Tag Archives: operations

Fail to Research; Fail to Secure Market Share

As companies seek to gain a competitive market position and execute on their business objectives, various problems can crop up. In the last post, we examined a case study on inventory control as one issue that needs addressing. In this installment, we will look at a case study involving loss of market share:

A company in the Northeast had always been able to sell enough product to secure a 15-20 percent local market share within the primary price range and portfolio of designs. As other competitors began to outsell this company in the local market, the owner commissioned some research to determine what percentage of the market share had been lost. Upon discovering that their share had dropped to 9-11 percent, the executive team became worried.

Why would this company’s–or any company’s–market share deteriorate to this point? Experience shows that one common reason for the decreased market share might be increased competition. As other competitors, whether established or new businesses, begin to offer viable or even more attractive alternatives, your business may begin to lose a percentage of share  in the local market. Another possible reason for declining market share could be perceived poorer quality in the products offered. Rumors of a company’s demise can fuel such a perception and scare buyers away, allowing other businesses to take advantage of this image problem.

The solution to declining market share varies according to the source of the problem. If bad image and rumors appear to be hurting the business, the owner must move quickly to dispel any rumors and improve company image through a bold and highly visible public relations campaign. For example, companies can generate goodwill by meeting with influential members of the local community to let them know that any perceived problems are being taken care of and that the company plans to be making products in the community for some time to come. This exposure can often be gained through attendance at chamber of commerce and other local business group meetings.

To overcome competitive advances, the executive team must aggressively outmarket and outproduce competitors in each niche market. By beating them in head-to-head competition, the problem is solved while the company’s reputation for high quality products is enhanced. In terms of quality initiatives, management should devise ways of improving quality in all projects, passing the word along to all employees, suppliers, and subcontractors that quality is becoming an issue and that only those who can produce quality work will remain a part of the team.

Stabilizing and regaining market share demands that the team know the local market inside and out. While calculated risks are allowed if the executive team feels confident that they can get product manufactured and sold quickly, the potential success of any such project must be measurable in terms of researched demand for the product line the company plans to produce. Clearly, companies must target opportunities that allow them to make their best products at competitive prices. By keeping abreast of new developments and new competitors attempting to make an entry into a particular market, the team can revise plans–and keep buyers from running to the competition.

 

Too Many Houses Are Us

Most businesses face unforeseen circumstances while in pursuit of their sales and other goals. The way these situations are handled will quite often determine the degree to which the company’s efforts are successful. A useful method to see what others have tried and what principles we can learn from their experience is the case study. When your business produces products, it creates inventory. When the inventory is too large for the demand, it becomes a problem. Let’s take a look:

A speculative home builder on the West Coast discovered to his chagrin that the market in his local area was inundated with homes very similar in style and price to those he was building in large numbers. There was both a general glut, and a specific one related to this company. As his lender began to point out, an inventory level that has escalated out of control presents severe cash flow problems among a variety of other concerns. The lender was also quick to point out that the builder was in jeopardy of defaulting on construction loan interest payments a couple of months down the road if he did not begin selling some of his inventory–and soon.

How could this builder (and others in a similar situation) end this problem of increasing inventory? First, the problem can normally be attributed to one or more of the following factors:

  • an overbuilt market in the builder’s product offering
  • incorrect, incomplete, or absent market research
  • an inability to revise product in terms of plans, elevations, and prices to meet buyer demands.

Once a builder has determined the existence of increasing inventory levels–and their cause–it is time to stabilize the situation. Selling off an old unit for every new unit constructed is a bare minimum requirement. It is not wise to continue building simply to try to fund aging inventory interest payments out of new construction loan draws. As older homes are sold, new construction can be considered. Due consideration includes understanding the problems that led to former inventory level increases well enough to avoid the same errors in the future.

In addition, an inventory reduction plan should be initiated immediately, making sure to target the oldest inventory with the worst gross margins first in any type of incentive offer. The use of incentives can be gradually lessened as the builder moves through the oldest inventory into newer inventory with better margins. Sales staff can be of great help in determining what may help to move homes. If qualified buyers are hard to come by, it may be advantageous to work with local mortgage lenders and offer a program for qualifying buyers at lower monthly payment levels in the early years of a home purchase. Also, it is always helpful to walk all inventory and make lists of all items that need to be repaired, replaced, or cleaned up.

Finally, a builder can prevent uncontrolled increases in inventory levels by performing more careful, thoughtful research, making revisions to product as soon as buyer tastes are known to have changed, and offering ongoing, automatic incentives for aging inventory to be sold. It is often helpful to “re-research” current projects to make sure that the original research findings remain valid and informative. Periodic product updates and revisions are necessary even in a stable, conservative market. Buyers are always looking for small things that make one home purchase better than another. By catering to buyers’ particular tastes and requests, a builder can offer a better home and still make money.

