The Speed of Change - When Information Systems Need Improvement
By Kent McSparran
August 26, 2009 (SmartPros) Monthly reports are no longer adequate to manage business.
Everything in the business environment is changing at a much faster rate than we ever imagined. In order to survive and excel, businesses need to master change.
Right now, every corporation is scrambling over what to do with social networking. A client was recently wondering how to control an in-company social network that sprang up on Facebook. The answer was that you don’t control social networking it but you sure have to deal with it.
Technology moves so fast these days. Who would have predicted 10 years ago that email would be available almost anywhere you go? WiFi networks have sprouted everywhere. They make the Red Carpet rooms in airports obsolete.
Technology has also affected business information systems in a big way, of course. The key question to ask is, “Have we as business managers kept up?”
Most businesses wait until the end of the month to kick out income/loss, cash flows, balance sheet and a budget analysis. Sometimes these reports contain surprises. If you’ve ever experienced that, there’s some work to do because you should never be surprised by a monthly financial.
Monthly reports are not frequent enough to give you real-time information on your business because your response time will be retarded. By getting key information more often, you’ll be able to make adjustments before it becomes too late to reverse trends.
To make this change happen, businesses need to go through a process change. Accounting will say that it takes a month to produce financial statements because the bank statements come out monthly and they have to be reconciled and so forth. These habits can be hard to break.
Generate flash reports
Technology has changed enough to give businesses better information and it should be used. Even common bank accounts are reconciled daily online. Use your accounting software to create daily and weekly “flash reports” on key indicators. We are not talking a big report here, rather less than a page, say five key numbers that you identify as being essential.
If you’re a larger business, different department managers may generate these numbers, focusing on their area of importance. For sales it might be sales volume. For production it might be inventory or average cost of product. Another manager might focus on payroll. Then the CEO receives a summary page of that information.
What to do with the data
Most entrepreneurs tend to run their businesses in an intuitive manner, relying on their own inherent “institutional knowledge” of their industries. In these uncertain times, it’s not enough to rely on your gut instinct. Everyone is looking for signs of the economic recovery and gut instinct isn’t enough. You need hard facts from your constant flow of information.
Be fact-based and react to information, not intuition. What do the indicators predict about sales and cash flow? For operations people, the key number might be keeping payroll as a percentage of gross sales under 40 percent. For sales, it might be revenue per customer.
Be decisive. React to what the numbers are telling you. A lot of people have made the point that you can be profitable without cash flow, that cash flow is king. That’s wrong. The best manager, however, manages to both profit and cash flow. Results equal cash flow plus profitability.
If I could leave you with one thought about the flow of information, it would be this: Technology kicks out so much information these days that it can all be confusing and mean a lot less. Your job as leader of an organization/department is to distill the information available to the most important fact-based information and manage to it.
_____________2009 SmartPros Ltd. All rights reserved. Source: Kent McSparran
Kent McSparran is a principal with EKS&H Business Consulting, providing management consulting services in the areas of business strategy and financial performance improvement. He can be reached at 303.740.9400 or at email@example.com.