Management in Practice

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Common Mistakes by Decision Makers in Business Enterprises

By:

Vijay Sardana

After working in and interacting with large number of business projects, in India and aboard, author observed that the following issues are impacting growth plan of many companies.

After careful analysis, they were documented for the benefit of managers and decision makers.

The following issues should be considered by the mangers to overcome various problems faced by the organization either in market place or at factory level.

The following issues also summarize the major considerations the project managers should examine while developing the investment project or reviewing the performance of existing business units.

Lack of ability to document the learning from past mistakes

Any promoter or manager or decision makers in business world prefer to defend their decisions instead of accepting that “they may have made mistake”. Let us be open and analyze why we are going wrong. It will benefit everyone in the organization. But this is not happening and is the least common phenomenon in the business world today because of either competitive corporate culture or to become remain in good books of the bosses. In a larger context, this is beautifully explained in the book titled “Winning” by Jack Welch. I suggest, all decision makers should read this book.

It is high time we should shift from “competitive corporate culture” to “collaborative corporate culture.” Lack of knowledge and lack of experience are two major reasons for this environment. It is not possible that everyone should have knowledge as well experience to run an enterprise. We balanced team and trust on all team members is must. No doubt there are many people centric sensitive issues while doing so, but what is the cost of justifying a wrong decision? Who is benefiting? Definitely not the organization. In commercial terms it is known as “throwing good money after bad money”.

All decision makers must appreciate that we are not Gods and we all can make mistakes. The only thing, which is required, is the courage to accept the same. Right approach is “We may have made the mistake, let us identify, why it has happened and what should be the remedy before it is too late and hurt the organization badly.”

Lack of understanding and desire to learn about changes in technology

Based on our discussion with various decision makers, the following were the common observations:

Very often this decision is based on capital investment of the technology only. Very often companies take decision based on cost consideration or sometimes other considerations, due to lack of understanding of business needs or by ignoring ground realities, these are detrimental to the business itself.

Very few decision makers take interest in learning about the technologies options emerging in business environment due to either lack of time or lack of interest.

In many cases, unfair trade practices of decision makers were responsible for selection of a particular technology or machine. Very often it is either to inflate the bills or to under-invoicing. These short term gains hurt the organization seriously in long run because by adopting wrong technology, it reduces competitive edge of the organization and such cannot survive in market place. Even if they take corrective action, it becomes very expensive to regain the consumer confidence.

Lack of trust on the teams discourages every one:

Most of the decision makers of struggling companies had no idea about the quality issues in the products and customer service aspects. The only criterion was look around and find out what is selling and just copy that and start the business. The common approach is to get hold of someone trusted person who can keep watch on expenditure and report the development on daily basis.

Such organizations don’t have proper transparent systems where all concerned can share the facts and come to a conclusion based on facts.  In small companies they get hold of any Operator-cum-mechanic-cum-consultant that can assemble the equipments to start the business. Such operators repeat the mistakes they were doing in earlier organizations and spoil the new one in the same manner.

There is need to build multi-skilled teams to execute the work with perfection in all sense. Completion of work with perfection is more important than just completion of work. It is important that work should complete on time but such time lines should consider the quality and safety aspects as well.

Lack of resource planning to address the changing market needs:

Most of the decision makers do not analyze the changing market needs and continue to focus on product formats with which they started business.

Very often managers assume that consumers will always go for cheap and standard product which they were consuming so far.  If this is so in that case why few companies continue to grow and others suffer in market place.

Please keep in mind consumers’ are dynamic in behaviour. They will change for better products after evaluating cost-benefit analysis. Are we delivering value for money to consumers, if not, it is time to either relook at our offerings to consumer or it is time to windup.

Please look around and see what is happening to large resource rich companies like Kodak, Nokia, Microsoft, and many others. Even these giants are forced to relook into their business models by tiny insignificant resource poor customers.

Lack of comparative analysis of available technologies:

Once we start business, we stop interacting with technology suppliers. There is a need to understand the changing nature of technologies, products and markets. After all these companies are also doing their homework and understanding the changing aspiration of the consumers.

Very few decision makers evaluate available technological options in holistic manner. Very few promoters and senior decision makers attend public forums, seminars and conferences for unknown reasons. Even if they attend these events, they do not sit for technical sessions and most important question answer sessions. This creates seriously dangerous communication gap between decision makers and ground realities.

Selection criteria to choose between labour or machines is often without facts:

Very often cheaper option is the only criteria. Decision makers should also keep in mind the cost of reprocessing, damages and wastage while selecting capital equipment and labour. Market returns and slow movement of products from retail shelf are very expensive for the companies. If precision is important, it don’t depend on labour because labour is tend to make mistake in monotonous routine jobs.

It will be useful to evaluate what the percentage of damages is due to labour in comparison to machines. This cost estimates will help in making right decisions.

