If I was going there I wouldn’t start from HERE

Much is written about business change and how to make it work. Almost all writings agree on the recipe:-

  • Clear Vision
  • Senior leadership
  • Effective communication
  • Measure progress
  • Quick wins

plus a few others

So why if the recipe is so well publicised are we still reporting such high failure rates in business change and improvement. A recent study by Towers Watson reports that overall:-

  • 56% of projects were delivered late.
  • 52% ran over budget.
  • Over 50% of change projects fail to deliver (according to IBM this can go as high as 90+% in some organisations, particularly if they have relatively little experience of executing change).

To enter the metaphor zone – Business Change & Improvement projects are like a journey – you have to know where you are going, tell the people who are helping you get there, have the means to get there, be able to measure your progress and know when you get there but surely there is something else.

consulting the map for directions

Have you ever sat staring at the satnav in your car eager to start off with the “searching for satellite” on the screen – there you have it – to complete any journey you really need to know where you are starting from both from a business stand point and the environment in which the business exists. The same Towers & Watson study reports that over 60% of change executives admit they did not adequately understand where the project was starting from.

This chimes well with my own experience of change management projects where I find that as many as 70% of projects do not have a good enough understanding of their starting status and thus risk heading off in the wrong direction – trying to fix the wrong thing.

Many people naturally believe they understand their business really well and thus spend all their effort on mapping a desired future. In my experience businesses and their environments evolve and change continually, and especially when the business grows and more people are involved; thus it is well worth spending some time understanding the current situation of business both internally and externally before finalising a change or improvement programme.

If you would like to learn more go to www.bustrans.co.uk .

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Scaleable Processes for better business

Things get done in business due to processes, people and the tools they use.

Diagram production

Most businesses accept the need to constantly train, and refresh the skills of people within the business – this is indicated by the huge growth of training organisations and government funding for such training.   Equally businesses are often happy to invest in tools and equipment to improve the business, however few seem prepared to put such continual effort into their processes and procedures.  This is a mistake;if business changes enough to require people to be trained and skills refreshed then surely it follows that, processes and procedures that teams operate require similar development.

Indeed there are several good reasons to invest time and effort into  effective processes & procedures:-

  • Well documented processes reduce mistakes and help teams work effectively together.
  • Strong processes help people new to the job understand what is going on.
  • Processes are owned by the business and reduce disruption when people move on.
  • Processes can help in wider communication by helping the whole business understand what is wanted.
  • Processes usually lend themselves to measurement both of the process and the outcomes.
  • Documented Processes form a basis to discuss changes in the business and it’s markets both internally and externally

The basic process Maturity Matrix came out of Carnegie Mellon University in the US (see below).

 

Processes or procedures ranking at “Standardised” or offer improved scaleability advantaged and support business growth.  At rankings above “Standardised” there is a focus on identifying how the procedure may have to change to meet future needs – this of course requires more involvement by senior managers who are likely to see more clearly what changes in the business environment may be on the horizon.  The highest level of maturity is identified by processes and procedures that delivers most value and somehow has the ability to adapt to changing demands – this may be as simple as a set of metrics and reviewing performance of the process at appropriate intervals ( maybe monthly).

The higher rating of business process in the Carnegie Mellon model are characterised by response to change and this will inevitably requires more senior executive involvement, but by whom and with what skills  a 2007 paper by Michael Hammer although focused on larger business gives some important insights

Two of Hammers key elements for optimised processes are:-

  • Move away from a task focus to a process focus – businesses tend to start putting in structure  by standardising tasks.  Processes tend to have a much broader objective and include the wants and needs of suppliers and clients .
  • Since processes tend to cut across various parts of the business – then senior management must take an ongoing interest.

To the above I would add a third – have a way of measuring the effectiveness of processes to deliver what they were designed to do – that way if processes start to fail there is a warning mechanism.

So invest in processes they are scaleable and are the property of the business- individuals are less scaleable and more portable.

Processes and People the key elements in business delivery – neglect either at your peril

For an obligation free discussion contact Business Transformers Ltd

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The P&L is Not Enough – the value of close coupled measurements

In this second blog on the impact of Timeliness, the “Score card” nature of the P&L and the need to de-consolidate on it’s usefulness.

