Why change things in business?

OK, sales are down and your costs aren’t any lower.  So, do you go for slash ‘n’ burn to cut costs and hope you can get new resources when sales move up?  Or cut prices to the bone in the hope of increasing sales? Or do you use value engineering?  Let’s see if I can sell you on the last one:

SLASH ‘N’ BURN

It has the virtue of being easy to understand, but it takes no account at all of why you have any customers.  If you sell widgets and have no competitors for widgets, then your customers will buy from you at any price if they need widgets.  Once you have competition, then they’ll still buy your widgets if they think they’re the best widgets for their purposes.  If you don’t have the best widgets, or you charge more than your competitors for what appear to be the same widgets, you lose custom.  It’s a
no-brainer really.  Cost problems generally are rooted in sales sooner than cost, leaving this the right approach only when your costs are higher for no apparent benefit.  This happens.

CUT PRICES TO THE BONE

If you make just enough to survive, it is inevitable you’ll fold eventually.  Technology will advance, making production cheaper for those with enough profit to invest in
that technology.  You won’t have that if you’re only covering your costs.  Worse still, if you get a lot of sales, you may find you’re overtrading, ie you’re selling more than you can make.  While your customers wait for their widgets, you can bet your life your competitors will either give them a sweeter price or a better widget, so you’ll lose them for all time.  In any case, do you really want to be the lowest-price provider of widgets?  Is that likely to inspire anyone good to come and work for you?  Is price all your customers want?  Sometimes it is.

VALUE ENGINEERING

As Warren Buffett once said “price is what you pay, value is what you get”.  All customers want is for your widget (which can be a product or a service, it doesn’t matter) to meet what they want most effectively.  Value engineering describes value as benefit to the customer versus how much it takes for them to get it.  If you can think of a way to make your widget hot fashion, reach them quicker, save their lives, etc, you increase value.  If you can make them cheaper and just as good, you increase value.  If you make them cheaper and not as good, you decrease value and sign your own death certificate.

There is any number of ways to increase value – what are you going to do?

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News of the World: A Lesson in Poor Governance

For the Murdochs to be sitting through the enquiry in July,
repeatedly saying “I don’t know” in tones that varied from bewildered
sheepishness to defiant abrogation of responsibility, was ridiculous.  It is essential that an organisation, particularly if it is large and communication lines are stretched, state its values clearly and what this means for all activities undertaken within it.  Manifestly, if the Murdochs didn’t approve of what was happening in their own patch, that didn’t happen.

Within a newspaper, communication of values is a part of the product and leads to readers choosing papers that fit better with their own philosophy.  However, though the no-holds-barred approach can be seen as “tenacious” which is, of course, a good
thing, especially when it leads to the exposure of actions that are not in the
public interest, few readers would choose a paper that actively encouraged such
invasive behaviour, surely?  A simple examination of the concept of “do as you would be done by” would be enough to show that, if you wouldn’t be happy for your own phone to be hacked into if your child had been killed, you shouldn’t condone it by buying a paper employing a reporter who has done exactly that.

It is therefore essential that your processes are consistent with the values you uphold and managing these values becomes a part of your risk management strategy.  These values should be clearly articulated and documented: how else can employees tell if they are acting in accordance with them? How else can you manage their behaviour?  If the Murdochs don’t understand that, they have no business running such a large concern, nor blaming those in their employ that allowed it to happen.

If you’ve got any ideas how else it could be done, I’m happy to hear about them.

There’s Always a Better Way

When I was about 8 years old, my mum bought me a great poster.  The picture was of a group of turtles.  All but one of these turtles was swimming hard to get along, but one had turned over on his back and was riding in the shell, using oars to go faster.
That one was smiling, the others weren’t and the caption read “There’s Always a Better Way”.  I loved it even then – it just spoke to me!  It’s been my mantra ever since.

You can always improve things in life, whether it’s something you do, or something someone else does for you.  This is because people make mistakes (so, who’s perfect?) all over the place.   In most of my assignments, people either weren’t clear how they should do something, sometimes were deliberately hiding something, or a new system or merger had upset the apple cart and something new was needed.  Sometimes the “something new” is rushed, not thought through well enough or badly implemented.  And, more than sometimes, the activity the “something new” was meant to replace carries on because nobody told it to stop, so all of it adds up to a total waste of time.  Whenever you doubt that all is as it should be, it’s worth finding out how people do
their jobs.  You may think it will be obvious but, much of the time, what you find out will surprise you.

Many have the sort of process maps used by systems developers.  These just talk about the things that are relevant to the system.  They don’t tell you a thing about how many people are involved in the process, what their responsibilities are in it, what authority they have if anything needs improving or something goes wrong, how many of them are in the same silo, how the end result is measured and, above all, why it’s done in the first place.  You need all this to improve a process: show all the relevant information in the first place and stop relying on IT maps that mean next to nothing to the average user.   They won’t show you the gaps that allow overspending, a systems glitch that can be fixed easily once you know what it is or the improvements that will allow your people to give better explanations to management of what their financial results mean and what they can do to improve them.  This is value-based process mapping.

One example I have is that of a company where management had just about given up on ever getting information from their (pretty-demoralised, due to a new system they hadn’t got the hang of) Finance team.  There was a massive overspend on the books
already and things seemed set to get worse.  So together, the team and I spent time with the managers, to define how the money was being spent and who was responsible for which budget pot.  It turned out that much was caused by a desire to satisfy customers without finding out if what they were asking for was in the contract or not, poor information about supplier delivery, and also by improvements created by the maintenance team that were strictly capital expenditure – this was the responsibility of a different part of the organisation – and the maintenance team didn’t understand how to access their money.

Whilst little of this activity was reprehensible, it was being done without consideration for what was affordable, because they couldn’t see it before.  Improvements are a great thing and so is customer satisfaction, but this business was being run almost as if it were a charity!  It also led to a great deal of essential communication between departments that hadn’t been happening.

Does this story chime with you?  Can you think of somewhere to try out a value-based process map?  I’d love to hear of other live examples, so please send them in – I may yet get to writing a book on this subject!