competitiveness and disciplined approach of the cross-functional team and management. One of the analysis indicates the organizational speed, decision making is "Lost Order Analysis."


What is meant by Lost order Analysis?:

Even though Lost Order Analysis is reactive, it analyses the reason for losing the prospective customer order. The reason could be a technical reason or regret from a technical perspective, pricing issues, delay in response from the organization, perception of the customer and so on.

This analysis will give clarity of why the organization is losing the potential customer's order.

What are the parameters to be analyzed? :

As said, this is cross-functional deliverables, and the business head must review the cross-functional team on the following parameters and the gap 

1.No of potential customers asked for queries  Vs. No of queries responded on time
2.No of quotes responded Vs. No of quotes converted into a sales order
3.Reasons for losing the potential orders

this analysis will give an insight about the organization on the following 

1. The effectiveness of marketing function to identify, grasp the opportunities
2. The cross-functional effort in ascertaining technical, commercial feasibility on time
3. decision-making ability on pricing 
4. Speed in responding and followup with prospective customers
5. Cost & Quality competitiveness in the market from customer's perspective


How frequently the organization needs to do  Lost order Analysis?

The frequency depends on the industry type, customer 's profile, lead time to respond. Generally, we suggest to our client to do the lost order analysis at least once in a quarter, as it is a reasonable time frame to understand the losses.

Role of business head:

The role of a business head is critical to conducting lost order analysis reviews as typically the functions point each other for losing orders and most of the time from our experience, the organization losing the orders due to both strategic and operational reasons.

The frequent review by business head will help the organization to improve the policies, business processes and of course to improve sales turnover of the business.

For example, when we initiate this analysis in one of our client, the team had realized that the majority of the orders lost due to High pricing. When we did deep analysis on the pricing, the cause identified was on the "cost estimation method" in which "lot size" was given overemphasis while costing in engineering function as well as at business head level. Once team identified the mistake and policies were framed on " lot size" in costing. After the corrective action,  we could see the reduction in the quote value and subsequently order conversion rate was increased significantly. 

The point is as a business head, if you do the lost order analysis frequently along with your cross-functional team, you will get a lot of insights about your order procurement process, and you can improve your business turnover.

 Also, this type of analysis will improve your cross-functional working cultures towards speed on decision making and execution

Why is monthly business(KPI's) review important ?

Monthly business key performance indicators (KPI's) review is meant to review previous month business and functional performance against the target and discuss, arrive the action plan to improve the business performance in the subsequent month.

Most of the SME business heads are not consistently conducting the monthly business performance indicators status review.

Some of the beliefs which hold business head not to review consistently

1.As I am spending full time here, I know  the P&L trend, and it is not required to conduct reviews with the team
2.The team does not have the time, or no people are capable of collecting and organizing all the data
3.Why should we discuss all the information along with the team?
4.Meetings are going to be time wasters as nobody is going to give solutions.


Emerging and a smart organization has the practices of setting the business and functional key performance indicators (KPI's) every year beginning and use to review the progress or status of each KPI along with the team every month before 10th of the month.

Advantages of reviewing KPI's status along with the team

1.The team is aware of the goal set and status at any point in time 
2.The team becomes accountable for results as they are being questioned on the performance every month
3.Ownership and engagement improves as data is being shared and communicated to all
4.Helps the organization to improve the performance in the subsequent month. In the absence of monthly KPI reviews, response time would become less (P-D-C-A cycle)
5.When the monthly reviews become a culture, all the functions are keen on the data accuracy, timely sharing the data.In the absence of monthly routine reviews, data capturing and analysis itself a major task for the business head

Relook at your business practices and beliefs on monthly business and functional KPI's and initiate performance-based culture in your organization !!

My thought process on initiating lean manufacturing in small and emerging organizations

         Lean is achieving “more with less.” That is, making more production with

given resources or increased efficiency or achieving with less cost.

      Lean manufacturing system can be understood by relating to a human body. If the person is lean means general understanding is that he is free from unnecessary FAT in his body, hence free from unnecessary side effects like BP, Pain in joints, laziness, and the person is perceived as healthy, more flexible, and active.The same way if the organization is lean means, it is free from unnecessary fats like high inventory, high rejection, high breakdowns or line stoppages factors, etc  which leads to more flexible in delivery, less lead time , low cost of manufacturing and free flow of communication ( This is the way I introduce lean to new forums in my consulting workshop).Hence making the organization ( across all functions), extended supply chain system, any functional units (like machining, assembly, painting) need to be lean for increased efficiency, low cost, quality at first time and reduced lead time.

