There seems to be a significant amount being written these days regarding simplification. It’s difficult to go through the news and not see some article regarding how people see and feel the need to simplify their lives and what they are doing to simplify their lives. The same seems to be true with businesses. Businesses are always trying to simplify the way they perform their work. There are usually all sorts of programs, processes and initiatives focused trying to simplify the business. When you net them all out, they can usually be summed up in a simple statement: In order to simplify, you need to ruthlessly stop doing work that provides no value to your customers. On the surface this sounds easy, but in practice business inertia makes this activity a little more difficult to accomplish. In these times when any discussion turns to the topic of no longer doing specific work or tasks, that activity is translated into preparation for staff reductions. The stakeholders in the current process will almost always generate some resistance to changes of these types. While reductions can be a potential outcome it should not be the focus. Over time businesses accrete tasks associated with the way they work. As the business needs change, new tasks and objectives are added to meet them. Businesses usually have very good processes and methods for adding new work, but rather poor processes and methods for discontinuing tasks that have either outlived their usefulness or no longer provide direct value to its customers. Almost every business will have functions and tasks that remain from previous products, processes and programs. The incremental value to the business of this work will be suspect at best, but unless active measures are taken to remove it, it will continue to absorb business staff and resources. The objective of all simplification projects should be to identify and remove work, and more specifically work of questionable incremental value to the business, from the business. With this objective in mind business simplification should not try to enable a business to do more with less, but rather simplification should target having the business do less, but being able to do the remaining work much better. The idea here is to identify work that must be done in order to provide value to the customer. Customers will pay for goods and services with which they associate value. If there are tasks that are creating costs, absorbing resources and providing minimal value to the customer, they are the potential targets for simplification. Businesses have a tendency over time to create tasks and structures that are designed to provide perceived value internally to the business, not externally to the customer.
Most simplification processes start out as methods of re-categorizing existing tasks and then grouping like work together in an effort to glean some efficiency from having similar tasks performed by similar groups. This simplification approach doesn’t reduce the amount or type of work being done. It assumes that all work currently being done in the business is critical to the business. I think that is the major fallacy of this simplification approach.
Now the question that arises is: which work should the business look to simplify? At the risk of sounding a little trite, there are basically three functions that a business must perform. A business must create products and services for customers, sell products and services and deliver products and services to customers in order to be successful. If the tasks in question do not directly contribute to one of these functions it is a candidate for further review. That doesn’t mean that all tasks outside of these functions should be eliminated. There are some functions, Finance, Human Resources, etc., that do not fall into these categories, but are a business requirement. It is also very probable that there are tasks within these specific functions, meetings, reporting, reviewing, etc., that do not directly contribute specific value to the function that may need to be simplified if not eliminated.
A further guiding principle should be: does the specific task provide value directly to the customer? If a task cannot be identified as directly providing a value to a customer, it is adding a cost to the product or service that is providing value to a customer. If the product or service can be provided to the customer without the incremental costs associated with the identified task, then the task is a very good candidate for simplification.
Examples of these types of non-value added tasks can be: business reviews that occur regularly where information / presentations / discussions are provided, but where no action items are given; or business requests for information and data, where resources are expended fulfilling the requests, but no business information or actions are provided in return. There is a long list of resource absorbing, non-value adding tasks, which on the surface appear useful business, but when viewed from a business requirement and customer value point of view can and probably should be simplified.
Resources are too precious to allow them to be wasted on tasks that are not directly providing value to the customers, and through the customers, value back to the business. They need to be ruthlessly protected. There is always more valuable work that needs to be done then there are resources to perform it. This is where the ruthless simplification of the tasks that do not provide customer value can strip away the drag on the business, as well as free up the resource to provide the incremental value adding work that needs to be done.
