This is a question that puzzles many people. After all, we brew beer, make computers or grow trees. So we are in the brewing or computer or forestry business aren’t we? Not necessarily. The reason you need to able to answer this question is to enable you to know which part of the business to focus on in terms of measuring and managing performance. South African Breweries may brew beer but the most important part of its business revolves around its packaging and distribution. A large forestry business growing trees and supplying timber to the mining industry focuses more on transport than it does on growing trees and is therefore effectively in the transport business. In the same vein, people who buy computers use them to process information, so a computer business is in the information technology business.
Before continuing, pause for a moment and ask yourself what business you are in. This will give you direction regarding what the most important areas are to manage and which part of the business deserves the most attention from a financial management point of view.
Use the following questions to guide yourself.
What products do we sell?
To what use do customers put them?
What is the most challenging part of your business?
- Making the product?
- Selling the product?
- Getting the product from your business to the customer?
Any part of the business that you can safely sub-contract out is not the business that you are in. The business that you are in is sometimes referred to as your core business. Your core business is probably the most challenging part of your business and, the one which will require the most attention from management.