 

Small businesses especially owner managed ones are highly dynamic and task oriented.  Many such businesses measure performance dynamically as well often using cash flow on a day to day or week to week basis – the P&L is mainly associated with statutory accounts.  As a business becomes more established and is split into functional areas P&L and Management Accounts become more prevalent, and by reducing most things to money it at least gives a standard unit for measuring each area.  Equally the Accounts help to show commitments of others to the business and the businesses commitments back, if one is going to collate all these commitments some time frame has to be selected and this tends to be by calendar month or on the 5,4,4 week pattern.

The P&L is a useful document and tells us relatively unequivocally whether we are winning (a profit) or loosing (loss) but only when the company pays everyone when it should and is paid on time in return. In addition to do all the collation and conversion to money terms most small businesses take between 2 and 3 weeks to complete the accounts aft

"The Big Book of Information Overload just came in."er the close of the month.

In many  businesses the time cycle of a business task is days or a week.  Equally the inputs and outputs of these tasks as perceived by workers and supervisors is not financial – it is in the form of jobs done, material used, labour hours, shipments made etc.  Thus as you get closer to the actual work the P&L frequently becomes less relevant because:-

  • It  refers to things that have happened at least 2-3 weeks ago and maybe as many as 7  weeks ago.
  • It bundles up all the months activities together – it does not say which activity was good and which was less good.
  • The unit of measure is £ but many departments work in units of kgs (raw material), hours (labour) etc.

Interestingly to construct the collated financial report that is the p&l the data from multiple tasks has to be consolidated, and the weights and hours have to be counted (to turn them into £).  And if the data were captured in real time it would save on all the counting at month end and help the accounts to be issued sooner.

I would maintain that keeping a real time measure close to where the work is done is useful in helping people understand whether things were going well or not.  These issues do not have to be complicated – for example a metalworking client had scrap collected by a contractor – the scrap bin was out of sight in the yard. Material usage was climbing but it was difficult to understand why – supervisors decided to lock the yard scrap bin and put a small scap bin in the factory where everyone had to walk past it – scrap halved in about a week with no further action required by the supervisors.  Another company spent a significant amount of time every month deciding what was shipped and could be invoiced, by using the operations managers activity plan (on which he crossed off completed activities) the finance team could quickly decide what was invoicable.  In the same company the Connected purple spheres up front viewsimple addition of labour and material plan to actual on the managers activity plan allowed him to have a real time measurement of how the month was progressing.

So why not use the data that has to be collected and consolidated for the P&L or Management Accounts for a simple at source KPI.

 

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Accounts highlighting. Man highlighting figures on accounts.The P&L is undoubtedly one of the core documents and metrics of any business.  Indeed no matter what sort of business you are in you are required to generate some form of it at least once per year.  However the P&L has a number of what can best be described as “blind spots” which a business leader is wise to shine a light on using other forms of metric (reported no less rigorously than the P&L).

The main areas of “blindness” of the P&L in my mind are:-

  • Narrow Horizons
  • Timeliness
  • A scorecard not a match report
  • Needs de-consolidation to be useful
  • Not engaging
  • What about the cash

In the first of this series of blogs I am going to look at the narrow horizons of the P&L.

The main body of most P&Ls are focused on the period between first specific spend on fulfilling an order and sending out the invoice (buying or issuing material to shipping and/or invoicing for a manufacturing business).  Other functions such as selling, warranty, NPI etc are usually lumped in overheads and seldom get enough detailed attention.  Part of the reason for this is the accounting principle of “matching” which requires that costs and revenues be matched up so that materials used in the manufacture of a product are taken to the P&L in the same period as the sale is invoiced.  Many business take great pains to match costs and revenues in the operating accounts, but doing this with overheads such as sale and warranty expenses is very difficult and seldom achieved.  Thus the high salepersons costs this month is unlikely to be reflected in this months sales, or maybe not even this months orders.

The P&L is virtually silent on the whole area of issuing quotations and booking orders, although the quantity, value and margin of those quotations and orders are critical to the future of the business.  This is particularly true where businesses have a long time between when they issue a quotation and finally deliver the goods.  What metrics are appropriate for the quotations and orders area depends on the business, however some worth considering are:-

  • Value (almost always appropriate)
  • Margin (this metric is open to interpretation and needs care because small changes to sale contract can have large impacts on margin)
  • Conversion rate
  • Quotations & Orders from existing customers
  • Quotations & Order from new customers
  • Number of re-quotes
  • Change of margin and value from first quotation to acceptance
  • Quotation progress (eg. when tendering how often does the business to each stage).

