I’ve been having some interesting dialogues with Business Owners, Managers and fellow Business Advisors about the relevance, importance and value of up-to-date and reliable Management Information and Business Benchmarking to Small Business Interestingly, whilst the consensus seems to be that such data is critical for Large Businesses, not everyone sees its importance to the Small Business sector in building better businesses.
This posses the following questions:
- How does Management Information build Business Wisdom?
- Why is Management Information Important to Small Business?
- What Information Should Small Businesses Be Collecting and Why?
- How Do You Do This?
This short series of posts aims to answer these questions and show how Small Businesses can turn management Information into Business Wisdom. In this edition, we explore;
How Management Information Builds Business Wisdom
A paper on Knowledge Management by Nazar Rasheed, The Impact Of Knowledge Management On SME’s (link to PDF copy of the paper) , discusses the importance of having Data and Information in building an organisation’s Knowledge and Wisdom. Nazar provides the following graphic to explain the inter-connectivity of the four (click to enlarge):
Organisations and their people are surrounded by ever increasing amounts of data, much of which is either not collected, or not used effectively. As shown above, if Data is collected and put into the right context, it becomes information that builds the organisation’s knowledge and capability, thus allowing Management and Staff to make intelligent (or wise) decisions for the business.
Typically, such decisions will focused on the following areas:
Strategy – the organisation’s direction for the future:
- It’s goals, finances and interaction with customers, and employees.
- Assessing which products/services are profitable, and which are not.
- Anticipating the threats from existing and new players in the market so as to devise strategies to deal with.
- Developing the Organisations Vision, Mission and Value Propositions.
Culture – can be characterised as:
- The norms, values, and views shared among employees within the organisation,
- The ‘way we do things around here’ – the managerial styles, organisational processes and common practices.
Processes - referring to the information systems, procedures, instruments that provide timely, appropriate, understandable and accurate information to support the operational, tactical, and strategic management. This requires that organisations have the right technology, and tools to be able to share, retrieve, and distribute knowledge within the organisation.
Building A Balanced Business
More commonly, Management Information categorised under four areas – Finance, Processes, Customers and People. The table below presents some of the more common Management Information focus areas for each category (click to enlarge):
It’s important that Management Information is balanced across all four of these categories. A common mistake is to put too much emphasis on one or two areas at the expense of the others. For example, many SMEs will focus on the Finance quadrant and have some degree of Financial Management Information (e.g. Profit & Loss Statements, Monthly Accounts, Sales Figures) and not enough on the other three. But consider this, if your processes aren’t working and your Customers and Staff aren’t satisfied what will the impact on Finances be?
In addition, all too often the Financial Measures we use are ‘Lag Indicators’ not ‘Lead Indicators’. By this I mean that they measure what has already happened, not what is going to happen. Ask yourself:
- Is your business the same today as it was last year?
- If not, how can you make ‘wise’ decisions for the future of your business based purely on what’s happened in the past?
By now you should begin see that making wise decisions, based on up-to-date and reliable Management Information that assist in predicting the future is important and does have value to all businesses. In part two of this series, we’ll move on from the Why, to the What, Where and How of ‘Turning Management Information Into Business Wisdom.
In the meantime, as always…
Onwards & Upwards!
John Belchamber, Invoke Results