Even if you are not in the homebuilding business, but in some other business that has inventory, these principles are important to observe. Think through ways to reduce inventories–better yet how to prevent them from ever becoming a problem!

Implementing Your Turnaround Plan

A turnaround plan presupposes that someone will be around to implement it. A lack of execution or inappropriate one (timing or lack of adaptation) will quickly undermine all earlier efforts that went into drafting the plan. Control over operations is therefore a must–no single part of the business should monopolize the company’s attention and efforts.

Controlling Operations

Motivation

The motivational skills of a “take charge” leader can enhance job performance in many ways. Many employees complain they are not being used effectively because they don’t have enough to do or their efforts are being applied inappropriately. Management that makes the most of employee work efforts has a knack for spotting actions that, if performed immediately, will have a tremendous, positive impact on company success.

Efficiency

To ensure that operations are monitored and controlled correctly, the individual who reviews system reports must make decisions based on indicators of company efficiency. For example, if variance reports show (project or product) costs exceeding budget, action must be taken immediately to prevent further overruns. Similarly, if non-payment has a vendor worried, the top financial manager must find a way to keep the vendor on board so a return to profitability can occur.

Sound management is exhibited when field operations or internal reports require responses to abnormalities. For example, a business owner in the midst of a turnaround had a new hire (< 2 months) supervisor request on Thursday to take Monday and Tuesday off to pursue some personal matters. The business owner was not in a production crunch and was short on cash, so he approved the time off–particularly since the supervisor was not using vacation (paid) time to take leave. When the supervisor strode onto the job Monday late morning, the owner was surprised. When he requested to work the balance of Monday and all of Tuesday, the owner declined the request, citing that she had to make other arrangements that inconvenienced others and that last-minute notice would not be accommodate in this or future instances.

In this instance, the owner did what was necessary to maintain control over operations. Though it may have ruffled the supervisor’s feathers for a few days, it demonstrated the importance of setting policies and commitments–and living by them. It was also to the owner’s advantage not to have to pay the supervisor for work that had been reassigned to someone else. Proper planning was used to make sure that someone would be able to supervise the work. Additional follow-up was necessary to make sure no problems were slowing down production for those two days. Had the owner failed to exercise sound management, proper planning, or follow-up, she would have lost time, money and credibility with others due to one employee’s circumstances.

Focusing on Common Objectives

Getting employees to focus on common objectives is a difficult task. Executives an managers who are able to motivate their workers to avoid distractions, do their jobs effectively, and remember to follow the turnaround plan do so with tremendous skills/abilities.

Employee Problem Solving

Employees can best avoid distractions and aid in the turnaround process by quickly resolving issues in which they have innate skills and referring all other issues to appropriate personnel. Additionally, employees should report any persisting problems or confrontations to the executive team.

Problem-solving should be a relatively painless process, requiring only that he or she utilize skills learned on the job and “do what seems best” based on prior experience. If an employee has little or no experience in the problem area , she should not hesitate to find someone who is experienced. It is far better to admit a need for help than to take a chance on behalf of the company.

Employees should be reassured that involving others is not “shirking” or “dumping” work into another’s lap. Rather, this process is a way of relieving employees of the likelihood of error in making an uninformed decision. However, employees are not absolved from making sure the problem is resolved. Make it a habit of celebrating when employees help one another out to build camaraderie.

 

Small Business Management Information and Organizational Staffing

Different-sized businesses have different needs in terms of internal structure and systems, particularly during times of economic decline. As the entrepreneur adapts to changes in his or her competitive situation, the size of the business may vary enough to put it in competition with either larger or smaller competitors. Implementing systems to match competitive requirements is a necessary first step toward efficient organization and operation.

Management Information Systems

Small businesses usually enjoy the pace a smaller organization and a high level of personal involvement in decision-making. The systems typically in place range from a manual bookkeeping system inadequate in reporting timely developments to overly complex programs that require more attention than the small business leader can give. Therefore, the goal in a small operation should be to minimize company reliance on record-keeping as a chore and focus on the development of meaningful reports. With all systems tied together, the financial systems can work with marketing and operations systems. The reports generated can then be used by each department.

Accounting Information

Accounting information that should exist in at least a semi-automated form includes accounts payable, cash projections, expense estimating, and quotation systems. It is impossible to run an efficient operation with anything less than this skeleton. The payables are easily recordable as invoices are received and paid. Cash projections contain–at a minimum–information about loans, revenues, and disbursements. A basic expense estimating system posts invoice amounts  (direct costs) and allocates indirect  costs as appropriate to to specific projects or clients. Finally, a method of preparing quotes should be implemented to standardize pricing based on cost data.

Marketing Information

Marketing information should include inventory listings, commission agreements, advertising schedules, and research into market demand and competitor product offerings. Inventory listings are a natural by-product of the job costing (expense estimating) system and should include gross profit percentages, inventory age, and a measurement of the relative sales priority of inventory based on carrying costs. Commission agreements highlight the sales force’s expectations for representation of company products. Advertising schedules will help the business leaders plan for regular promotions. Finally, research into market demand and competitor product offerings will require periodic updates.

