The Importance Of Working Capital Management

Published Date: 02 Nov 2017

Name

Institution

Outline

Introduction

The FowardMovers cash-flow for 3 years ending 2015

Significance of Working Capital Management

Benefits of Information and Knowledge Management

The use of ICT in Environmental Scanning and Benchmarking

How Organizational Learning leads to Competitive Advantage

Conclusion

References

Introduction

Competition is a leading feature in the current business environment. A number of firms always strive to remain competitive in their respective industries. Firms can adopt several ways in their attempts to enhance their competitive edges. Managers should always strive to come up with strategies that are cost effective, highly reliable, as well as convenient to achieve their objectives of gaining competitive edges. Competitive edges can be gained through several ways like employment of technology, proper management of working capital, adoption of knowledge management among several other strategies. This paper explores to great extents some of the ways through which these strategies can be used in enhancing performance of the organizations.

Organization’s Cash flow

FowardMovers Consultant’s Cash Flow Forecast –Three Years (2013 - 2015)

 

Years:2013-2015

2013

2014

2015

A. Cash brought forward

1569962.5

182462.5

399187.5

B. Receipts

 

Fee charged

750,000

1,500,000

2,250,000

 

B. Total Receipts

2319962.5

1,500,000

2,466,725

 

C. Payments

 

Administrative Staff

137,500

198,275

291,747.50

Consultants

600,000

1,030,000

1,697,440

Consultancy Expenses

25,000

30,000

35,000

Project costs/Capital Expenditure

1,375,000

25,000

625,000

 

C. Total Payments

2,137,500

1,283,275

2,649,187.5

 

D. Net Cashflow for Year

182462.5

399187.5

0.00

E. Cash carried forward

182462.5

399187.5

0.00

To avoid an overdraft, the startup capital should be £1,569,962.50.

Importance of Working Capital Management

Working capital is made up of the current assets of a firm together with its current liabilities. Working capital management on the other hand entails proper management of the elements of working capital. When the firm properly manages it current assets together with its current liabilities, it stands a chance of gaining significantly. It should be noted that the daily operations of any business is dependent on proper management of working capital. This implies that the daily operations of the business as well as its daily obligations must be met and this can only be done with effective management of the working capital (Drake & Fabozzi, 2012). It is very prudent for the firms therefore, to maintain an optimal working capital level. There are both financial as well as non-financial benefits generated by working capital management. The financial gains include maximization of wealth, maximization of profits as well as enhancement of the liquidity of the firm (Lamberson et al., 1995). Other than the financial performance, proper management of working capital also generates non-financial benefits. This includes ensuring growth for the company, improving the welfare of the workers of the company, enhancing service provision by ensuring that daily operations of the organization are not interrupted, and ensuring survival for the organization (Reddy and Kameswari, 2004).

Importance of information and knowledge management to organizations

Knowledge and Information is key for any organization. Due to this, there should be proper management of information and knowledge (Kerzner, 2009). Information and knowledge to most people are seen as the same thing. To some extent, this is true because of their interdependent relationship, that is, knowledge is in existence due to information. Information describes the data, facts and figures relating to any topic while knowledge is the understanding of this information. Comprehension of this information helps in the daily applications and makes information relevant to others. In an organization, information takes different roles and most of the information collection is tasked to subordinates because of its repetitive nature of collecting it. On the other hand, knowledge is tasked to the superiors in a company, who integrate the various forms of data into form principles and strategies.

Information management’s main goal is to centralize the company’s information resources and capabilities. This allows the company to learn actively and adapt accordingly to the ever-changing business environment. An intelligent organization realizes that its internal operations, recorded in electronic form, should be managed with absolute secrecy. Vital information in the wrong hands can lead to losing to competitors or worse business failure. Rules should be developed in order to ensure that the data collected in the databases is accurate and consistent. In addition, the proper channels to access and edit the information are followed.

Information and knowledge are too similar words but with very distinct differences. Information refers to an organization’s data, which has been accurately organized in a way that gives it meaning and purpose leading to further understanding. On the other hand, knowledge refers to the familiarity with a topic or issue and is mainly gained by application, experience or through education.

Knowledge management refers to the variety of strategies and methods a company uses to maximize its market share. They include identification, creation, distribution, and representation of insights and experiences of the market place. The experiences are in the form several individuals or proven practices. Almost all companies adopt knowledge management; those with superior practices enjoy more profitability. Such knowledge is not to be leaked to competitors, as it would make competition fiercer than before.

Knowledge management circles around the objectives of the organization for example its aims in innovation, improvement among others. Business Information is available to all companies at little or no cost, how individual companies use the information depends on the knowledge management goals of each company. The employees are able to access information relevant to their position in the company. This helps the employees know their duties and responsibilities in the company. This leads to innovation, new ideas, more creativity and improved decision making at all levels in the organization. The organization is focused on one goal, which is success, and products are better and improved. Talent within the organization is identified and nurtured; business models are implemented in order to gain an edge in the market. These examples are just the beginning to market domination for any company willing to go all the way to utilize knowledge management.

