BSM Executive Advisor
	David C. Guenthner
	dave@bsmexecutiveadvisor.com
	(402) 660-7667
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Infrastructure

Skyscrapers don't start on the first floor, and neither do successful businesses.

Every business, just like a skyscraper, needs to be built on a solid foundation- a foundation that is stronger and deeper than that required for just today. The foundation in business is the infrastructure of systems, processes, policies and procedures that can support the company today, tomorrow and into the future. The better you build the infrastructure to support growth, the bigger your company can become. If you don't build the right infrastructure you might grow but sooner or later your vision will collapse. You will grow yourself right out of business.

Infrastructure, unfortunately, is short changed by most companies. CEO's often view infrastructure as a cost that can be postponed. The inclination of most CEO's is to spend money on revenue producing programs.

Without the right infrastructure in place to track and control performance, it becomes impossible to tell what has been successful and why. You must know what is happening and where you are to grow a business profitably. Systems, processes and procedures allow you to track where you are and what direction you are headed.

Build to the rule, NOT the exception

Building an infrastructure that can grow with you means designing systems, processes and procedures around the rule, not the exception to the rule. The rule is the way things normally happen. Any exception that comes along must be kicked out of the normal process or procedure and worked manually until it reaches a state that it can be put back into the normal system. It is impossible to design a system with all the rules in it to handle every exception that may come along.

The systems, processes and procedures that you must focus on are those that are critical to the success of the company.

Not every system provides a competitive advantage. Spend your money and time on those systems that provide an advantage for your company. Outsource those systems that are required but offer no real advantage to you. If its not required and provides no advantage, don't build the system.

Payroll, for instance, is not a critical component for a lot of companies and can best be handled by outsourcing the processing of the payroll. Capturing the data required to manage a manufacturing or assembly plant is critical and can be tied into the capture of payroll information but do you really want to become an expert in state or local taxes, electronic transfers etc. Let an expert do the processing as long as you get the information you need.

Infrastructure should be designed to provide management control and internal control of the company.

Management control means controlling the commitment and is proactive. Good infrastructure will provide good management control. Processes, procedures and systems should be designed to support the culture and the core values of the company.

Internal control only tells you after the events have occurred. While you may have caught someone doing something wrong, you still have to deal with the consequences of the wrong behavior. You may have to pay money, restate financials or explain a lot of things to a lot of people. With good management control systems you stop the problem before it occurs.

Your infrastructure construction starts with the analysis of the culture you want to create in your business and the vision and the core values that you have identified for the company.

Policies must be written that support the core values of the company. The policies will incorporate thoughts on spending authority, problem escalation and resolution, customer service, hiring policies and numerous other areas. The policies are important because they allow people to have a place to go figure out how to handle an issue as opposed to guessing or taking it immediately to a superior in the company.

Procedures must be established to handle the normal flow of business from getting an order through fulfilling the order and collecting from the customer. Procedures must be built to reflect the rule of how things flow through the business, not the exception. The procedures, however, must provide for the process to be followed to kick an abnormal transaction out of the process and provide for the method to manually deal with it and get it back into the established process.

The process must be followed for each transaction; you cannot afford to treat every transaction as a one off deal.

Automation

System automation is critical to growing a business. You must automate to the rule, not the exception. Automating a process will support the concept of doing each transaction the same way time after time.

Computerized systems allow you to more easily track the information flowing through the company that you have determined to be critical to the success of the company-new orders, shipments, inventory levels or cash flow.

Automation of processes allows you to reduce costs by improving the efficiency of the organization. You cannot be the low cost producer of value, which you must be to succeed, in any industry if you are not an effective user of technology. Computerization allows you to track information, communicate quicker and be more proactive and effective. Make a commitment to being the best user of technology in your industry. It will put you ahead of the competition.

Centralized Versus Decentralized

One of the great debates in business is centralization versus decentralization. Most companies try to treat this as an either or situation. It is not. Some things should be centralized and some things should not. Centralization depends on the customer, the company and the individuals you have in place. Do not focus on the low cost alternative when looking at decentralization in your business, look at what is the most effective means of getting the job done.

As a general rule centralize those things that do not touch the customer like a sales force or a service delivered on site. Information technology, accounting, cash management, inventory and order processing are things that are usually more effectively handled on a centralized basis than a decentralized basis.

At InaCom we had six regions and 50 branches around the country. Each branch was responsible for their customers. Sales and service issues with the customer were left to the branch manager who was recognized as a decision maker in the eyes of the customer, the ultimate decision maker was the region President. We decentralized the aspects that touched the customer.

All distribution and inventory management was centralized. Information technology and accounts receivable management was centralized. This centralization was more cost effective and more efficient than having six stand alone companies.

Accounting was decentralized and each region had a controller who reported directly to the regional President and indirectly to the company's controller. This arrangement was not the low cost approach to providing accounting services for the regions and branch. The low cost method would have been centralization of all accounting. The most efficient and effective method of financial oversight was, however, to have a financial expert on site and part of the inner circle of the regional president.

The onsite controller was involved in decision-making in the region and could insure that sound financial thought was going into the decisions being made at the branch and division level. Having the controller report directly to the Regional President made them part of the team and they were not excluded on the front end. They were a big part of the management control structure we had in place.

I was comfortable with this arrangement because of my relationship with the regional presidents and my corporate controller's relationship with the regional controllers.

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