Defective designs of factories are like “Genetic defects”

Very often the factory layout is so bad that it needs extra manpower, pipes, cables, supervisors, power and water to run the operations. Unnecessary walls, enclosures and fixtures add to problems. Lack of understand and operations need by the plant layout designers add permanent problem for the factory. I call such blunders as “Genetic Defect” of the factory and one has to live with these problems forever or redo the investment to rectify the same.

Waste Generation always hurts the balance sheet

In most organization, decision makers and business planners focus on one or two products only. Minimizing waste is rarely a planned activity as part of business plan. This leads to wrong selection of machines and poor layout planning for the plant.

Raw material usage, energy requirements, alternate energy sources, by-product utilization, warehousing infrastructure, etc are vital consideration for an industry. Most of the projects do not calculate by-product utilization strategy for the benefit of the project. They either waste the byproducts or sell valuable byproduct at low cost to any other vendors for sub-optimal use. On hand it hurts the value realization for the company and on the other it is a national loss as well.

With growing environmental concern, it will be difficult for the companies to operate without giving due to respect to environmental concerns.

Unreasonable planning and over-estimation of cost hurts the market:

Many promoters invest heavily on civil structure and non-productive assets because of various considerations. When it comes to evaluating cost implication, accounts department load all these overheads on the products and force the marketing team to sell the product at a price not acceptable by the buyers.

In they are not able to sell the products due to high cost and bad positioning, instead of solving the accounting problem they start compromising on quality and other performance parameters and create mess for the whole organization and end of the day organization suffers by poor quality, demoralized teams, lack of product penetration in market. This all leads to further deterioration of financial performance of the company. These approaches aggregate the problem further and this lead to closure of the factory.

Sourcing of improper human resource and skills:

I always ask this question to decision makers, when you are sick which doctor you will prefer – doctor who is well skilled but expensive or doctor who is cheap and unsure of his capability. Similarly,  when you need legal opinion to save you from going to jail, which lawyer you will prefer – will skilled or cheap. The answer is always competent and well skilled person is preferred. It is strange to notice when company or business is sick, why we look for low cost options including human resources.

They try to justify why they go for cheap human resource at the cost for organizations health. They hardly realize that managerial and technical skills help in reducing the cost of operation in factory. Right skill sets are vital for good performance in market. Just recall, every Halwai uses the same ingredient in making similar sweets, but few sell and premium and people stand n queue to buy their products. Why? Because how to use the same ingredients in the process in better way was the skill team of the successful shop.  

Lack of proper human resource is also responsible for delay in responding to the changing market needs.

Decision makers must appreciate that man behind the machine is more important than the machine because he will decide how to get best output from the machine and team members.

Extraneous factors influence decision making

This is very common phenomenon in India because most of the small and medium enterprises fall in this trap very often because of subsidy of government subsidies. I am not against the support to any competent entrepreneur but they should be based on ground reality and support any good effort. Unfortunately these subsidies are based on certain policy tools which are either designed due to political compulsion or to please certain section of society. These subsidies force people to invest in activities where markets are not supporting such concepts or business models.

Is there any analysis, which can indicate how many units got subsidy and how many of them are surviving today?

My request to small business promoters is, if you feel you can do the project and run it without government support only than enter that business otherwise you will always remain at the mercy of someone else to run the business.

Interference by external factors

Sometimes bankers force promoters to change the project and its technology just because the sanctioning authority does not like the project because their norms are based on old technological concepts. Take example when aseptic processing was introduced, no banker was comfortable in giving loading it was more expensive than other options. Today, all juices are in aseptic formats. Unfortunately, who rejects the proposal never provides any better alternate but insist unless they change they will not give loan. This forces the promoter to go for suboptimal technology or plant and which is detrimental to the project in market place.

Lack of hand holding and technical support system

There is hardly any support service, which is available to the small and medium companies from any institute. Most of the institutes are running their facilities as per government rulebook, which are far away from ground realities of business world. It is not surprised that majority of the small and medium companies do not visit technical institutes for any help or support.

Applied science and technology institutes’ performance must be evaluated based on their contribution to the number of enterprises serviced and value addition created for the country in market place.

Lack of incentives to support innovations

Food laws and tax policies do not support innovation in market place. Absence of flexibility in polices to meet the changing market needs acts like a roadblock in growths.

The purpose of the article is to highlight the common mistakes made by decision makers and responsible for poor performance of business organizations.

There is a need to have open-minded collaborative approach between various stakeholders to solve these issues in the interest of entrepreneurship, consumers and nation building.

Important:

No doubt, money is important for business that is why we need promoters but without right knowledge and right skill set the money cannot be multiplied. So, every aspect is important improper handling of money by improper knowledge and improper skill sets can lead to erosion of money and wealth including goodwill in society and market place.

Constant re-skilling and training, including for top management,  is the key to remain relevant in fast changing world.  It should be treated like like mandatory preventive maintenance for the organization to avoid obsolescence with time. Please ask you finance department to ensure budget for the skill development with mandatory spending condition.

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