Are you fit for business? Why performance management delivers value

AS Big Ben struck midnight on New Year’s Eve millions of people promised themselves a healthier year.

Although it’s true that many will slide back into bad habits (some quicker than others) business owners would do well to make a similar resolution. For 2009 is destined to be the year of the leaner and meaner business. And while broken individual resolutions might result in expanding waistlines, not maintaining a strict regime of discipline, reviews and strategic executions could result in business failure for corporate.

Strong leadership and solid performance management have always been key factors for successful business but as a result of nearly two decades of growth complacency has crept into boardrooms big and small.

True, Enron’s collapse led to many businesses evolving for the better but the aftershocks quickly became memory. Markets recovered, rotten corporate apples were rightly identified and removed, city bonuses continued to rise and “fat cats” carried on reaping the rewards.

The economic bust may have been long in the coming but it’s quickly made up for the late arrival. Weaker businesses propped up in the age of plenty have been ruthlessly cut down but the storm is only just beginning. Even well managed firms are at risk if weighed down with excessive debt. Cash is once again king.
Consequently firms need to shape up for the new regime.

According to Martyn Potter, part of PKF’s Leeds-based corporate finance team, managers will need to review systems, processes, check and balances as well as operations no matter how painful a discipline that might seem.

“SMEs in particular need to know that their finance systems are up to scratch,” he warns.

“Managers need to have a handle on the cash. They need to know what’s going in and out and that credit control is up to scratch. In other words they need to be a lot more proactive. A poor system could land them in trouble.”

Potter says that processes and checks and balances surrounding them also need to be checked for effectiveness.

“A company needs to have control. Managers need to know what is happening in all parts of the business. Equally, individual departments need to have up-to-date information to work with.”

But it’s not just end-to-end visibility that’s essential as Giles Wharton, audit partner at BDO Stoy Hayward’s Leeds office, explains.

“Firms need to understand what the customer wants,” he says.

“They also need to know how much and when. After all, no one wants to be left with too much stock they can’t sell. It comes down to communication and the relationship firms have with suppliers and customers.”

He says that having “honest and open” relationships could make the difference between a weak supply chain and a strong one.

“You want to be supplying the right products, at the right time to the right people. At the same time you’ll be delivering services with fewer people while assuring continuity of supply, which is why efficient processes are so important. Just because you’ve always done something one way in the past doesn’t make it the best way.”

However, there is another potential risk to firms yet to undertake an operational review as pointed out by both Wharton and Potter – fraud.

“In times of growth it’s very easy to cover up fraud, but recession means there’s more of a focus on the numbers. Having the right systems to be able to do this is essential,” says Wharton.

For Potter, seniority is no guarantee.

“You need to have the right checks and balances in place such as not having someone in complete control particularly in a smaller firm.”

Although a lack of credit may present a problem for firms in need of new systems, the growth of affordable and scaleable “light touch” technology offers a solution for firms looking to improve their performance management on a budget. Being in control has never been cheaper.

Even so, many firms still fear the impact of change especially in a hostile economic environment. However, not taking the review plunge could prove more risky than ever before. It’s a New Year’s resolution no manager should be breaking.