Why Your Business Needs An Administrative Review

Why Your Business Needs An Administrative ReviewHave you thought why your business needs an administrative review? Some businesses are able to grow and prosper over time using a simple, effective method of organization with little need for formal delegation of responsibilities and authorities. Often these businesses are able to depend on the founder and owner to ensure that each of the different business functions are fulfilled. These can include finance, human resources, sales, marketing, operations, technology, and, depending on the product or service mix of the company, distribution, logistics, and manufacturing – to name a few.

When the business has grown to the level where the owner sees a need to modify the business structure to accommodate growth or when the owner wants to distribute responsibilities to others, an administrative review is usually conducted to identify the needs to realign responsibilities more formally.  The process to conduct the review is straightforward, however, the challenge occurs in identifying the data and people to involve in the review.

Review of Functional Strengths and Weaknesses

A common method to conduct an administrative review involves the analysis of functional strengths and weaknesses, that is,

  • Which functions performing well, and
  • Which functions may not be meeting performance standards?

This assumes that performance standards have been developed, and in certain instances these standards may not have been developed. I have been asked why it is important to use performance standards when looking at functional strengths.

I will often encourage owners to adapt industry standards that can be applied to their business so that an objective review of each functions effectiveness can occur.

Kew Performance Indicator Examples

  • For instance, in Human Resources, some standards might include absenteeism rate, overtime hours, training costs, cost per hire, dismissal rate, gender diversity rate, employee turnover rate – to name a few.
  • For finance, several standards might include receivables aging, payables processing, cost of goods sold, gross profit margin, net profit margin, working capital, current ratio, quick ratio, and operating cash flow, to name several.

How To Use KPI’s

Each performance measure or standard can be used to evaluate the current state of each business function as compared to recommended industry standards, where these exist.  Next it becomes important to evaluate options available to improve the performance, for instance,

  • Is it helpful to reorganize a function in order to improve the standard?
  • Will assigning specific individuals to be responsible for the function and related standards assist in improvement of the performance?
  • Are there ways to improve the performance by combining functions?
  • Are there impediments to improvement that are either inside or outside the business function?
  • What are these, and how can they be addressed?

This analysis will need to involve key employees responsible for delivering the function to determine if they think there are more effective alternatives.

Why Your Business Needs An Administrative Review – Opportunities, Aspirations and Results

  • Determining why your business needs an administrative review involves the collaboration of employees, customers, and vendors in assessing strengths and weaknesses. This analysis then involves these same players in looking at opportunities for improvement and change. The series of questions will vary based on the business, but it is important to assess from these players, based on prior analysis, where they see change opportunities.
  • Once they list out these opportunities, it is important to then focus on where these collaborators think the business can go and grow – i.e., their aspirations.
  • When the owner and these players discuss their aspirations, they now have the opportunity to discuss where they want the business to go, how they want to get there, and how they want to measure results. At this point in the administrative review, the business is ready to discuss structure, delegation of responsibilities, development of accountabilities, and definition of results.
  • Simply put, that’s the game plan to achieve the change in an administrative review.
  • Let’s hope there is no stale bread!