Management issues that affects business prosperity

Lack of Management Skills and inappropriate structures

Management is a talent and a skill set, constant updating and training are required. Care must be taken to recognize that management might not know everything. For specific issues, where the knowledge is not available in-house, experienced advisors are essential. Management should be capable in managing the day-to-day activities, have a capability to design and implement strategy, but also to know its limitations and seek advice where needed. 

During periods of grown people have been promoted beyond their skill set, businesses have been created by people not capable of managing them – example many (say) carpenters established businesses during the property boom as the business grew the carpenter became the managing director – thereby removing the best carpenter from the business and installing a poor manager.

The management function should not be compromised by filling vacancies with persons lacking the necessary skills required. Internal promotion may be the safe option, but if the skill set is missing the business needs the courage to source externally.

Lack of confidence in delegation can result in the principal trying to do everything including getting involved in relatively unimportant aspects of the business which can result in neglect of the business essentials.

Structural defects include the presence of a dominant and autocratic CEO, a combined Chairman/CEO role resulting in insufficient challenge to the CEO, an ineffective or unbalanced board of directors and a lack of management depth within the company. 

Distressed companies are often characterized by organizational inertia and confusion. They are not able to make or implement decisions as a result of poor leadership or a poorly motivated workforce, poorly defined accountabilities and responsibilities and inappropriate organizational structures and management processes.

Any signs of a lack of consensus among the management team or neglect of the core business also evidence significant management weaknesses.

 Inability to Adapt

Sentiment and nostalgia can influence decision making - very often unprofitable customers / products / markets are pursued when they should have been dropped a long time ago.

If part of the business is going down the tubes know the right time to exit and concentrate on new parts of the business. The temptation to hang in too long will result in larger losses.

Some business are unwilling or unable to adapt to modern practices whether it is marketing / production / technology etc and this can very often lead to them falling behind their competitors.

Internal Culture

Times are tough at the moment, but as always there is a need for the culture and internal atmosphere in the organization to be right. Staff needs to be motivated to be positive and to succeed. Without this motivation it is difficult to see how the business can positively interact with its customers and suppliers. 

Inability to communicate with key stakeholders

Trusted relationships and good communications with banks, trade insurers and creditors are an essential prerequisite in order to elicit their positive reaction toward the business if help is needed.  Bank and creditors are quoting instances where businesses behaved in an unhelpful and provocative manner in “the good times” and now that they need a sympathetic ear this are not forthcoming – the credits were not built up.  If a Bank feels that the business is untruthful (or not telling it what it feels it should know), the bank will likely lose faith may look to disengage. 

Lack of Objectivity

It is always helpful to “bounce” ideas off advisors and confidants. The appointment on non-executive directors can be most beneficial.

This objectivity would address issues such as over gearing, over optimism, lack of confidence and risk (‘stick with the knitting’ many times is best) 

Excessive Personal Drawings

A proprietor and his/her family living beyond their means is a threat to a business - this is a problem that most family businesses suffer from. Personal drawings should not exceed profits under any circumstances. The prudent businessperson should ensure sufficient profits are retained in the business for future developments.