What is almost always true is that issues identearlyIDified early (at the quotation stage) tend to be more easilly and cheaply resolved thus maximising margin

 

A similar situation occurs at the other end of the business cycle.  The P&L will capture warranty and post supply costs, but cannot link them to a cause or time when the issues originated.  Possible metrics in this area are mainly centered around identifying root causes.

Case Studies

A small business with long business cycles was doing quite well but margins were drifting down.  The business had metrics for value of quotations and orders outstanding but little else.  A study was undertaken and it was identified that in order to win business the sales team were cutting margins.  In fact despite the business targeting a gross margin in the 30% range it was actually sending quotations in the 20% range.  Installing a board level metric on quoted margin allowed the management to focus on it and work out a solution.

A capital equipment business was meeting it’s sales budget but again margin was slipping – it had a M£2 per annum hole in P&L which they could not get a handle on although the suspicion existed that it was a quality issue.  Some diagnostic metrics  identified the cause after a few weeks – the business was accepting major contracts with ambiguous terms.  Whilst the goods left the business on target margin, haggling over what compliance to contract meant with the client resulted in giveaways to encourage the client to settle the account.  The accounts department following “matching” added all these costs to the appropriate jobs in retrospect.  You can imagine the confusion of the manufacturing staff who see goods leave the factory hitting build cost target, and then the build cost climbing up and up over the subsequent accounting periods when the goods were not even in the factory. The fix in this case was a mixture of tightening contractual review, and measuring the post shipment supply of resources to customers.

Thus non P&L metrics and KPI’s can be useful in identifying quite well established issues within the business, to look at other short coming of the P&L and benefits of well targeted metrics read the next blog in this series.

 

contact Business Transformers Ltd for more information

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If I were going there I would not start from here

man dreams holidays

I recently booked a holiday on Expedia ( I confess it was my first time – Ludite I know) and as you do, my first focus was on where I wanted to go. I spent hours poring over hotel specs and weather charts to make sure that the hotel supported the things I wanted to do, and the weather would be congenial. It was all terribly positive and then…..
I came down to earth with a bump when I started looking at getting to this fantastic destination. The first question was “where do you want to fly from?”… well my local airport obviously but “no flights from that airport”, OK choose an alternate airport (unfortunately a London main airport). Having navigated into the country I wanted to go to now I have to consider how to get to the hotel. A quick check shows that there are no trains around the time I want to travel & so it is a choice of a sky high taxi fare, or car hire.
Well needless to say, when I had finished the journey times before I could relax had multiplied out of all conception – I now had to leave 4 hours early to get to London and get through security, hang around at my destination and pickup a hire car, and drive a couple of hours to the hotel. The whole thing had changed from a quick dash to the local airport and relax, to an 8 -10 hour slog to get to my destination.
In the end I changed my focus to what was available from my local airport while still achieving my main goals – somewhere I hadn’t been before, relaxing, beach, and walks – will let you know how it works out.

Change management and strategy definition/implementation is often similar.

Navigation map with red pin

Navigation map with red pin

The tendency is to focus on the end result, the goal, and perhaps think less of the starting point and the journey. In reality there is no way one can plan a journey without knowing where you are starting from, and thus it might be surprising to know that almost 60% of companies that start on a change process do not adequately know their situation when they start (according to a survey from Towers Watson). Furthermore 40% have no metrics in place to judge how they are progressing along the journey (so they don’t know where to pick up the hire car). Is it really surprising that a somewhat older IBM report suggested that up to 92% of all change and strategy projects failed, and that one of the biggest causes was “doing the wrong things”.

Unfortunately the Towers Watson report is not a surprise to me, in 15 years as an independent worker in business improvement, change management and strategy, not knowing where you are starting from is the biggest reason for failure. It happens in all businesses from the high tech research business that looses sight of GCSE physics; the capital goods supplier who blames rising costs on poor production quality, only to find that the problem is lack of understanding of what the customer wants; or the perishable goods company who wants to boost its sales by discounting, but does not know that its biggest mover is already on paper thin margins  – all are doomed to under performance just because they did not understand where they were starting from.

