In this article we will talk about:
- Importance of Business Diagnosis
- Making a business diagnosis of a company
- Find out which area needs the most attention
- The right diagnostic tool
The business diagnosis is a detailed study on the management practices of a particular business. In general, a Business Diagnostics Worksheet will allow to analyze the degree of maturity of the company as a whole and also to make a comparative analysis of all sectors of this business.
One of the most important aspects of the diagnosis is that it provides a general understanding of the company. This is one of the most important tools that serve as input at the beginning of the strategic planning of any business and some of its benefits are:
- Specific analysis of different areas of the business
- Identification of areas that need more attention
- Support in planning corrective actions
- Knowledge of the company's maturity level
- Understanding general and specific organizational deficiencies
Now, in order to achieve these benefits, it is important that you know the way to make a good diagnosis, because without knowing how to ask the right questions and the most targeted analysis for certain aspects of a business, you may get the wrong impression that your company is good or bad, when reality is just the opposite.
To avoid these mistaken analyzes and a misunderstanding of the timing of the company and its key areas as a whole, we need to understand how to make the business diagnosis. I particularly like these steps below:
- Step 1 - Identify the main areas and sectors of the company
- Step 2 - List the main processes that each of these areas needs to perform
- Step 3 - Define your maturity level for each of these processes. There are different methodologies, I particularly like working with 4 levels:
- Do not do
- Perform at an early stage
- Manages and dominates the process
- Implements improvements
- Step 4 - Define weights for areas and processes
- Step 5 - Create punctuation criteria for each of the analyzed items
I already explained a little more of them in our post about how to calculate the degree of maturity of your business with the organizational diagnosis and I recommend you take a look there if you want to dig deeper. In the case of LUZ and the vast majority of enterprises, the 1 step will involve an analysis of 5 main areas:
- People Management
For each of these areas you need to identify which processes your company performs and which ones it might be best for. In our business diagnostic worksheet this analysis is done with the answer to specific questions. Here's an example for a strategy question:
- Does the company use information analysis methods to formulate its strategies?
The possible answers are:
- The company does not analyze information to formulate strategies
- The company analyzes internal and external environments informally with the daily experience
- The company analyzes internal and external environments to support the strategic formulation
- The company analyzes all the factors that interfere in its strategy collaboratively
See the spreadsheet example:
According to the chosen answer, the diagnosis is automatically formed. As we separate these questions into groups and areas, you can identify which areas and groups are with a better score and which ones are below the desired score.
If you answer all the questions related to all areas in the business diagnostic worksheet, you will automatically be able to identify the maturity level of your organization in a simple and agile way. In our example, which was the application in a LUZ client, we had the maturity level 3 response, which is an intermediate level, since these levels vary from 1 (worse) to 5 (more organized). See below:
At the 3 level a company has formal management processes, but there is still a general disorganization that can affect the desired results. Regardless, regardless of the outcome of your business or maturity level, perhaps one of the most important steps is to specifically analyze which areas need the most attention.
So far, we were talking about the company as a whole, that is, a more general diagnosis. Although this analysis is essential and already helps a lot, it does not provide practical information that leads you to take action or to understand exactly what to do to improve.
In order to arrive at this result of which area needs more attention it pays to delve into a more detailed result. In our business diagnostic worksheet we do this with a comparative ranking of areas.
Note that in our case we had the score ranging from 64% to 70%. That was the orderly ranking from the best to the worst:
- Marketing - 70%
- Operations - 69%
- People Management - 67%
- Finance - 67%
- Strategy - 64%
According to this first analysis, it is clear that the areas that need to be given more attention are those of strategy, finance and people management. To exemplify a simple process of improvement, I will do the detailed analysis of the diagnostic questions for the finance area:
For the financial planning subgroup we have 4 questions:
- Does the company have financial investments and reserve capital?
- Does the company have planning and budget control?
- Does the company know how to differentiate investment expenses?
- Does the company plan to take or have you taken out a loan?
The answers we had were that:
- The company has no reserves or investments
- The company does not have planning or budget control
- The company does not know the difference between expenses and investment
- The company has already taken out loans and has not paid off its debts
Although our example is a bit catastrophic with all the worst possible answers, it gives us exactly the notion of what needs to be done. If I am a manager of this organization, I would quickly think of action plans to:
- Save a portion of the profit (however small) to start creating a reserve fund
- Start a financial planning project by projecting revenues and expenses for the next 3 months
- Understand the difference between spending and investment and organize cost cutting planning
- Prepare an urgent loan repayment plan
See how practical it can be to think about what you need to improve in your business? Just use the right tool and analyze your company in the right way.
If you are wondering which areas of your business need more attention, I recommend that you use our business diagnostic worksheet. That way, you'll have your company's maturity level analysis, a benchmark of your business areas, and you'll still be able to plan for the future with all that in mind.