Reflection on key importance of achieving positive economic business results
(Published via Linkedin Posts also)
Miquel Serracanta, Terrassa (BCN). May,29th 2015.
Since business models started many centuries ago, it’s evaluation is based on a simple “thumb rule”: Their survival options are based on the annual economic net results each company is able to generate.
Considering this initial statement, which maybe many of you may consider as a “business fundamental”, is still surprising to me the huge number of companies that base their decision processes on operational indicators, and don’t take much attention to real business economics.
Supply Chain function has changed the way many companies manage their Operations & make/take decisions on them, and IMHO the major difference between “best practice” businesses and non-succesful ones is measurement of economic impact (in Dollars, Euros, or local currency).
So, Why don’t majority of companies measure economic impact of their operational daily decisions? Which are the biggest barriers that prevent them of doing it? Clearly, it’s not that easy, and business should have reached a maturity level in all the three key axis (Organization, Processes & Tools). (See post “Triple Axis for business performance improvement” for more information)
In one of my previous post (“What gets measured, gets managed”) I already shared the key importance of measuring for successful management, and in this one I’m highlighting the major benefits of using economic units for major accuracy of business performance measuring.
Sustainability of business is reached without doubts by generation of a virtuous circle that starts on FIRST STEP by generating positive economic results (EBITDA). This drive more team’s energy & commitment at all levels (leaded by successful motivated C-level executives & management obviously), which ensures that new ambitious strategic goals are combined with reasonable execution plans to achieve them. After, top management ensures alignment of priorities for changes driven by all functions in collaboration with external partners (suppliers & customers).
Finally a continuous improvement mindset is more embedded in business culture and makes easier the decisions of re-investing in people (more talent), improved processes and better tools (technology & innovations) … closing the loop of generating more positive economic results & re-starting the virtuous circle again.
Ones that have reached this point of my post, may understand now why is not that easy that majority of companies are still not able to manage their businesses via economic kpi’s & maybe also argue with me that external uncontrollable factors also influence business results (but this is another story…)