Doing this sort of work for 15 years I have developed a basic template for understanding where a company is. This starts with the ISO9000 core areas – how do you know what the customer wants and how do you know you have delivered it. A similar question about costs, skills, systems. These questions asked at all levels of the company along with the “what is your biggest problem” question usually give a pretty good idea of the starting point, which can be confirmed by the auditing of specifics. Some businesses use external resources to do this work, and it is often easier for an outsider to keep an open mind, but it is by no means impossible to do this from within the company.

If you would like some help with your change, business improvement or strategy drop us an e-mail and we will set up a call or a meeting. Initial chats are always without obligation.

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KPIs?

There are a lot of “Three Letter Acronyms” (TLAs)

KPI & METRICS Street signs (American performance key indicator)

bandied around in business and often people’s understanding of them is limited.  There is a lot of mystery about KPIs but they are just measurements or indicators which are believed or have been improved to be a good indicator of future performance.  There are few basic guidelines fo

r KPIs:-

  • KPIs should be close to the processes and people to ensure that they stimulate some action.
  • KPIs should have a goal or target
  • KPIs should be simple and transparent
  • KPIs should be scaled throughout the organisation, so that the same basic data can be used in detail form by operators and in summary form at the executive level.
    for example:- Actual Job time vs Planned time can be used:-

    • Job by Job for the job coster
    • Department by Department by Supervisor
    • Company as a whole for the Executive

KPIs can be anything, typical HR ones include, staff turnover, time keeping, number using the canteen, number participating in company activities, sickness etc.

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KPIs and the Elephant in the Room

or
trouble in officeJoin up your metrics for added value

One of the challenges of KPIs and metrics is knowing how detailed to get.  There is a natural human drive to understand, and that frequently drives us into the detail, however I am reminded of the Jain parable of  six blind men were asked to determine what an elephant looked like by feeling different parts of the elephant’s body. The blind man who feels a leg says the elephant is like a pillar; the one who feels the tail says the elephant is like a rope; the one who feels the trunk says the elephant is like a tree branch; the one who feels the ear says the elephant is like a hand fan; the one who feels the belly says the elephant is like a wall; and the one who feels the tusk says the elephant is like a solid pipe. Clearly each observation is “correct” within it’sown context, but is not much use in understanding the whole animal.

The same is true of KPIs and measurements, if they do not link up to some important real world outcome of the business they are of limited use.  With a recent client I was posed with the problem that he was sure that every job he made was making money, he did the costings carefully, measured the time actually spent on each job and they pretty well always tied up so he should be making a profit…… but he wasn’t and could not figure out why.  Let’s follow the parable and seek to join things up.  A little bit of joined up measurement revealed that:-

  1. Although the time spent on the job was exactly as costed, only around 50% of employees time was spent making the items – the other 50% was a mixture of hunting for tools, drawings, material and I have no doubt a crafty cigarette.
  2. Again although the material consumed on the job was as costed there seemed to be very regular emptying of the scrap bin, and with some measurement it became clear that over 20% of the raw material purchased was thrown in the bin.

Of course it now becomes clear that by not joining up the metrics to say paid hours, or material to the materials line of the P&L a vital piece of information was missed.  Once identified the situation was quickly taken in hand and a recovery & training process implemented.

The moral of this story is joined up metrics (especially to the P&L) are key in generating no hiding place for waste.

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Make sure your KPIs work for you … what to measure

There is a wide acceptance that KPIs are “a good thing”, but what is a KPI and how is it measured.

The purpose of a KPI is provide a metric that gives an important insig

measure up

ht into a process of part of a business, but is close to the job at hand, requires little processing and gives a real time or near real-time data check away from the tyranny of the monthly P&L (which in many cases is not available until 2-3 weeks after the end of the month.

Some examples of useful KPIs are:-

  • Frequency of scrap tip emptying.
  • Number of stockouts
  • How quickly the telephone is answered
  • Sales conversion rate
  • Staff turnover

There are literally thousands of KPIs that you could choose but in general I would suggest no more than 6 for any person or part of the process of your business – but which to choose.  In short you choose the ones that you expect to be a good indicator (you can change it if it does not work) and it is often the simplest or most unusual that are the best KPIs.