Monthly Archives: September 2012
Business Oxymorons
Every time I get a memo, directive or request from management, or anyone else for that matter, that causes me to shake my head, I put it in a file where I can review it and smile at a later date. I have to do that because sometimes it is almost impossible to believe in, let alone laugh at many of the documents and directives when they are actually issued. It seems that it is only on reasonable reflection that the humor associated with the document can be appreciated. Over the years I have amassed a fairly large file of what I like to refer to as management “Business Oxymorons”. Here are some of my favorites. Process Simplification: Process simplification has long been a target for cost cutting and efficiency increasing projects and teams. Regardless of how the business is structured, or what processes there may be in place, this is an area that can and will receive incremental focus. My favorite approach here was when I received a 36 chart presentation deck detailing the process we would all be using going forward for corporate process simplification. That is correct. It took 36 charts to detail out how we were going to simplify things. Needless to say, I had a suggestion for the first process to focus on for future simplification. Like process simplification, cost reduction is also always a favorite topic for management attention. Indeed cost reduction should be an ongoing focus for every business. The point here is the activity of cost reduction should be the focus. The idea is to reduce costs. The tracking of cost reduction doesn’t actually reduce any costs. It could be argued that one of the best ways to start reducing costs would be to get rid of all the teams whose only responsibility is to track cost reductions, since they are actually an unproductive incremental cost to the business. I always thought that the people who were implementing cost reductions were also capable of tracking cost reductions too. I wrote an entire post dedicated to this concept a few weeks ago. Sales teams want to sell things. That is what they are supposed to do. Customers usually want the lowest price possible for the goods and services that they are going to purchase. Sales teams try to get their customers the lowest price possible, sometimes by describing the business opportunity as “Strategic”. Getting requests to discount product and service prices to the point of unprofitability because it is strategic to the company to get this business has always been an interesting exercise in logic for me. How can bringing in any incremental unprofitable business be of benefit to a company, let alone strategic to it? We are all continually asked to do more. That is the nature of business. How we go about it is the key to our effectiveness. I know many people who pride themselves on their ability to be on conference calls, do their email and converse on their computer’s instant messaging system at the same time. I also notice that these people are usually so busy that they never get anything actually accomplished or completed. Productivity is the measure of things that are completed, not the measurement of the number of things being done concurrently. It is similar to the idea about the difference between work and progress. Work can be a great deal of splashing around in a pool. Progress is actually swimming somewhere. It seems that whenever there issues in a business, the first thing management requests are a brand new set of metrics and reports regarding the already identified issues. Metrics and measurements are key tools and sources of data for any manager and business. They help us keep score. They help identify where issues may lie and where performance may need to be improved. Measurements very seldom tell us how to improve performance, only that against some sort of scale that performance needs to be improved. More measurements or more detailed measurements may not help this situation. It is the decisions that are made and the actions that are taken in the business as a result of the measurement information that are the solution. Business measurements are a ways to a means, not a means unto themselves. The 80 / 20 rule truly does apply to measurements and data, and the idea of trying to measure your way out of a performance issue rarely works. The world is a very big place and the way business is conducted varies significantly from place to place in it. Global tools, programs and platforms, while always a desirable goal are almost always problematic when it comes to implementation, but that has never seemed to stop the drive towards them. Part of this issue seems to be in that global projects focus on trying to remove the differences between business regions instead of leveraging the similarities that the regions have. By the time you modify the tool, platform or project to take into account every regional business difference, you usually have a uniform solution that is so large, complex, expensive and unmanageable that it is worse than the separate and discrete capabilities it replaced. My father would have called this phenomenon the starting of a vast project with something along the lines of a half vast idea. These are just a few of the business oxymorons that I have in my file. I am sure there are others that I will bring out in the future. I believe it is the irony associated with the approach as it applies to what was obviously the desired solution that causes me to share them here. It appears that at least in some circumstances it is true what has been said about good intentions. It also doesn’t hurt to find the humor in it.
