What are organizational deficiencies?

Answer 1

Clearly the answer to this depends on the context of the question, but the general answer based on the plain meaning of the phrase relates to how well businesses are managed. To the extent that I value businesses for a living I regularly analyze companies for what we refer to as "company specific risk factors;" which is a closely related concept, but goes beyond the borders of the organization. If we look at the industry and see that the fixed assets of participating firms generally turn over (revenue divided by fixed assets) at a rate of 2.5 times, and we look at the company under analysis and see that the fixed assets are turning at 1.5 times, we would expand our analysis to see if we could find out why. The probable reasons would be that the machines are old and no longer economically productive; there is a problem of plant floor organization that does not permit the optimum use of the equipment; there is a regularity of supply issue; or, there is a management problem. These reasons would all, in one way or another, constitute organization deficiencies. There are others also, that are not quite so obvious, but are very important also; they might include lack of documentation of business activities and processes, inadequate human resources management, etc. In my business what we refer to as the "Cost of Equity Capital" increases as the organizational deficiencies become known, translating into company specific risk. Company specific risk also includes external factors, such as economic factors over which the company has no control, and is a larger concept than just organizational deficiencies. Hope you find this helpful.