Business Crevit Management (Continued from the April Turnarounds: 2003 issue of Business Credit) Causes of Decline By Phillip Scott Scherrer Introduction should delegate responsibility and of the bosses and their demands for Businesses decline over a period of time, authority to various key employees. immediate action—a futile endeavor. ‘usually several years, Rapid decline only ‘Often, responsibility is delegated to + Chain of command broken when occurs when the external clements an employee without a complete employees deem it necessary. change rapidly, such as in cases of eco- analysis of the transfer of authority Authority and responsibility channels nomic recession, rapid technological The transfer of authority are created to enable the smooth changes, political/legal instability (legisla incumbent upon it the transfer of functioning of the business. When tion adversely effecting a product line), responsibility. Often, responsibility is employees can break the channel at cultural/social changes (consumers/pur transferred without the associated any time, the funetioning of the chasers’ negative attitude against a prod: authority. Authority and responsibility business is atrsk.‘The authority and uct) or rapid market entrance by a should not be transferred without a responsibility channels should only competitor with pricing advat ‘complete understanding by both the be circumvented when the situation manager and the employee of the is critical. The occasions of rapid business decline _goals and objectives to be + Formal communications are not mused by the internal environment are accomplished by the transfer of used. All to0 often businesses plan rare, the exception being family managed power. A typical mistake made by ang! implement the plans verbally, businesses that have not prepared for the managers isthe transfer of control to leaving a written plan non-existent future. The internal elements, although the “next employce in line” without Oral communications are necessary ‘manageable, are not managed well by bust an understanding of the employee's but written planning is essential for nesses in decline management ability. the business to survive.A written + A vertical organization chart plan is available for managers to Causes of Decline Internal where there is litte, if any, review, whereas oral and External interaction among departments. communications ean be altered to Internal and external signals of decline Vertically integrated companies satisfy one’s needs. indicate larger, more universal problems utilize top-down planning The lower _* Over-reliance on a strategic plan, that management teams should address levels of the business are subject to resulting in role behavior rather immediately. For example, if you have decisions made from above: The lack than creative thinking. While noticed an increase in customer com- ‘of communication betwee strategic planning is essential, itis 1 erosion of customer conti departments and functions causes also important for the strategic plan ¥y be due to an inadequate unrealistic goals and objectives to be flexible: The strategic plan isa understanding of customer needs. Signals * Managers with responsibility for guide. All too often, managers forget of decline point to one or more definite more than five direct reports. is the strategic planning causes of failure. Other common causes of Direct reports are those streams of ess that is critical the result of decline include the following: data that provide managers with the planning process should be critical information. Information continually updated ‘+ Management by exception rather overload causes a misconnect + Over-reliance on objectives by than flexible planning. This between planning and functioning. A ‘management. Objectives are the situation is most common in manager that has too many reports short-term goals of the business businesses that do not practice ‘eannot analyze them in detail and Businesses should plan for the long strategic planning, Decisions are take corrective action when term and profit in the short-term, ‘made on an “ad hoc” basis and are necessary. (Overreliance on short-term generally reactionary; that is, the + Employees with more than one objectives tends to eliminate long. decision results from an immediate boss. Answering to several term planning, response to a problem. The problem bosses is impossible. The + Senior managers’ abuse of ‘was not anticipated and, therefore ‘employee who can answer to several outside activities and company there was not a plan in pkice to bosses is spending his time perks. Senior managers set the address the problem. preparing reports to bosses rather image for the company. When they + Delegation without control; no than providing services to the abuse company benefits, they set feedback review or ‘company. The employee is usually standard that allows all employees to reinforcement. Business managers confronted with the differing desires abuse the company. JUNE 2003Business CrepiT + Marketing the wrong product and/or in the wrong markets. Businesses tend to rely on their current customers and products without performing market research Cor analyses of the profitability of the products and customers. It is important for businesses to conduct ‘market research into new products, markets and customers. This allows the company to grow. + Aging production techniques. Antiquated production and ‘operations result in increased costs for products, resulting in non: competitive pricing, + Inadequate research and development. Product development is essential for a manuficturing company and lack of product research and development allows competition to enlarge their market share + Inadequate production ‘equipment. This coupled with aging production techniques results in non-competitive products that are priced, + Inappropriate channels of distribution, Channels of distribution offer the opportunity for profit improvement.The channel Of distribution needs to be thought of asa system of ordering, producing, delivering and satisfying the customer: The channel of distribution starts and ends with the + Non-responsive financial information systems. We live in the information age,and businesses that lack current financial information cannot survive. Financial information that is aged 30 days or more is useless for planning purposes * Loss of competitive advantage. ‘When a company loses its competitive advantage, its customer base erodes, Whatever distinctive competency the company had is gone. The company needs to go back to planning to provide new and/or improved products and services. The loss of competitive advantage is the result of inadequate market research, * Displacement by competition. This occurs when the business has been asleep—management failed t0 investigate market conditions. Time to fight back; try improved products, competitive pricing, better distribution—the company needs to regain market share Changing technology. Today technology improves and changes rapidly: The business must ‘understand all technologies that effect its business and adapt those Understanding the effect of the internal and external business environments is a necessary first step toward recognizing the symptoms and causes of business decline, Once these problems are fully understood and identified in your busi- begin to turn your business around. Changes in environment, both internal and external, should not be con- sidered hostile events. A strong manage: that provide a competitive ment team is one that can adjust to advantage. ‘changes in all areas ultimately helping to Consumer, regulatory, and prevent unnecessary business crises and economic changes. External promote company strength. It is essential elements that result i to create teamwork between finance, pro- failure if management does not duction and marketing, The enabling of address them, this team creates management. The oppo- Inadequate understanding of site of the situation is the modus operandi customers’ needs. Customers can fora fl be unforgiving, fickle a away easily, especially when management does not understand their needs.A business cannot just be in the order taking side, management must visit the customers and discuss their needs and then adapt to them, business, stolen Phillip Scott Scherrer is a principal of Greenbrier Partners, LLC He can be reached by calling 603.860.8487, by fax at 603.472.7842 or by email at [email protected] CREDITSTRATEGY GREDIT PROGRAMS THAT WORK THE WAY YOU 0G CONQUER CREDIT MANAGEMENT WITH MICROSOFT OFFICE Why not use software you already own? Credit Strategy is a Microsoft based credit management system that utilizes such tools as Access, Excel and Word. 1t works with any accounting software or ER? system, such as Oracle, SAP, 3D Edwards, Peoplesoft, etc. It works in a Windows environment with most platforms, such as an AS400 or Unix system. For large users, Credit Strategy is scalable and can be used with 2 SQL database. ED g Se BASE MODULES (Credit Evaluation (Boductions & Disputes Correspondence (Workload Organizer Galtections GEistom Reports “THE WORLD'S MOST COST EFFECTIVE CREDIT MANAGEMENT SYSTEM” Call for a live demo or CD (www.CreditStrategy.com) 877.244.0700 (US) or 909.689.6744 (outside US) circle number 5 on information cardCopyright © 2003 EBSCO Publishing