Announcing / Assigning a New Team to Track Cost Reduction:
Unprofitable “Strategic” Business:
Multi-Tasking Equals Productivity:
Measurement is the Solution:
Global Projects:
Being Liked
I think it is pretty safe to say that we all want to be “liked”. There are few people in business that set out to be disliked. They may end up being disliked, but I don’t think they started out with that as an objective. However, there do seem to be many business leaders who it appears do set out to try to be liked by everyone. While it is a good leadership characteristic to be able to try and get along with everyone, I don’t think a leader has to try to be liked by everyone. Business leaders are vested with the responsibility of setting the direction for the business. This includes the strategic longer term direction as well as the shorter term tactics and steps required to achieve the longer term goal. This means that leaders have to make choices. Making choices means that some people will agree with your choices and some people will not. Healthy disagreement within an organization is a desirable trait. It makes you continually check your choices and directions against differing views to make sure that you are not missing any overlooked piece of information. It fills gaps and strengthens the overall plan.
Still, making decisions, especially difficult or contentious decisions will mean that some people will “like” the decision, and some will not. Each individual’s position as it pertains to the decision will in turn be associated with the leader who made the decision. However if the decision is clearly made and the reasons and criteria that were applied are well communicated everyone can respect the decision. That can be a key point. While some people may not like the decision, and by extension the leader that made it, if they are provided with some insight into the factors that have lead to that decision they can respect it.
Providing insight and understanding into leadership decisions does not mean having to explain why one direction was taken instead of another. That would mean that everybody in the organization would have to be supplied the same aspects and information as the leader for each decision. That would be far too cumbersome and slow. Economic theory states that businesses exist to provide earnings to their owners (either stockholders or other types of equity holders). They do this by providing value to their customers, and from that generated value creating profit and earnings.
When leaders make decisions that are in support of these basic business precepts, it is hard to argue with them. As leaders they will have to make difficult decisions in association with these directions. It will fall to them to decide which projects go forward and which ones do not when limited resources dictate that the business cannot sustain multiple investments. Some will like the decisions, and those whose projects have been discontinued may not. It will be the responsibility of the leader to decide if market conditions dictate a reduction in staffing, when it will happen and who will be affected. The list goes on.
Leadership and management mean making decisions. There have been documented instances where management could not decide on the strategic direction for the business. They decided to set two strategies in progress and see which one did better, then choose it. In theory this would indicate that at best they were wasting half of their scarce resources. In reality with only half a full commitment to each initiative, neither worked out well. The leaders wanted to be liked by all but ended up not being respected by anyone.
There have been instances where leaders have tried to avoid being disliked or having to do the politically unpleasant. This can be manifested in the “peanut butter” type staff reductions that occur where all business units within the overall organization, performing and underperforming alike, are reduced in response to overall profitability pressures. Instead of being guided by business profitability and customer value, and focusing on those specific business units that are relatively unprofitable, other non-performance based criteria clouded a critical decision. Invariably this leads to management eroding the support of their respective teams, and again an overall loss of respect for the leaders.
A business leader does not need to be liked by everyone. A good leader will be respected for the quality and timeliness of their decisions. If a leader fails to make a decision, or the right decision based on the acknowledged business drivers and available information, it will not result in the leader being liked by more people or disliked by fewer people. Invariably it will lead to a reduction in the team’s performance as it becomes more recognized that performance may not be the primary decision criteria. It seems that managing a responsibility or a business from the aspect of trying to minimize the number of people who dislike you, invariably results in a less healthy business, and nobody likes that.
Being Difficult
This may come as a surprise to many of you but I have occasionally been referred to as “difficult”. Fortunately, I don’t think my wife reads my articles so I don’t have to worry about her corroborating such a description. I did however go out on www.websters.com and look up “difficult” and found (at least) 3 definitions for difficult that it seems people want to apply to me: hard to deal with or get on with, hard to please or satisfy, and hard to persuade or induce. It seems that different people may have different views and standards as to how business needs to be conducted. I guess that you can paraphrase the old adage by saying “difficulty is in the eye of the beholder”.
