Wednesday, August 4, 2010

Studying the Enterprise from a Management Perspective

Most companies are far too complicated to study as one entity. Think of a wristwatch. A watch is a single entity that functions through the operations of many moving parts; each part being directly linked to another, which is linked to yet another, and so on and so forth. A business can never be understood at this level. In order to study an enterprise, the company needs to be broken down into departments and then later integrated into an overall picture that can be managed.

An enterprise is composed of separate departments that may function like a watch but pass their information through entirely different levels. For example, the accounts receivable and accounts payables departments make up parts of an accounting system and have no direct relationship, yet they integrate with a common entity – the General Ledger. The results from each department help to make up the Financial Statement. Therefore, in the end, all departments that integrate to the General Ledger must produce results that are understood by the General Ledger but may not be understood between the departments that generate the data. How the unique departments relate to one another is unimportant at this level.

This environment is necessary but leaves open the possibility that one department may be functioning in such a way that is in direct conflict with other departments in the enterprise. Analysis of processes within departments forces us to identify conflicting actions that may interfere with efficiency. We will talk about this later.

Because of logistics, the convenience store industry provides us with an excellent model of how not to create an efficient enterprise. For decades the solution to this problem has been out there, but the chances are that it will take two more decades before these solutions are implemented. Why? — Because it requires change that will generate threats to management. Meanwhile companies such as Walmart will continue to reap the benefits of our sluggishness. The companies that are successful in adopting new technologies first are the ones that will benefit the most from their use. But first, you must understand how these new technologies will affect your overall enterprise.

Information technology people have trouble getting top management to take an interest in planning because their approach is too technical, so new systems are usually bought, paid for and implemented, not because they will satisfy the goals of an enterprise, but for the reason that management believes that something good will come from it, which will force the enterprise to change. It rarely works that way. It's like crashing into a wall to see if the seatbelts work. Meanwhile, departments that feel the effect of the new technology, scramble to catch up in an atmosphere of confusion and discontent, greatly crippling the results of implementing the new technology. Drastic changes to an enterprise should never be undertaken until management knows how it can be used to make the enterprise run better, to provide new opportunities, and to make preemptive strikes against the competition.

Critical Success Factors (CSF's) are things that must occur in order for the enterprise to be successful. They go far and above obvious things such as meeting payroll and paying taxes. Take an hour and sit down and make a list of things that are critical for the success of your enterprise. The building of an adequate information system, hiring a new accounts payable clerk, adding a new section to your current offices or moving to a new area of town entirely, getting rid of dead stock, making better use of your purchasing power, etc. — anything and everything that you feel will make a positive impact on your operation. Document, document, document.

The importance of analyzing goals and problems cannot be overemphasized. It is imperative in providing control mechanisms and relates to setting the objectives of selected managers. What goals do you wish to attain? What are the problems you may encounter in reaching these goals? My goal may be to own a new Porsche, but I may encounter a problem paying for it.

Consider ways as to how new computer systems can be used to change the ways your company does business and how they may be used as strategic weapons against competition as well as how they may be used as tactical weapons to fend of attacks from various competitors.

These interests can be important generalities and can be understood by top management. The techniques by which we accomplish these exercises are forthcoming.

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