Lean is not a tool for cost reduction or cutting manpower or increasing efficiency alone, it is a culture building process or way of thinking and running a day to day business activities.When the lean is understood only as an application of tools like 5S, SMED, Visual management, poke yoke, it results in short-term impact in a particular cell or unit on a short time basis. It becomes difficult to sustain. Most of the organizations are keen on learning the tool and applying without understanding the big picture of linking with business objectives or culture building process.

Any lean initiative must start from CEO or head of the organization and more importantly, it has to be linked to the business need or goal.Moreover, lean should not be driven as separate initiative without linking with the business / functional objectives.When we drive as a separate initiative under one lean champion, lean efforts will be continuing as long as the champion is intense and driving as long as the entire team is undergoing a lean period in production or sales. Once demand /volumes pick up, the lean initiative takes back seat as it is perceived as EXTRA work for the organization.That is the reasons a few organizations are not taking the lean-to next level from grand inauguration ceremony and except few improvements on housekeeping and visual systems. 

In my consulting role, I am insisting lean implementation when there is full conviction from CEO, and there is a compelling need for driving efficiency, improving the bottlenecks for business growth and management agrees to work with us minimum six months to 2 years.
In some organizations, we failed to bring the momentum when the leadership team looks at lean initiatives as a quick remedy for their inherent problems.

To summarise, key ingredients I used in all lean initiatives are

1. Form cross-functional team
2. Involve CEO in reviews
3. Develop Business / Functional KPI's which are important for business / CEO to drive
4. Educate the team to see the waste in the system through VSM workshop or interviewing process
5. Make priority list along with the team to focus on waste elimination
6. For the identified waste, apply suitable lean tools starting from housekeeping (2S), Visual management, SMED, Best Maintenance practices, Daily work management like tracking hourly, daily output/quality issue tracking and reporting
7. Create forums for review meetings with operating team, cross-functional meeting among heads and weekly review meeting with CEO or business head
8. Review, Update KPI and tracking 

Becoming a lean organization is not a one-time event, it is a continuous journey.

Why is business (head) transformation equal to business transformation, especially in SME’s?

There are several factors contribute to the success of the business regarding profitability and growth. Those factors could be type of products or services, talented employees, competition, positioning, market, economic environment and so on.Those are all common factors prevailing for any business in which some organizations are doing successfully, and others are struggling.The crucial differentiating factor between a progressive organization and stagnant or struggling organization is a business head especially in small, emerging medium size (SME’s) organizations.The business head could be the founder or the director of the firm.The business head's beliefs, quality of thinking, business practices and leadership style determines the organizational success amidst the common factors as listed.

As I had a privilege to work with more than 100 small and medium-size business heads on different occasions, one profound truth that I have realized.That is, irrespective of industry, business nature, product, manufacturing process, marketing environment and competition, the growth of the organization primarily depends on the business head ‘s thinking process or mindset, leadership style, his business practices or daily management processes and how he is directing or guiding his team.

Predominately his belief or how he looks at the business determines his leadership style, enables him to choose the right business practices or processes and ultimately reflects on the profitability and growth.

Most of the business heads as I observed, look at their business with either one of the two beliefs like survival orientation or growth orientation.

In survival orientation, he looks at his business and customers as a mean to make profits; he tends to make a profit somehow, with little or no emphasis on adhering to process, ethics, considering the interest of all stakeholders, future growth aspects and long-term sustainability of the business.Those organizations struggle with profitability issues, low employee engagements, frequent customer's turnout.

In growth orientation, he looks at his business and customers as a purpose to enhance the value of all stakeholders, including his motivation. This mindset will improve his thought process towards long-term sustainable business decisions. When he has the purpose of the business, his approach and thought process would be on building a solid foundation for the process, systems, technology and talent management, in turn, his visionary approach would be long-term oriented even though sometimes he loses in the short term. His growth mindset enables him to choose a set of business processes or practices on a day-to-day basis, which promotes positive organizational culture, business results, and long-term growth.His enhanced mindset enables him for creating sustainable wealth creation from his business to meet all stakeholder's expectation.

In our business transformation engagements, we have witnessed that whenever the CEO or business head understands the desirable behavior gap or the business process gap and then works full heartedly along with us, the business results used to be extraordinary. 

In my opinion, business success factors like technology, effective asset utilization, expanding into new markets, managing the competition, talent management and fulfilling the customers’ requirements are relatively easy tasks if the CEO or business head tune up his mindset and thought process towards growth orientation.

The real transformation has to happen at a business head level from mere survival mindset to a growth mindset.Business transformation starts from an individual and that too from the head of the organization. If that change happens at a business head level, I firmly believe that business is also equally transformed.

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 !!!

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!

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...!