Monday, 23 February 2009

Running on empty?

The fuel gauge is the part of my car’s dashboard I look at most often. It doesn’t need much explanation - if I drive for too long, and don’t fill up, pretty soon I’ll be on empty. So even I watch the fuel gauge and reluctantly pull into a garage to top up every now and again.

Fuel is one of the main inputs to a car’s engine – there are others, but fuel is the one that runs down most quickly, and costs most to replace. So it comes as no surprise that car manufacturers put the fuel gauge in a prominent position.

Businesses also need to monitor the things that make them run effectively and efficiently.

So what the inputs are to the business’ engine? High quality, cost effective fuel is needed but for the most part you can’t get your business fuel from the local garage (unless you are running an airline or a trucking business). The inputs will be different for each business, and there is significant competitive advantage to be found in how each business defines its “fuel:”

· Raw materials like potatoes, steel, components, etc
· Marketing
· Training, knowledge and experience
· Research and new product/service development
· Finance

The first and most obvious place where this analogy breaks down is that with a car you can for the most part just keep an eye on the fuel, and be reasonably sure of reaching your destination. Yes, I know petrol-heads, I’m supposed to watch oil and stuff like that too, but let’s not get too technical.
With a business I could not possibly say that one single input can be watched at the expense of all others. Whilst training might be important, it cannot be reasonably be the only input. There will be many inputs, many different types of fuel. But if I can identify and measure the top few inputs that make the biggest contribution, I will be in a better position to know when and where to divert resources.

Some inputs can be accurately measured: the number of training days attended, the cost of a raw material, the number of articles retrieved from a knowledge management system. Whilst they will never correlate exactly with sales or your output measure, when viewed together they will give a clearer picture of the health of the business.

Before the analogy police finally lock me up, recessionary times are a particularly important time to keep an eye on the fuel gauge. Whilst the business might truck along for a while on the fuel it filled up on in better times, when the gauge finally hits “empty” there are going to be some sticky moments. Training, marketing, R&D are all fuels that appears to have little effect when the budget is first cut, but the pain is felt later.

Keeping an eye on your own internal business fuel gauge could pay off handsomely to keep your business on the road.

I’ve heard that the fourth emergency service for businesses is a great deal less efficient than the AA.

1 comment:

  1. Feels like I am running on empty sometimes!

    1. would it be better to look at the tank as positive thing - glass 1/2 full? clearly your tank is a key strategic resource that needs optimising - running a full tank is not always right either
    2. it is important to look at the tank from different perspectives a/ audit todays resources, b/ short term and longer term rate of change and c/ what is the ideal state and the d/ alternative scenarios that could exist and how would tank cope/adapt? e/ are we measuring the right thing
    3.There is something about ensuring resources are balanced

    ReplyDelete