When working in Mexico during the boom years of the late 90s one of the problems was keeping staff due to ever increasing local pay rates.  Many ex-pat companies paid for expensive surveys which the poured over, but a simpler solution was to set an employee turnover rate that seemed acceptable and when that was approached pay rates were adjusted upwards.  In the computer games industry the challenge is to ensure that a game is engaging for both highly skilled players and novices alike therefore a KPI was set that no player should be “kicked off” in less than 3 minutes – any game which breached this was re-worked until it was met.

If the KPIs are not obvious start with the basics of ISO9000:-

  • Do we know what the customer wants
  • Do we know how to deliver what the customer wants
  • How do w eknow we have delivered it

and ideally use your problem reporting system to see what the problems with each item – then work a KPI out from that.

 

If you would like to discuss any of these issuses direct just e-mail info@bustrans.co.uk or have a look at business transformers website www.bustrans.co.uk

 

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Macro to Micro

One of the much quoted benefits of an Interim Executive (IE) within a business is often cited as rapid identification of issues, but is this really true and if so what tools do they use? 

The answer from most of those who have used IEs in the business improvement role is absolutely YES, and in many cases the speed with which the diagnosis is reached seems startling to the Board and Senior Managers in a business.  Many IEs like myself gain much of our business based on an brief initial examination (usually free) and a 5 days scoping study, where the scope of what can be achieved is defined (usually charged).  So how do Interims do this and can you use some of the ideas to give your business a health check?

IEs in the business improvement arena initially meet a senior member of the business, and are given an outline of the challenge—often management have had several attempts to resolve the issue already and have failed to be fully successful.  IEs will always wish to verify the diagnosis themselves  and often have a sequence they follow.  A sequence I frequently use is:-

I. Management Accounts for last 2-3 years looking for discontinuities.

II. Ask as many people as possible to talk about what has gone well recently, what has not gone well and what causes problems.

III. Take a selection of sales and trace them through from quotation to payment (and sometimes to end of warranty) looking for inconsistencies.  In a long sales cycle we may split this up to:
i)    Quotation to Order (using a recent order)
ii)   Order to Invoice payment (using a currently shipment)
iii)  Shipment to Warranty end (using a current item in the field)

I & III can be applied by any manager within a business, what one looks for varies but margin to plan, lead time to plan, late changes, discounts/warranty charges are amongst the most common.  Normally a selection of between 5 & 10 will be enough to identify the issues.  For more information or to get some help contact Business Transformers Ltd.

 

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Inaccurate Forecasts should not paralyse your business

In a recent blog Phil Morettini discussed the problems of generating an accurate forecast.  True it is difficult enough to forecast over a month or two with any degree of accuracy let alone a longer period, or with a new product or new market.

However in essence a forecast is just a piece of paper (or a spreadsheet) the real question centres around what you do with it;  Forecasts are used for many things ranging from the operational (stock, manning levels etc.) to investment plans, so a forecasting “error” can generate challenges in many areas.

From my point of view forecasts will always be inaccurate – the world is run on statistical rules and these always have variations – plan for these inaccuracies and you can win in an unpredicateble world:-

  • Admit the Inaccuracies – to my mind a forecast without some attempt to guage the scale of the likely deviations is pretty useless.  An understanding of likely inaccuracies either as upside/downside or 80% confidence limits forces people throughout the business to consider the risks. 
  • Characterise the Risk – is the risk a total risk, that is the orders do not happen and they are lost forever (forecast is perishable) or is it simply a timing risk (timing errors).
  • All within the business can work to minimse impact of likely Inaccuracies – once inaccuracies are openly talked about then action can be taken to minimise the impact:-
    • Sales and Contract can run a funnel showing interest at all points leading to the actual order.
    • Materials can negotiate appropriately flexible supply deals.
    • Engineering can use common standard parts wherever possible to minimise exposure.
    • Production can drive down on lead time & labour content.
    • Senior managers can ensure that trigger points are set on forecast so that certain actions are not taken until those triggers are met.
  • Reforecast & Review – a reforecast without reviewing previous forecasts is pointless – understanding variations is key to obtaining a smuch information about the market and the offering as possible.

Forecasts are Inacurate – learn to Live with IT

 

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