Posts Tagged ‘improvement’
All organisations realise that change is inevitable to achieve continued improvements. Change and improvement is an on-going process and part and parcel of the life and success of a business. Sometimes, however, in order for the business or organisation to achieve the aims and ambitions that they set out with, change has to be a bit more urgent and radical.
Sometimes also an SME has to face radical change to help the owner build the business and achieve a successful exit. Most corporate finance advisers agree that to maximise the value of a business, the owner should be able to walk away from that business and it should be able to operate successfully by itself, without their input. This can be radical change for an entrepreneur who can be typically driven and controlling. How can you ensure that the required change and improvements are implemented successfully and this is sustained without the owner/manager reverting to “doing everything themselves”.
Here are some of the areas that from experience we believe can be the key to the success of change and improvement:
• Love your employees
• Building capacity
• Connect peers with purpose
• Learning is the work, consistency and innovation
• Transparency and openness
• System learn (and improve)
Love your employees
Focus has to be given to your employees. The key is both bringing them into the development of the organisation and ensuring continuous learning and development. Appraisal systems, development programmes, sharing information and regular staff consultation is not just for large organisations. It is the key to ensuring that your employees are part of the journey of the business and an integral part of the team and this will help to ensure successful change and improvement continues.
Automation and documented practices are the order of the day, but people are the real key to building capacity and the ability of the business to achieve and produce more. To successfully build capacity for your organisation it will mean looking at competencies, resources and motivation. To use an analogy getting the right people on the bus; getting the wrong people off the bus; getting the right people in the right seats; ensuring that all are motivated (and remunerated, seeing that they are sharing in the success of the business) to achieve and ensuring that the bus is in good working order.
The other key to building capacity is a documented system/process. Without the need to go into details, successful organisations such as McDonalds can look to ensuring that a new restaurant franchise is successful in opening and continued operations as the systems and processes are well established and documented, ready to be used and adopted as and when required.
Connect Peers with Purpose
Your staff can learn from you and each other (which can also mean carrying on doing the same thing in the same way over and over again, as that has it has always been done). Staff, generally want to learn and improve and a key way to achieve this, is to share good practice with others.
Purposeful interaction works effectively under three conditions:
• When the values of the organisation and those of the individuals and group gel and mesh
• When information and knowledge about effective practices are widely and openly shared
• When monitoring systems are in place to detect and address ineffective actions, whilst reinforcing and consolidating effective practices
How can a small business achieve this (without fear of losing staff). One suggestion is that your accountant will act for a number of businesses. They can either help directly, perhaps look at having one of their own staff help one of yours directly to share good practice and ideas. They could even introduce you to another client with similar aims and look to their own staff to start to share good practice (under an appropriate agreement).
Learning is the work – consistency and innovation
Looking at the success of such organisations as Honda, the single greatest difference with them and other organisations is the depth of understanding of their employees regarding their work.
The essence of Honda’s approach to improving performance consists of three components:
• Identifying critical knowledge
• Transferring knowledge using job instruction
• Verifying learning and success
The key to all of this is relentless consistency so that everyone fully understands their work, helps to train others and all are continuously appraised.
Transparency and openness
On-going data and access to seeing effective practices is vital for success. Employees need to understand the road that they are on and be given information which shows that the business is on that road, or if not how the business is getting back on it. Information sharing is key, it does not mean everything, but key performance indicators should be identified, agreed, shared and monitored.
Another key area of transparency is to consider a 360 degree appraisal system, where the directors/owners of the business are open to appraisal, review and recommendations by their staff. This can be scary for some, but has proved to be effective for all and many large and successful organisations now use a 360 appraisal system.
Continuous development and learning depends on developing all of the staff, all of the time. The fact that organisations such as Honda and Toyota can succeed over decades and that these companies show no leadership effects or changes from succession and continuity is because of a robust set of inter-related management practices and philosophies that provide advantage above and beyond the ideas or inspirations of a single individual.
