Back to basics!

There are two situations in which we need to conduct the “back to the basics” exercise: in moments of crisis and when facing the pressure for implementing the managerial fads of the occasion.  Crisis is an inflexion point in which the existing system does not work well. Thus, it is necessary to adopt another or reform /update the existing one.  Managerial fads have a few standard characteristics: present ready to use formulas, promise quick results, list complete successful cases and are presented as amply applicable. Other characteristics are the rapidity that are forgotten and the skeletons that they leave on the way!

When embarking in the “back to basics” exercise, the following elements must be revisited:

1.    Business Model
The Business Model is basically how an organization creates, delivers and captures value. In summary it is how it makes money!

Check the validity of the business model involve verify if:

(1)    the characteristics of differentiation in regard to the competition yet exist;
(2)    the processes that have the role of linking the various components are yet efficient and supportive of the relationship with the customers;
(3)    the benefits  offered by the products or services continue to be appreciated and desired;
(4)    the customers are clearly identified, and the way of connecting with them and of delivering the products and services are known; and
(5)    the difference between the income generated with the customers and the costs to offer and distribute to them the products and services is positive.  Profit is the confirmation that the business model works!

2.    Organization
What defines the performance of an organizational structure is its capacity of hitting its targets /goals.

An organizational structure: (i) identifies the activities /tasks to be performed; (ii) specifies the needs of personnel; and (iii) determines the line of authority and responsibility. This is done by taking into account the industry in which the business operates, the environment and culture of the company as well as its strategy.

The size of the organization - too big or too small – turns the gear slow or overloaded to the point of putting in jeopardy the achievement of the objectives.

The fact is that there is no right or wrong organizational set up; exists, indeed, the one that better suits the stage of development of the business as well as its financial reality. What must be always questioned are: (1) are we achieving our targets /goals? and (2) how our performance compares to the market in which we operate?.

3.    People Management
The basic activities involve: hire, train, develop, evaluate and align remuneration with the performance of the business.

The fact that managers do not invest time on people’s management is directly related to the low utilization of their potential.

Likewise, the decision making process being slow, greatly affects the performance of the people, to the point of demotivating them.

Lack of productivity is linked to the amount of meetings (too long and not organized), with the lack of training, of follow up and of established routines.

People must be treated as adults and with respect!

4.    Infrastructure
The installed infrastructure comprises the assets (examples: properties, plants/production units and equipment) that are the basis of income generation.

The lack of investment compromises the future capacity of income generation. The excess of investment, on the other hand, compromises the future profitability as it becomes a weigh.

Investment in infrastructure, initially, consumes cash! Frequently companies confuse cash generation with EBITDA, what is far from the truth.

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) or LAJIDA (Lucro Antes dos Juros, Impostos, Depreciação e Amortização), in Portuguese, is not cash generation. It is, a measure that allows the evaluation of the business operational performance and, yet, compare it to other different companies as it does not consider: a) how the company is financed and to which cost (financial expenses); b) the volume of investments (installed capacity; infrastructure) necessary to generate income (depreciation expense that results from the invested value divided by its useful life), c) taxes particularities (situation); and, yet, d) working capital variance (terms of payments and collection).

5.    Growth Model
Growth is the validation of the business model by the customers.

Growth is attained in two ways: by selling more to the same customers or by acquiring new customers.

The first growth model is attained by offering new products or services (or yet by increasing the value of these products).  The advantage of opting for this model is the possibility of using the existing distribution channels, the existing logistics or at least the intelligence associated to it.

The second growth model is attained by going for new markets, regions or new customer groups.  The challenge in this option resides in the necessity of conducting an effort and, consequently, investing not only financial resources but, also, time and mobilization of intelligence (internal e external).

Revise the business, going back to its origins is an extremely useful exercise that also guarantees its continuity and, yet, frees the business from embarking in adventures that will be either costly or at minimum a time loss. It is a fact that size brings complexity. And this may give room to tension between the logic of working on simplification, of going back to the basics, against another – more sophisticated - of managing complexity by succumbing to the managerial fad of the moment!

At 2B Partners Consulting we are dedicated to help companies to address the questions above thru the services of advisory board, interim management, managerial applications and consulting focused on financial advisory, operations improvement and organizational efficiency. Contact us to obtain more information by sending an email to This email address is being protected from spambots. You need JavaScript enabled to view it.