Focus on what counts

Creating value through better business processes

Part One of a Two Part Series

January 2, 2018
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This is a two-part series on process improvement initiatives. This month we will provide a simple framework for setting goals for process improvement. Next month we will look at how to prioritize and execute the projects.

Improving key business processes is one of the best areas to focus on if you’re trying to increase your business’ value. As companies grow and change, they gradually become more complex – more people are involved in day-to-day business operations, data is broken up between different systems, and there is more variability in what customers purchase and expect. These factors result in business processes that are often overly complex, variable, and difficult to control. This generally means they are also adding cost and risk to the business. To continue growing, to improve margin, and to create a scalable company, these processes should be evaluated and improved.

The challenge for the middle-market is the limited capacity to make dramatic changes all at once, so improving processes needs to be done in bite-sized pieces over time. How do you make sure your limited time and capital is directed towards the highest value improvements?

The critical first step of effective process improvement is setting clear, achievable goals that connect your process initiatives to business value. These goals are the foundation of each improvement project – they will be the basis of your communication to the managers and employees working on the projects, make it clear why certain improvements are being prioritized over others, and will provide accountability for hitting specific targets.

When deciding which goals to set, consider these four areas where better business processes will add value:

1. REDUCE COSTS
When processes are efficient they take less time to execute, can have fewer steps, and make wasteful activities more obvious and therefore easier to eliminate.

Making a process efficient will reduce the cost of running the process itself and will likely reduce the cost of quality. For example, take a process to convert a customer quote into an order. If you have high-priced salespeople re-entering orders into your systems, you have an expensive, revenue-generating person performing a task that can be done by someone with less knowledge of the sale itself. Removing or streamlining this process will help the salespeople generate more opportunities and reduce sales operations costs – an average order entry burden can cost a four-person sales team $120k-$150k/year in time.

Furthermore, building the process in a disciplined fashion will improve the quality of the data on the orders which reduces mistakes on products that are shipped to the customer, reduces cost of quality, and improves shipping times.

2. IMPROVE CUSTOMER EXPERIENCE AND REVENUE
Effective processes on the revenue side of the business – sales, marketing, R&D, etc. – drive sales success, improve pricing accuracy, and improve product development. Structured processes mean you can measure customers throughout their lifecycle and create a consistently excellent customer experience that the salespeople can use to sell and retain customers. This allows sales managers to actively manage the sales process, improve sell-through rates, and control pricing and discounts. It also usually helps reduce the cost of customer acquisition, or at least more deliberately target investment throughout the sales process.

3. REDUCE RISK
Consistent processes make for repeatable results. Repeatable results mean less operating risk. An example of this is a manufacturer’s quality control process. A repeatable, predictable quality control process will have the same probability of defining defects in every shift, all the time. A process that varies from shift-to-shift or person-to-person will sometimes find lots of defects and sometimes find very few, increasing cost of quality and making it difficult to find the root cause of problems.

Since rigorous processes make it easier to identify root causes, it reduces the risk of issues existing in your operations for very long.

4. MAKE THE BUSINESS EASIER TO MANAGE
Predictable processes that can be measured mean that you can put those processes into systems, measure them, and know their outputs without needing to directly observe them. This means that good processes allow executives and managers to manage the business without needing to be involved with every operational detail. It helps leaders get “out of the weeds” to spend their time working on the business itself.

GUIDING PRINCIPLES
The following principles will maximize your chances of success:

  1. Focus on processes that have a disproportionate impact on either the top or bottom line.
  2. Process improvement success is ultimately about execution. Choose goals you have a realistically high chance of achieving based on your organization’s ability to execute.
  3. Make sure employees can understand the goals. Poor adoption is the top reason process improvement projects fail. It is difficult to get people to change their habits if they don’t understand why.
  4. Make sure it’s possible to measure your progress. Aspirational goals are important, but for process improvement projects you need to make sure the metrics you establish can actually be measured on an ongoing basis.
  5. Get advice. The business environment is changing quickly and having an independent point of view will help you choose the right goals and execute them in the most effective, cost efficient manner.

UP NEXT: PRIORITIZE AND EXECUTE
The next challenge is setting priorities – figuring out how far to go with process improvement. No company can change all of its processes at once and mid-sized companies, because of their limited resource capacity, need to be laser-focused on those that will generate the most value.

After you know your priorities, how do you ensure you can execute against them? We will cover these topics and more in next month’s edition of Citrin Cooperman Corner.

ABOUT THE AUTHOR
Steve Ronan is a principal and the leader of Citrin Cooperman’s Strategy & Business Transformation Practice. He is an experienced professional in the theory and execution of improving business value. Steve has partnered with a range of companies, from the Fortune 100 to the middle-market, to develop and implement strategies that improve profitability, create scalable businesses, and strengthen customer relationships. His projects have created over $100M in value through top-line growth and bottom-line cost savings. Steve brings a practical, holistic perspective to the topic of business improvement. His experience includes strategic planning, process improvement, and organizational transformation. He can be reached at 203.847.4068 or at sronan@citrincooperman.com. Citrin Cooperman is a full-service accounting and consulting firm with 10 locations on the East Coast. Visit us at citrincooperman.com.