Once a system and process is agreed, it should be documented. Improvements to the system can be addressed and documented accordingly. The key efficiencies gained from this are:
• Staff understand what is expected and have guidance for work
• The systems will continue to reflect the best possible practice available
• Staff will be supported by the process and knowledge
• Staff changes and new staff can be accommodated efficiently
I have seen it on numerous occasions, when appointed as a part time finance director. The owner knows their business inside out, or so they say and believe. The classic statement, “I know my business income and costs, a third direct costs, a third overhead and a third contribution to financing.” So after a brief review of the actual information put together, which has never been done, my reply has been, “So what’s the other third then?!”. “Oh.” is usually the reply.
How to ensure rock solid business decisions
The above situation is more common than you think and, at least in part, the tendency to make decisions on an ad-hoc basis is down to the general lack of good management information. If the numbers are not at your disposal, and that is financial and non-financial, then many businesses have little choice but to make decisions based on gut instinct.
Contributing to this issue is the unreliability of monthly management information, attributed to managers disregarding early warning signs of problems in profitability and liquidity. In larger organisations with a number of senior management including sales and operational management, a classic technique in order to duck and avoid their own shortfalls and potential failings is to “dis” the management information, picking on the commas, the brackets and the spelling as evidence that it cannot be relied upon. Nero and Rome aflame comes to mind.
Management is certainly moving from an art to a science. With the on-going computerisation of all business systems, moving on to cloud based systems allowing access and use on the go and more information becoming available to managers on which to make decisions.
With facts at hand, most business decisions become logical. For example, if you know that advertising in using email provides a 15% response rate and you convert 50% of these, as against another that generates a 5% response rate with a 50% conversion, the rational decision is to invest more in the advertising area that provides the greater return. The basis of decisions moves from gut instinct to evidenced based logic if the right reliable information is available.
What if you have poor management information?
The lack of reliable and timely management information can create many problems for entrepreneurs and owner mangers. All management training and business planning relies on being able to measure things to be able to manage.
One of the key reasons why the England Cricket have become the world’s number one test team is that they have an advanced system of information advising of how opponents react to certain styles of play and where balls need to be pitched. This is based on reliable data from actual statistics. And do you know what, ….. it works!
The consequences of not having reliable management information are clear – the business will not perform to its potential, because the right decisions are not being made. The importance of Key Performance Indicators (KPIs) is vital for this success and the England Cricket team are a classic example of this.
Privately owned businesses that underperform have a significant impact on the financial well-being of the owners and, perhaps even more importantly, will create a level of stress that lowers the return for effort to an unacceptable level.
What can you see happening?
Everyone, at some stage, knows how it feels to need vital information but not have it to hand. What may not be so obvious is whether you have information about the right things or whether the information itself is accurate.
A key part of the business planning process is to identify the business drivers, the KPIs, or those factors that drive your revenue and your major costs. KPIs can be seen as numbers but are not necessarily at all financial. Examples include numbers of calls per hour, numbers of bums on seats, footfall, downtime, spend per head, machine hours, the weather and temperature, benchmarking against other businesses etc, etc.
It is crucial that your management reporting system measures such drivers. Being in a situation where the business drivers are not known or measured can be your warning sign. Another warning sign to note is major fluctuations between monthly results. This might indicate unreliable information and if that is the case, the warning bells should be sounding. One example of fluctuations was order numbers, with a business having two good months and one poor. On further review, the director responsible for sale, updated the sales brochure every three months, so was not out selling. Easily fixed, but not discovered until the information was made public.
Interested in the issues?
Work with good business advisers, ones like McGregors Corporate, that include partners who have actually been Finance Directors and have been responsible for these improvements first hand. Work with us and we both can obtain a proper understanding of your business issues, drivers and KPIs.
After that we can work with you to develop a meaningful business plan (which can be very simple) and forecast that you can measure against. Being able to measure accurately and frequently the mission critical elements of your business will be the start of key improvement to your business, its profits and its cash. Which business person does not want to see that happen?
Steven Mugglestone BA FCA,
Finance Director Services
McGregors Corporate, Entrepreneurial Chartered Accountants and Business Advisers
…….Really good for your business
McGregors Corporate are a Member of Probiz Tax, providing Innovative Tax Solutions to Owner Managed Businesses.
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