Part Two of Two-Part Series
In Part 1 of this editorial, we looked at how to set goals for your process improvement initiatives. This month, we will take a look at a framework for prioritizing these initiatives and how to make them successful.
There are many valid approaches for prioritizing process improvement initiatives, but there are two rules that are true for most companies: 1) you will be more successful if the entire leadership team helps set the priorities, and 2) you can only focus on a small number of improvements at once.
How should you get your leadership team to align on a common set of priorities? Here are three simple questions to ask yourselves for each initiative you are considering:
1. Will this project result in a material improvement?
Most processes can be improved in some way but only some of those improvements will have a meaningful impact on the business. Short of building a full business case (which is often a good idea), there are a few ways to try and figure out which ones will be more meaningful.
First, processes that operate at a larger scale will generate larger benefits. If many employees are executing the same process, if a process is executed frequently or takes a lot of time, or if the process deals with expensive parts or personnel, then improving it is likely to result in material value. For lower-scale processes, where you can save fractions of effort, it is often difficult to take the action that will create savings like reducing total process time, reducing staff, reducing inventory levels, etc.
Second, improving processes that don’t currently scale well will create substantial benefits as the business grows. If the cost or effort of a process increases at the same rate as revenue – for example, if a process currently costs $20 and if you add one more sale it will cost another $20 – then you can build a lot of additional margin by decreasing the cost of executing it more often. If the company is growing quickly, this will yield some benefit now and continue creating more and more value as you grow. You should figure out what the benefit will be not just if the project is successfully implemented, but if it is successfully implemented AND you grow as much as you expect.
Third, basic improvements to immature revenue processes can provide big benefits, quickly. It is common in the middle-market for the processes that initially built the business – e.g., product development, door-to-door sales, retail – to still be relied upon as the main driver of revenue. However, the nature of revenue generation has changed since these businesses were founded. Modernizing these processes makes them more scalable, more consistently effective, and more measurable. This helps capture more customers, develop better products faster, and price them more effectively. You will often see benefits very quickly by going from an antiquated process to even a reasonably modern process.
2. Will the customer be able to tell that I improved this process?
Every process in your company will not be perfect, and they don’t all need to be for your company to be great. The processes that need to be great – or at least look great – are those that impact profitability or the customer experience. If you’re improving a process and the customer will not be able to tell that it is better, then it should have an out-sized impact on either revenue or cost to justify investment or attention.
When in doubt, focus on processes that touch the customer.
3. Can we actually achieve this result?
Remember that savings need to be achievable in real life, not just on paper. For example: if you want to save cost by improving a back-office process, scrutinize the mechanism you will use to achieve those savings. If you can improve a cash reconciliation process, are you saving a staff position or will you truly be able to re-assign a percentage of that person’s time to something else? If you can, great – that means you can achieve savings from the efficiency. If the same person will do the same work, there will just be less of it, then it isn’t the cost savings that will justify that change – it will need to be something else like consistency, effectiveness, or customer experience.
The value that can be derived from improving processes is directly correlated to the company’s ability to execute the project that will improve it. Be realistic about the nature of the change and the company’s ability to follow through on the project. There are a few ways to think about this:
1. Is this process complicated to change and to understand? The single biggest reason process improvement initiatives fail is because of poor user adoption. The more complex the process you are changing, the more difficult it is to get users to adopt it. Choose processes that most of your staff can understand very well by the time they are improved.
2. Do you have managers who can manage a project through roadblocks, over a long period of time? Very small projects may be quick, easy, and stick; others may be challenging and require regular management over an extended period of time. Make sure you have the people who can sustain it over that period of time.
3. Can this process be reasonably systemized? Complicated, variable processes are difficult to put into systems; simple processes are easier. Systems will make long-term sustainment much more reliable and, importantly, make it so you can measure the process. It is easier to make process changes stick when there is a technology initiative to drive them.
4. Do you have people who deeply understand the process’ relationship to the business? Which other functions does the process touch? How do improvements, or a lack of them, impact those areas? Will your managers understand this and be able to anticipate second-order impact?
In summary, process improvement is a great way to create significant new value in your business. Its benefits can often be realized quickly and sustained well into the future if your management team can align on the goals, clearly define priorities that the staff can easily understand, and if you have the ability to execute.
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 firstname.lastname@example.org.
Citrin Cooperman, your CPA FOR EVERYDAY™, is a full-service accounting and consulting firm with 10 locations on the East Coast. Visit us at citrincooperman.com.