By Kathy Kent Toney, President of Kent Business Solutions
Photo by Joslyn Pickens from Pexels
Investing in business optimization…it’s like putting your money right back into the bank!
And who doesn’t want that?!
Along those lines, have you ever wondered whether your business optimization efforts are up to snuff? If not, would you like to learn a few tips on how to accelerate a successful improvement journey?
If so, then I encourage you to keep reading!
I recently interviewed David Leavitt, a Principal with ExecHQ, an organization that provides on-demand, cost-effective, highly-experienced resources to CEOs and/or business owners who are facing business challenges. He’s an expert in optimizing organizations, so who better than David to give us some tips!
Kathy: Thanks for joining me today, David. It's nice to have you!
David: Great to be here.
Kathy: Here’s my first question: what can leaders do to strengthen their organizations, to withstand current and future challenges caused by situations like this pandemic?
David: That's a great question. First of all, take a good look at the value your products and/or services provide. If they aren’t adding value or there’s no market, this is obviously a big concern and drastic changes may be required to survive through layoffs, furloughs or simply shutting down the business.
Joseph Schumpeter coined the term Creative Destruction in Economics, which is basically a process through which something new brings about the demise of whatever existed before. In the current economic environment, the pandemic created a lot of destruction and has necessarily forced innovation and, in some cases, actually sped it up. We're seeing some radical changes where some companies are disappearing and some industries are struggling to exist, while new innovations and industries in other areas are taking off.
Kathy: That's so true that innovation has accelerated at a time like this, out of necessity, in a lot of cases.
You mentioned something earlier I'd like you to expand on...that companies should assess the value of their products and/or services as a first step. What would be good for them to do after that?
David: There are a number of things. But first, I’d like to share something I learned early in my career when I had the opportunity to work at Koch Industries for several years as a Finance Leader. Charles Koch used to tell us this:
It's not as important that you do or don't spend money, but that every dollar spent must bring a positive return on investment.
Then he would follow that up with:
There are only three ways to improve profits:
Carefully considering these three areas helps businesses decide whether they should or shouldn’t spend money.
Kathy: That’s great advice!
So, let’s dive deeper into this. The importance of maximizing return on investments is obvious, as well as divesting...when it makes sense to do so. Just to narrow our topic today, why don't we focus on the third area: optimization…that really seems to be a hot topic.
David: I would agree. Optimization can take a whole life of its own and it's geared more towards the concepts of continuous process improvement. You want to get the highest and best use of resources to ensure you're getting the best utilization.
When we talk about resources in this sense, it's three things:
Kathy: Let’s start at the top…how could an organization practice optimization, from a people standpoint?
David: During challenging times, businesses tend to focus more on improvements, and since people are generally a big part of the operating expenses, this gets a lot of attention. Typically, you'll hear a leader saying: “Let's do more with less.” That’s happens a lot. There are much better options than reducing staff. Here are a couple of key things a business can do:
1. Leverage Employees’ Unique Talents
For example, if an employee is completing work in areas that are most interesting to them, they will have more input, more production and more capacity to do more. Alternatively, if you have the right person in the wrong role, they will be unproductive as well as unhappy, which can create issues for the team.
Having the right people in the right roles will generate more happiness and joy for the employees which in turn will produce better results and ultimately add more value to the customers.
2. Clearly Define Roles and Responsibilities
It’s important for businesses to have clearly defined roles and responsibilities, because if they don't, employees that appear to be doing a good job could actually be underperforming and would do better with more structure.
A leader may think that they don't need to follow-up on employees, but the employees could be doing things that they don't necessarily need to be doing at the moment. Or, they may be focusing on other areas and be neglecting those that need immediate attention. This can happen when there is no clear understanding of their roles.
Organizations also may want to ensure that every employee in the company understands where the hand-offs are in workflows and in relation to other employees. With proper boundaries and knowledge of their connectivity to the big picture, they are much more likely to understand their role in relation to the entire business. This in turn can ultimately improve the way the business serves their customers.
