How could I have read the warning signs better?

Dear Aunty B,

I have a medium-sized consultancy firm and had assumed that business was bad because of the GFC, and so I dug in to wait it out. But I expected to be emerging on the other side by now, when in fact things are getting worse.

I just realised that our market has undergone a fundamental change while we weren’t looking. Part of the problem is that I hired a general manager and stepped back from the business a year ago to focus on geographical expansion and working on a new research part of the business. So it is my fault I missed the signs.

I have sacked the GM and laid off other staff so we are now quite small again and are refocusing. But I intend to quickly rebuild. How can I avoid missing the warning signs next time?

TB,?
Melbourne

Dear TB,

Gee. The number of Aunty Bs complaining about general managers is extraordinary! But I think I have found out why.

Vern Harnish in a webinar the other day named the GM as one position where you don’t want to hire externally. In fact the GM should be someone who has come up through the ranks or at least been with your business for a few years so they know it inside out. That’s good advice! Especially when a lot of companies hire GMs from outside.

I am afraid you have fallen into the mid-trap: that is the trap that snares many growing businesses. As your business becomes more complex you lose that day-to-day instinctive knowledge of what is going on.

Instead, you rely on reports that are usually based on financial information. ??You then have to interpret that report based on assumptions, which can cause all sorts of problems.

The way to do it of course is to have a direct line to the coalface, through the GM and then to staff working directly with customers to tell you about how the marketplace is changing. As you rightly identify, it is the GM that has let you down.

Also, you moved away from the marketplace and made the wrong assumptions about why the figures were going south.

So what should you have done, apart from hiring a great GM?? ?You need to monitor physical indicators as well as financial indicators. The physical indicators will provide early warning signs. Some are attached to the physical environment.

Consumer confidence, a change in interest rates, new competitors coming into the market, a change in market conditions and so on. Others are internal, for example a fall in sales in the pipeline can indicate a potential reduction in sales thereby affecting inventory and resources.

So you make a list of the Key Warning Indicators and then attribute reporting responsibility to different individuals associated with that activity in the firm.

That way you are not only developing market intelligence but you are getting your staff to think intelligently about the marketplace and gather information to tale early corrective action. And I am sure you will find that a lot of the market intelligence will come straight from the coalface!!

Good luck,
Your Aunty B

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