Wednesday, January 06, 2010

GastaTech Notes

Innovation + Optimization + Capital = Sustainable Growth

This formula for success is certainly not new. It has been preached and practiced by business experts and industry leaders for decades. Why then, do companies fall short or struggle?
Perhaps they do not understand that the formula, by definition, has to have all the elements known and quantified for the equation to work. It is not sufficient to work on one variable and hope the others fall in line. They are all part of a complex and interconnected puzzle.

The real reason the formula fails is that most companies do not clearly understand the magnitude and implications of these variables and therefore fall short in implementing them. To clarify the variables let’s ask the following questions and see how your business stacks up?

Innovation: Does leadership encourage questioning of current methods and support exploring potentially better ways of doings things? Do they foster innovation and consider it a competitive advantage? Does the workforce have “think time” or are they too consumed with executing the current processes? “Innovate or die” is a maxim that is vital, but often is just a plaque on a wall somewhere. We believe that a company must develop and implement active, measurable innovation and creativity processes that involve the entire organization for the company to thrive and be relevant.

Optimization: Do you know how much it costs to process a purchase order? Do you really know how much it costs to produce and distribute a product? Do you actively practice lean and six sigma methodologies? Are the communication chain and technology systems functioning in a smooth and seamless manner? Our experience shows that, in most companies, many processes are suboptimal at best and there are areas where minimal intervention can result in sizable benefits.

Capital: Do management and the workforce understand basic economics? What financial parameters does the company set for each member of its workforce? Has the company optimized AR, AP and current debt obligations? What cash or debt is needed to grow the company? Where can it be gotten and at what cost? Does the company have succession and exit plans in place? We know this area is often the least understood and companies often operate literally by the ‘seat of their pants’.

We believe that for a company to maximize its potential and be consistently relevant in a global economy it must actively manage all three areas simultaneously. Each of these three aspects must be clearly understood, measured and become an integral part of all strategic business plans and daily operations decisions.

Indy Patel
Chief Economist,Criterion LLC
Managing Principal,Criterion Capital LLC

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