Bottle-Neck Orientated Business Mangement

Bottleneck-Oriented Business Management

by: E.SAUNDERS

Simple and effective Business Management

In every enterprise there are, at every time, one or more bottlenecks, which
have influence to the commercial situation. Bottleneck-oriented business
management has the purpose to early track the bottlenecks and to remove them, to
allow an optimum of commercial development. To know at any time, what a business
lacks of and to be able to add the missing things, is today a determining
competition advantage. Bottlenecks can be, e.g.:

Low sales proceeds

High due or overdue accounts receivables

Low liquidity (Cash on Hand, etc.)

High amount of liabilities

Low number of customers

Too many new customers

Too high capacity utilization

Defective administration or management

And a lot more...

These example show that bottlenecks not only concern negative circumstances, but
also can apply to positive commercial development. If an enterprise takes up
many new customers, this results in new orders, which lead to other
circumstances, like a possible excess in capacity utilization. In case the
excess of capacity utilization stays for a longer time, this may result in a
lower employee motivation, because of a slump in working atmosphere within the
company, which then could lead to less qualtiy of the work performed.

Due to a TIMELY reporting system many companies take care of reaching the
desired commercial development. However, a regular analysis of expenses or the
annual reports are not enough to control a business today. In the today's
dynamic markets these evaluations are too statical, too much oriented on the
past commercial development, which had been achieved. Also cost accounting only
shows what has happened in the past. The actual direction in which a business is
running could not be seen.

Imagine a business to be a car. If you sat down in a car, do you like to receive
information from the instruments from the last year or month? Probably not. You
would like to have actual information about fuel tank content, coolant
temperature and a lot more. Bottleneck-oriented business management should
exactly bring the most important and actual information about a business to you,
including so-called early warning signals..
Data oriented to the past for early-warning-systems?

A working early-warning-system needs data which are not oriented to the past,
like from cost accounting or year-/month-end-closeings. It needs data from
so-called early indicators, which has to be gathered from different areas of an
enterprise. Of course, figures from the finance and accounting department belong
into an early-warning-system, but they only have a subordinated role, because
they are oriented to the past.

Nowadays the reporting must show the present situation of a business. In many
businesses the expenditure of time for the reporting rose considerably, due to
the today's flood of information. Aggravatingly added to this, is the selection
of the really relevant business ratios, which allow an appropriate overview of
the actual business situation. Too often reports are prepared, which are not
perceived by anybody, due to the lack of necessary statements about the business
development.

There are already proven business-ratio-systems, that enterprises only need to
take over. Get back into the car again, imagine you have only one instrument in
front of you, which shows the value "35". What does this signify? It is not
recognizable how many fuel exists, how the Temperature of the coolant is or how
fast the car is driving, etc.

At this example you could recognize the little expressiveness of only one
business ratio. It shows the importance to use the right business ratios, which
must have a connection to each other and which have a different temporal origin.
Nevertheless, many business ratio systems are mostly based on data which
originate from the past.

This turns often to the problem, that immediate information are not available,
to indicate the actual situation of a business. However, there is still the
alternative, to reduce the period of the past. How would it be with one week
instead of analysing business data every 4 weeks? This would lead to the fact
that you could act a few weeks earlier, if something should run a little bit
inclinedly.

Only very few data are needed to receive an informative evaluation. This again
is comparably with a car. If you are driving with your car, you only receive a
small, well-chosen number of information and nevertheless, have an actual
picture of the situation. This is also possible for businesses, as well!

As a motorist we receive only one fraction of the data which is acquired by the
system of the car, and just these fraction of information is enough for us to
reach the desired destination. When traveling usually we are well prepared, but
the principle of the preparations is often neglected in business operation. As
it is with traveling, the final goal has to be clearly stated by the business
management. This could be done by having planing data available. Only by
target/actual comparison divergences of the commercial development will be
recognized.

Unfortunately, many small businesses renounce to use plan data. Besides, it is
not about, to cut plan data into the smallest pieces, but only to get a rough
picture, what the business is going to achieve. It is absolutely possible to run
a business on the basis of the figures from the previous year, however, to use
these figures, the past commercial development should be taken into
consideration. So the figures from the previous year should be improved to fit
with the new goals. And finished are the planning data and the basis for an
operational risk management are laid. Still if it is most important to know the
actual bottlenecks in business operation.


Recognize problems and act!


One of the most important factors in business management is the early
recognition of problems and potentials. There are bottlenecks in every business,
which could have serious results. Pecuniary difficulties could lead to
bankruptcy for example. Therefore symptoms must be recognized early, in order to
turn a possible crisis away and to secure the future of your business. Also to
use available potentials, regular analyses should be done. Nowadays products and
services could not be sold forever, because product cycles become shorter and
shorter due to market dynamism. The recognition and development of potentials is
exceptionally important, to avoid losing the already achieved basis of a
business.