How to identify problem areas in your business

The old adage, “What you don’t know can’t hurt you,” doesn’t usually apply in business situations.

In fact, another adage, “Knowledge is power,” is much more appropriate.

In many cases, waiting until a problem is severe enough to be obvious sets the business up for failure. Savvy business people seek out information to help them manage today and anticipate tomorrow.

Consider these methods for identifying problem areas in your business:

Run your numbers

Good accounting information can shine the light on areas that may be underperforming. You should consider:

• Break-even analysis – You should understand the formula in your business that shows the difference between making and losing money. Many businesses monitor this on a frequent basis so that they can address problems immediately. For example, if you know that you have to produce an average of 10,000 pieces a day to cover fixed and variable expenses, monitoring the number of pieces actually produced per day or hour can help you address problems quickly. If you only look at the numbers weekly, you may have lost many days of production volume that will be difficult to make up.

   

• Trend analysis – Comparing one period’s numbers to another similar period can help you identify fluctuations in production, profitability, sales growth, etc.

Looking at trends gives the numbers context. For example, if this month you gained four new customers, maybe that’s good. If the trend is that you have been gaining 10 new customers a month, the current number isn’t a positive one. Comparative data is more easily judged than data points standing alone.

Know your industry

Context can better help you evaluate whether your numbers are good or bad. Comparing only to yourself can give you a false sense of well-being.

Many industries produce reports key performance indicators that companies can use to compare their own performance to the performance of similar companies.

Reviewing the performance of others in a similar business can shine the light on areas where you thought you were doing well, but perhaps still have room to improve.

For instance, even though you might be feeling good that your company is on a positive trend in production and sales, you may find when you compare your company to others that you’re not growing as fast as many of your competitors. Your positive trend isn’t nearly as positive when viewed in that way.

Management by walking around (MBWA)

This is a concept described by business consultant and author Tom Peters many years ago.

It is a reminder that being present is a good way to see what is really going on. Generally, the unscheduled and unannounced visits to the production area give you a chance to observe people in action and to talk with them in an impromptu fashion.

By asking questions and listening carefully to responses, you may identify themes that can point to challenges or opportunities the company may be facing. It’s always good to remember that those closest to the customer and production have a different view of what’s going on than those in the higher management ranks. You can learn from them and avoid or anticipate problems that are headed your way.

Bottom-up communication

Employees at lower levels in the company often see problems that managers do not. The willingness and ability to listen to the troops in the trenches is important. Here are some ways you can do that:

• • Employee surveys – If you want to know what people are thinking, ask them. But be sure you’re willing to hear the answers, and don’t ask if you don’t plan to respond.

This doesn’t mean you’ll adopt every idea, but it does mean that you’ll consider what the employees are trying to tell you and respond. It is recommended that you use an outside resource for the surveys and ensure anonymity if you want candid responses.

• • Suggestion boxes – While you may sometimes get an “off the wall” suggestion or comment in these receptacles, you can also gain some valuable information. It is another way to make it easy for an employee to anonymously share information. If a trend of similar concerns appears, it’s something worth examining.

Focus groups – A well-facilitated meeting of small groups of employees can result in good ideas being shared and concerns being expressed. Again, you’re communicating to the employees that you value their input and want them to be engaged in the process. But, as before, don’t ask if you don’t really want to know.

What you don’t know can hurt you in business. Reach out, ask questions, and pay attention to your numbers.