The use of Information Communication Technology (ICT) in environmental scanning and benchmarking

Environmental scanning involves collecting data which may help the organization to detect its trend, expectation, as well as some of the changes which the organization need to make so as to enhance its operations. A thorough analysis of the environment is very important for organizations. Environmental scanning can be done through conducting SWOT and pestle analysis. SWOT analysis entails looking at some of the internal strengths, weaknesses, threats that are faced by organizations as well as some of the opportunities that are available to the organization. PESTEL analysis on the other hand entails looking at the external environments of the organization. It entails looking at external environments like the political environment, economic environment, social environment, technological environment, as well as the legal environment of the firm.

A thorough analysis of the environments in which any firm operates offers significant benefits to organizations as it entails some of the threat facing the firm and the ways through which they can be avoided. Besides, it offers the numerous opportunities that are available for the organization which when thoroughly exploited will make the organization to greatly enhance on its financial performance (Hirschey, 2008).

Environmental scanning outlines some of the changes which should be done by the firm so as to improve its processes and hence to enhance the overall performance of the organization. A number of firms have presently employed the use of ICT in conducting the entire process of environmental scanning and this has greatly enhanced the overall process, both in terms of efficiency as well as effectiveness.

With benchmarking, a single organization is compared with another one. The strengths of the organization is got, its practices as well as some of the ways through which the organization gains competitive advantage. An organization can adopt strategies of the firm to enhance its performance and to gain competitive edges over the other firms. Benchmarking enables organizations to learn from others. In a number of cases, it is organizations whose performances are not at par with that of other firms that engages in benchmarking so as to enhance their performance and hence profitability through learning from other firms. ICT has been applied to effectively collect data, to effectively analyze the data that has been collected and to effectively analyze the information that has been collected. With ICT, the process has even be simplified and several organizations having noted the numerous benefits that it generates have to a great extent employed its use, both in environmental scanning as well as in benchmarking. With the use of ICT in benchmarking and environmental scanning, organizations stand a chance of enhancing their financial performance and enhancing their competitive advantages over others.

Organizational learning

Organizational learning in most cases implies an improvement in the knowledge of an organization. Organizational learning usually adds, transforms, or even reduces knowledge in an organization. Theories put forward concerning organizational learning tries to address the processes that lead or prevent changes in the knowledge of an organization. In addition, they also attempt to understand the impacts of learning as well as knowledge on organizational outcomes and behaviors.

Organizational learning normally gets most of its appeal from the assumption that most of organizations have the ability of intelligent behavior. These organizations put into consideration that learning is an effective tool for intelligence although but it is not reliable. The image of this is that organizations usually collect experiences and draw inferences. Moreover, they encode inferences concerning the organizational knowledge including informal practices and formal rules. In this perspective, there is shaping or organizations by complex learning processes that bring together current experiences with experiences.

Notions about organizational learning as well as its outcomes vary different depending on the corporate culture of an organization. The reason behind this is that most of its concepts are usually derived from metaphors of individual learning. This brings about conceptual imprecision, contradictions and tensions in the field. However, it enriches the organization as the knowledge become applicable to a wide range of organization applications.

Current approaches to organizational learning put great emphasis on routines. This is because routines are sources of knowledge, which conceptualize learning in the organization. Routines are considered recurrent sequences, which generate many organization actors as well as assets. Some of routines in an organization include organizational roles, rules, structures, cultural practices, technologies, strategies, convections, and capabilities. In this perspective, routine of an organization plays a significant role as the main form of organizational knowledge.

Several benefits of organizational learning exist to any organization that embraces it. First, it helps in maintaining high levels of innovation in an organization. This helps in making the organization to have competitive advantage over its rivals. Secondly, organizational learning places the organization in a better position to respond to challenges as well as other external pressures. Organizational learning equips advanced knowledge to organization staff. This helps significantly in linking resources to the customers. This eventually leads to profit maximization.

Improving quality of organizational outputs at all levels of production comes as an advantage of organizational learning. This is because the learning helps the organization to identify the best methods of production. Organizational learning takes a significant role in improving the reputation of the organization. This is because it makes members of the organization to become more people oriented. Lastly, organizational leaning increases the changing pace within the organization. This is because innovations because of learning lead to rapid development of the organization. This implies that the rate of transformation increases.

Conclusion

There are financial as well as non-financial benefits of proper management of working capital. The financial benefits include profitability, wealth creation, as well as liquidity. Non-financial benefits include enhanced customer service, enhanced welfare of workers, uninterrupted operations, as well as enhanced service provision, all of which are beneficial to organizations. A deep analysis of the environments in which organizations work has great benefits to the organization. A firm may have internal environment as well as external environments. Internal environment can be scanned using SWOT analysis. External environment on the other hand can be conducted by PESTEL analysis. Advancement in technology has made it very easy to conduct environmental scanning. Organizations should hence employ ICT.