3. Develop Easily Understandable Employee Performance Measures
Every employee should have some type of success measure that has been mutually agreed upon with their manager. For example, if you're an Accounts Receivable Collections expert responsible for collecting cash, you may have one measure that says you are responsible for keeping the outstanding accounts receivable balance at 80% current. If the balance goes to 60 or 70%, then you may have issues to investigate and resolve.
It's a powerful thing when employees understand how to measure their own performance, because this frees up leaders to focus on their own work.
4. Clearly Define Expectations of Leaders
When leaders have clear expectations for themselves, this gives them the ability to set and establish employee goals that are tied to the company vision and mission.
When I work with businesses where there are unclear expectations, I encourage them to set goals at the top level of the company that cascade to all levels of the organization. Goals should be formal, but don’t need to be overly complicated, as it will help leaders optimize the organization’s time and talent so everyone can focus on the most important work. When it comes to employees setting goals, I generally ask them to work with their leaders to develop a mutual understanding of expectations, which then helps drive accountability.
When leaders understand what’s expected of them, this helps foster an open and dynamic relationship with their employees, where there's feedback going back and forth between the leaders and employees. This significantly improves the possibility that the company can get the highest and best results from their employees.
5. Create a Learning Culture
Make sure that every employee continually develops and shares their knowledge and capabilities.
Next, encourage your employees to be lifetime learners so that they will be willing to learn on their own during slow times in the business. Employees should take time during these slow times to invest in themselves and the company should also find ways to reinvest in their employees. They should be challenged and want to learn new things, or perhaps cross train with others, so they can support other processes across the company.
Kathy: That’s great advice. Sounds like a great way to increase both employee and customer satisfaction!
Next question: what does process optimization involve?
David: You probably have more to say about this than me!
Kathy: True, so why don’t you just hit the highlights for us?
David: Sure. Optimizing processes starts with making sure you understand how to create value for the customer and taking steps to make that happen. It involves making processes as efficient as possible without destroying the value added to the customer.
The consulting firm Kepner-Tregoe became famous for helping bring Apollo 13 home safely. Their problem-solving methodology suggests that every process has 40% waste. As you make improvements, there will continually be 40% waste, so the possibilities are exponential for streamlining processes.
In the end, let’s just say that you will never reach Nirvana. Businesses can make significant improvements if they continually focus on improving processes.
Kathy: It's all part of a CI mindset. You’re never done when it comes to streamlining processes!
David: that’s right!
Kathy: Next, let’s talk about what optimizing assets involves, and could you also define specifically what “assets” are, for those of us who are fuzzy about that?
David: Assets are the things a business owns, such as real estate, property, buildings, equipment, inventory, trademarks and securities. They are anything that can be transformed into cash.
It’s primary that you look at whether assets are adding value…whether there’s a need for a particular them.
For example, commercial property. Many businesses have been rethinking their need for office space after the pandemic, since many employees have been working from home.
On the other hand, some others may see the value in office space for their business to accommodate for social distancing to prevent spread of the virus. So, there's not a right answer here… it's just finding the right answer for each business.
Another area is Information Technology servers with the increase in cloud computing. In the last six months, I think there's been a lot more development in that area. Many companies may now want to outsource to another company so they don't have to have all the people and equipment in house to manage those assets.
Another example is inventory levels. They might be bloated for some companies. They may need to evaluate whether they're getting the best turnover, to reduce prices to free-up cash. Alternatively, they may have a shortage since they shut-down production for several months, or because their supply chain was disrupted.
In the end, every business needs to reevaluate their assumptions for the wants and needs of assets, to make sure they are getting the highest and best use out of their assets. This could have a significant impact on their current and future profits.
Kathy: Sounds good. Well, David, do you have any closing thoughts, any key takeaways?
David: At the end of the day, every dollar spent in the business needs to bring a positive return on investment and every employee should be engaged and understand the scope of these ideas.
Kathy: That’s a great summarization of what we talked about! Thanks for joining me today, David. It’s been nice to have you!
David: My pleasure.
Do you have more questions on how to optimize your business?
If so, I’m here to help! If you’re wanting to start improving your business processes, and don’t know where to start, click here to download my free cheat sheet…10 DIY Steps to Improving Your Business Processes.
Thanks for tuning in!