Why 96% of your company’s problems remain hidden from you.
Have you ever heard of the Iceberg of Ignorance?
It’s a concept coined by consultant Sidney Yoshida, following a famous 1989 study. And it concerns the way problems are shared and understood within an organisation.
According to Yoshida, top managers only know 4% of the problems faced by their company – that’s the tip of the iceberg!
As you move downward, middle management knows 9% of the problems, supervisors are in touch with 74%, and front-line employees are privy to 100% of the problems.
Now, it’s possible to quibble with the exact percentages. And it’s difficult to believe that anyone knows “100%” of an organisation’s problems.
But despite the passage of years, this research still rings very true to me.
Time and again, I see the same pattern amongst business owners…
When you originally set up your company, you are very hands-on, dealing with day-to-day matters. You are both top manager and front-line employee, intimately aware of issues from late-paying clients to supply chain hiccups or under-performing products.
But as your company grew, your role evolved, and strategic issues took centre stage. Your focus shifted from day-to-day operations, and you began to lose sight of certain critical issues — especially financial ones, like client profitability and cash flow.
They’re just harder to see when you’re one step removed from the frontline work.
Here’s the challenge: many company owners are unaware of this knowledge gap. They still believe they have a great ‘gut instinct’ for what’s going on in their company…
They’re ignorant of their ignorance.
And that can be very costly, when you make decisions based on incomplete or wrong information.
So how do you flip the ‘Iceberg of ignorance’?
When it comes to financial problems, the solution lies in outstanding reporting. The numbers can tell you what you used to see yourself…
For example, good monthly management accounts will show you exactly which products, services, offices or clients are most profitable – and by how much…
If you want to track which clients are late payers, or how well you’re controlling your expenses, they’ll show you that too. Monthly management accounts are adjusted to show the precise information you most need.
Meanwhile, cashflow reports and forecasts will show you exactly how much money you have in the bank – and can expect to have in the coming weeks and months…
You’ll be able to see in advance if you’re likely to run into financial trouble.
That’s why growing companies tend to upgrade their financial management. As your business becomes more complex, you need better financial insights to compensate for the ‘Iceberg of Ignorance.’
Ready for that upgrade?
Then please get in touch today.
We help companies turning over £1 million or more get the financial management that corporates take for granted. We ensure that you, the owner, have all the financial information you need to make good decisions for your company’s future – even when you’re detached from the day-to-day work.
Simply hit ‘reply’ to this email or call our office on 01279 647 447 to find out more.