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FRAGMENTATION, THE DESTRUCTION OF VALUE IN YOUR BUSINESS?

Kim Radok26 March 2021

Over the years, business management has come to the conclusion, costs and efficiencies can be best calculated by creating costs centres in a business. This sounds reasonable at first thought, after all, history has dictated that a business can be best run by specialist personnel. Therefore, the reason for the development of the sales department, an accounts department, service department, the warehouse and so on. To a large extent, this makes sense.

However, if we understand anything about business over the years, it is that things change and simplicity can be the ruin of efficiency and cost controls. For instance, we are told digital business systems, communications etc. driven by AI development are the way forward. If you follow those advocates, adapting to technology driven processes will always make a business so much more efficient, cheaper and easier to run.

As Captain Solly said however after landing his plane on the Hudson, technology doesn’t stop the problems, it only changes the nature of problems. Indeed, when we look at corporate websites for example, the obvious factor is that customers and suppliers alike, are often unable to quickly and efficiently contact a person that can help with many of their enquiries.

Moving on, the worst problems of fragmenting your business processes are that costing and efficiency exercises trying to calculate the respective factors in each cost centre, are usually incomplete. For instance, are any factors included to help avoid making another area of the business less efficient? In my experience the answer is no.

Fragmentation also causes “them and us issues” such as champions and others, where battles are fought for limited resources. A perfect example is the money which is often thrown at the marketing and sales areas, whilst the old accounts payable and receivables departments are given any remaining crumbs. If I was cynical, I would say; “… money is thrown at the giveaway merchants whilst the protectors of the business’s cash resources are given a few dollars begrudgingly.”

A business however, needs to have a good corporate culture to operate efficiently, as a team, if the business is to survive and grow at the expense of the opposition. In the previous paragraph, we see how this can become problematical. When the fragmentation process is at its worse, the business not only is inefficient, it appears inefficient in the eyes of the customers and suppliers.

It would also appear in the above situations; management has overlooked that a business is not just perceived on one interaction, point of interest or factor. A business is measured on the whole of business experience.

From another perspective, a good team environment is also required to beat the fraudsters, both internal and external, who are always on the lookout to steal the businesses assets. This factor is particularly important in times of recession, as is the case currently. Again, fragmenting a business into cost centres make this task difficult.

Finally, and probably the worst aspects of fragmenting a business, is that you now risk changing your business from a business into a bureaucracy. We see this problem when trying to deal with many large businesses. Often the experience is nothing short of a bureaucratic nightmare. Too often we see that nobody in these businesses seem to be responsible for anything, or even care when their business’s incompetency is exposed for all to see.

Equally important is that it is not just the outside stakeholders which find that type of business is a nightmare. The business’s own management and employees are also affected negatively. Those managers and employees who are only working for themselves and/or a dollar, with no interest in the business’s welfare, can manipulate this environment to their advantage.

Fragmentation of a business may bring efficiencies and help in cost control if managed properly. Too often however, the fragmentation process is managed poorly. As a result, it creates a dysfunctional organisational culture, an inefficient operating environment and changes a business from a business into a bureaucracy.

Want to know more, contact Kim at kim@creditmatters.com.au, or telephone (03) 9886 6707, A/H (03) 9802 0608, mobile 0411 649 261, or have a look at what we offer via our website at www.creditmatters.com.au

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