Many times as a business owner there are problems that come up within our business, and we think we know the answer to the problem We then implement a solution in order to find that problem is not resolved and is reoccurring. Sometimes this is an issue because we are too close to business, or because we were not given the right information. Has a similar situation in your business occurred to the one below that ended up occurring over multiple departments within your organization?
What is a Problem?
Problem: A measurable gap or deviation between an observed state and the expected state, norm, standard, or status quo.
In this business example, we can use a business owner who is reviewing his financial statements. The business owner sees that his gross margin (Sales – Cost of Sales) is 50%. Is this a problem?
The answer: It depends. There are some questions that need to be answered first.
There is a fair amount of difference in each scenario. First of all, it depends what industry you are in; each industry tends to have its own structure.
In the other scenarios, where there will most likely be multiple products, issues of pricing, costs of sales, product mix, sales expenses, and even transaction posting errors can be suspect. A common source of frustration with owners is that expected programs or products were not released on time, ran into quality issues with products, late to market, unexpected competition to name a few.
Perhaps the most difficult answer to get is “What should have been?”. This often implies gathering the facts without bias or personal influence from anyone involved. You need to gather objective evidence that support observations, not evidence that support a theory we might believe, or a conclusion (hypothesis) that we might jump to early in the process.
In order to set in motion a problem-solving exercise, the problem needs to be clearly articulated. Problems are about the relationship between variables; the fact that the margins are 50% is not a problem in of itself; the fact that the margins ‘should have been,' or were ‘expected to be’ 60% is problematic. The problem statement needs to be focused on a particular issue, address the relationship between variables, and should contain the foundations of its own solution; namely what should have been.
In scenario 2 above; the fact that i) margins were 50%, ii) margins were expected to be 55%, and iii) margins should have been 40% represents multiple problems. These problems deal with the variables of 1) what is versus what was expected, 2) what is versus what should be, and 3) what was expected versus what should be. Each of these will derive its own unique solution, and there may be no one solution to address the 50% observation without relating it to owner expectations (realistic?), execution dynamics, or product performance influenced by market dynamics.
Whenever you are surprised by an observed result, sit down and ask yourself these four basic questions:
If you find that you find yourself in situations where problems are occurring but you are not always able to determine the root cause; this is where we find we are able to truly help business owners. Contact us to help you,
RK Fischer & Associates