Posted on 26. Jun, 2012 in Kirchner Blog
We generally find that poorly performing businesses have not identified the key parameters for success. Poorly performing businesses tend to rely on the financial people to measure the business, using standard accounting reports, the monthly profit and loss, balance sheet, and sometimes cash flow reports.
While useful, these reports generally do not provide the critical data needed to manage the business properly. For example, these statements will not help management identify the most profitable products to manufacture or sell or how to use capacity most profitably. Complex businesses with many SKU’s generally give up finding a common measure of unit volume as to what is being produced and sold, so that the understanding of cost/price relationships is lost. Productivity measures in every area of the business, including non-plant areas, are seldom developed and used. Without productivity measures, a business does not know how to improve its performance.
Identifying the key measures, setting targets and following up with regular reporting of results compared to these targets, is a critical management responsibility to ensure business success.