CGF ARTICLES, OPINIONS & EDITORIALS

Trying to survive increasingly difficult questions? (2011-08-17)

February 19, 2015  3647  3647   

More than ever before, companies are acutely aware that their survival depends not only on running an efficient business, but that in order to thrive, they must also be relevant and mindful of operational efficiencies in order to improve financial performance and drive shareholder value.  Understandably, as companies struggle to survive, the Board, management and stakeholders have begun to ask more complex questions of its business and the value to the supply chain.

To begin with, unlocking working capital and improving the company’s financial ratios remain fundamental objectives in any business.  Indeed, knowing the impact that one aspect of the company has on another, is of increasing concern.  Similarly this argument also applies to the impacts upon the company’s internal and external supply chains.  Rather worrying is the fact that many companies still tend to adopt a ‘silo mentality’ and ignore the operational aspects and the knowledge contained in areas other than their own departments.  Such practices have potentially grave implications as the communication channels become bottlenecked, or are shut down.  And in spite of the adage of “good risk management attracts better returns”, one is reminded that poorly applied knowledge and the lack of interoperability between people, departments and the supply chain often tends to have a negative domino effect.  Arguably, for these reasons and perhaps many more, the King Report on Corporate Governance 2009 (King III) now makes risk management the responsibility of the Board and therefore matters such as poor communication, mismanaged knowledge or unreliable data can negatively affect not only the company’s logistics, but indeed also its ability to perform optimally.

Understanding the fact that companies and their directors have begun to feel the increasing pressure of running a business, not least the associated increased person liabilities attached to executive and senior management, it is hardly surprising that companies are asking more complex questions regarding the company’s ‘health’; be this financially and now more recently, since the advent of King III, the non-financial components of the business. Often the answers to many of these questions are not guided by existing best practices; but rather in the marriage between business knowledge and the organisation’s ability to mine its data effectively.

Whilst companies may have data warehouses and operational data stores, the reality of these companies being able to retrieve accurate information in order to answer the company’s ‘health’ questions -- in most cases -- can only be discovered by an analyst who has the necessary business knowledge and technical ability to effectively mine the data and then represent this information to the company.  Often, companies are challenged when attempting to retrieve these types of answers from their various hardware and / or software systems due to the fact that:

• these systems often lack the judgement, qualitative techniques and intelligence to understand the data, or

• the nature of information being entered into these systems is unreliable, irrelevant or worse, false which then results in inaccurate information being retrieved, and

• there may be an excessive reliance on the information being retrieved, leading to the management losing their intuitive feeling about the business and its risks.