The Elements of a Business

“We don’t need to assess our operations. We are doing great!” The majority of you have probably said this statement far more than one time. Many small to middle market businesses are struggling with performance, financially and operationally, but feel they have an approach to fix it. Monitoring the business, keeping bank relationships healthy and making improvements to shareholder value is essential. To stabilize businesses and drive increased value, companies should review:
Detailed Operational Assessment: Assess the entire operation from receipt of raw material through finished goods, including all support operations. This will determine the health of the company operationally and financially. A good assessment would review engineering, quality, maintenance, manufacturing, purchasing, finance, management, the supply chain, human resources and material. It would measure performance objectively and quantitatively and provide benchmarks to compare with best-in-class.
Capacity Analysis: The amount of overcapacity is staggering and many have struggled to earn a profit in underutilized plants. The companies that have adequately consolidated capacity will succeed long-term. Manufacturing footprints must be rationalized and a detailed strategy for future growth and capital expenditures must be outlined.
Manufacturing Strategy: All companies must evaluate their manufacturing strategy and necessary capabilities to reach their long-term vision. This strategy must include performance targets and how to make cost reduction improvements in future years.
True Cost Analysis: Many companies made past decisions to grab top line revenue at the expense of the margin quality. As a result, they are now losing money on many parts. To correct these problems, companies must understand performance on a customer by customer, or part by part, basis. Once achieved, they will have a foundation to make decisions on which parts to produce.
Quality System: A company’s quality system must be robust to provide data used for continuous improvement. Companies must be “closed loop” and provide the ability to identify problems and prevent them from reoccurring.
Platform Exposure/Diversification: Companies need to review customer product programs on an annual basis to ensure they are not in a vulnerable position as market share shifts for certain product lines. Companies should use matrices to identify exposure and risk diversification to maintain the correct portfolio of product/customer mix.
Benchmarking Performance: It is imperative that companies compare business performance with industry norms and best-in-class metrics regularly. As a rule of thumb, companies who actively benchmark their organizations and establish plans to close gaps are more efficient and profitable corporations.
Research & Development/Engineering: Engineering and product development costs can be high and often contain significant waste. Improvements in these functional areas are absolutely critical for long-term growth and prosperity.
Employee Base: Regular proactive evaluations of employees are critical and should be tied to the long-term vision. Organizations must evaluate their team and culture to focus on people’s strengths and find the roles for them to implement strengths.
Customer Relationships: Companies that struggle to get new business tend to have poor relationships with their customers. Companies need to listen and make adjustments to plans based on the needs of the customer.
Culture: All of the elements of a business can only be successful given the right culture of an organization. Every company has a culture – some more proactive and positive than others. But those that don’t have a positive culture need to look at a transitional change in order to break patterns that drive the right behavior within your organization.
Many companies have recognized the need to improve in order to gain market share and to reach their long-term financial goals. Companies who are able to continue working toward a successful balance of the factors identified here exponentially add to their ability to achieve and maintain a competitive advantage in the marketplace. Driving shareholder value, improving the business and ultimately making more money for the company comes from the alignment of the business strategy, operational and financial performance.