Operations Information

While accounting information is preferably computerized or otherwise automated, operations information, like marketing, need not be automated as a first priority. Information systems for monitoring operations include purchase orders, scheduling, and either timekeeping or job progress. A purchase order system is essential for cost controls, order documentation, and verification of amounts and qualities delivered. Finally, scheduling systems provide for systematic fulfillment of orders.

Organizational Staffing

Small businesses must determine the organizational development and staffing levels based on their need to delegate tasks and thus free themselves for critical activities. Office management, marketing and operations managers should be hired only after careful screening. These individuals need to possess industry specific experience and a good general feel for how your business works. Sales people and administrative staff are not innately qualified to work for a particular organization. When verifying references and conducting interviews, then, look for a match in values!

Office Management Staff

In the management of the office functions, organization and attention to details are essential. One or two well-trained individuals–preferably capable of performing each other’s jobs–should be enough to keep the internal operations running smoothly and to help with some of the company’s daily busy work when necessary. Ideally, these office employees should be able to handle accounting, calls, filing, and word processing.

Marketing Staff

The marketing staff need not consist of one or two well-trained individuals either. One person must have responsibility for digital marketing–all things web-based including website, social media, and CRM. The other should handle strategy and supporting sales and other executive staff on marketing issues, including advertising, branding, collateral materials, proposals, etc.

Operations Management

A team of one or two should again be sufficient. Depending on the size of the organization, the complexity of its operation, and the rate of growth, a good rule of thumb is that one manager should have responsibility for no more than five to eight direct reports. These managers should be expert in keeping work on time and on budget.

 

Turnaround Analysis Information Sources

Information for planning and analysis during a turnaround needs to be derived from both the internal and external environments. The internal environment addresses the management of the marketing, finance, and operations functions of the company. Business management controls these functions. This is primary information that should be at the fingertips of the executive team.

Sources of Internal Information

Internal information is gathered from employees, vendors, creditors, and the customers. This information generates a picture of the business, which can be compared to recognized performance standards. Marketing information requires research into demographics, psychographics, and analytics. Financial information comes from the accounting system and is augmented by other types of management information and reporting. Operations information is derived from supervisors, vendors, and subcontractors and compared against benchmarks. Benchmarking indicates relative performance; actual performance against internal standards is also necessary.

External Information

The external environment consists of economic, competitive, technological, cultural/social, legal/political, and geographic influences. Management cannot control this external environment is secondary by nature. It is essential, however, that the management team analyze this information and plan in light of predicted changes.

Strengths, Weaknesses and Opportunities

Determining a company’s strengths, weaknesses and opportunities is essential to successful implementation of the turnaround plan. Though some can freely discuss their personal and business strengths, most lack the objectivity to understand their weaknesses–and determine how to minimize those weaknesses and maximize strengths.

Many entrepreneurs have stumbled upon an opportunity and made some money. However, those who desire long term success use management information systems in the process of reorganizing their companies. Moreover, the best executive teams create a setting that enables goals and objectives to become a reality. Plans are modified through flexible strategic planning. 

Strengths

Business strengths are those innate qualities that produce a competitive advantage and hold value for the end users of the product. In the case of home building, for instance, the “bells and whistles” that attract prospective buyers may be as simple as quality landscaping or as complex as multi-member molding. Some clothing designers offer an edgy look or unique fabrics; others go for utility like pockets. The object is to determine a specialty or basis for market niche, brand identification, and reputation. It is often helpful to solicit the advice of experts to identify market wants and how to fulfill them.

Weaknesses

Despite the ingrained resistance to admitting shortcomings, those with declining businesses must be willing to discuss their personal and business weaknesses freely. The team can only restructure the business by implementing solutions to problems caused by these weaknesses. For example, outside salesmen and the marketing team are in an ideal position to obtain data about the market and the position of the company’s products in that market.

Meaningful information can be learned from these professionals if the team is patient enough to listen and hear a bit of criticism. By taking the input to heart and allowing the feedback to challenge established business practices, the team members profit from it. The purpose of this exercise is not to dampen enthusiasm for the product but rather to point out areas that need improvement. 

Opportunities

Understanding the local market is essential. Opportunities, particularly those for market penetration, should begin to arise out of a deep knowledge of the market. Buyer profiles by demographic and psychographic patterns can be prepared to assess the features and qualities buyers want. Such profiles can be developed with professional assistance at a minimal cost using secondary data. 

As trends in preferences for various geographic and cultural markets emerge, executive teams can predict how they can service customers by price range, features, and channel. Promoting products that meet identified needs is half the solution; the other half is to transition to offering more of what is in demand and eliminating what is not.