Conducting business is the process of dealing with, and getting on with people. You can’t be successful, or accomplish your tasks and goals unless you can deal with and get on with people. The question seems to arise in exactly how you are supposed to deal with people. We should look to try and deal with most everyone in business the same way. That includes those that we report to as well as those that report to us. We need to try to take those items that we have responsibility for and do the right things for those responsibilities.
That may not mean that we can take the easy, quick or popular steps for everyone involved. Having a consensus is a good thing, but the responsibility for leadership cannot lie with a group. It may also mean that we have to tell people things that they may not have wanted to hear, both those that we report to as well as those that report to us. We are knowledge workers, and if our knowledge indicates that an unpopular direction or a contrary position is needed, then we need to give voice to it.
I don’t think that it is hard to be pleased or satisfied. We must take our word and commitment in business to be our bond and a display of our character. We must expect that others who deal with us to do the same. When a goal or make a commitment gets set we have to try to do all that can be done to achieve it. If the goal is achieved make sure that the team shares in the acknowledgement, and if it is not we leaders should take responsibility for it as it was our commitment and goal. We can give explanations, but we can’t give excuses.
I look at the effort and approach that people use in meeting their objectives and commitments. I have found that hard work invariably will lead to achievement. I like to be around and work with people who take that approach to their work. I think that if we can say that if we are satisfied with the effort the team has expended, we can be reasonably satisfied with the performance, even if the objective was not fully accomplished. If the expedient approach was taken and the goal not met then there can be further cause for concern.
I don’t think I am exceptionally hard to persuade or induce either. I can be persuaded, just make sure to bring the data and the metrics. If it cannot be expressed in numbers, it is probably just opinion. Opinions are not necessarily persuasive. Financial data is the international language of business. Show someone what they can make, save or improve financially and numerically, and just about anyone can be persuaded. Show them how the business can be improved so that they can adopt your position. Leaders don’t have the market cornered on good ideas, but we should know how to distinguish a good idea from most of the others that come around by using the available data.
Asking questions does not make someone difficult. Asking difficult questions does not make someone difficult either. We have to move and adapt to the conditions quickly, but more importantly we have to do the right thing. It may have been a long meeting or conference call, and the end solution may be in sight but that doesn’t mean that there will not be other aspects of the solution that will still need to be addressed. I have heard it said in these types of meetings that “silence is assent”.
I also suspect that most of the people, who have said this in meetings I have been in, were actually looking for silence not questions.
We are working and living in difficult times. The demands on our time, our teams, and our businesses continue to get tougher not easier. Businesses and business leaders are continually being challenged to do more, usually with less. The pressure to provide the quick and expedient solution also continues to grow. Sometimes the expedient solution is the right solution, but how will you know unless you press the issue, ask the difficult questions, demand to see the data, get the objectives set and hold those responsible to perform, in order to make sure that the right thing does in fact get done. If these are the characteristics of a “difficult” person then in these difficult times I would think that we all need to be “difficult” people.
Strategic Business
“Strategic” business is an interesting concept. It is normally used by sales teams to denote business that is believed to be so important as to be opportunities that are categorized as “Must Win” business regardless of the costs. This can be due to the size of the business, the desire to obtain market position or to keep a competitor from obtaining market position, or any number of other good, well meaning reasons. In my experience the one characteristic that all “Strategic” business has in common is that it is unprofitable. Strategic business is invariably the sales code phrase for “We want a lower price.” There may be competitive reasons for the desired lower price. There may be higher costs associated with the opportunity that customer doesn’t wish to absorb or pay for. There may in fact be increased competition. There may be expectations by the customer for greater savings. The list can go on and on. The point here is that none of these reasons are strategic. They are tactics, either by the sales team or the customer, to get a lower price.
The strategic business approach can also be seen when a large multi-product supplier is dealing with a large multi-product using customer. The idea posited here will be if a lower price is obtained for one product it will be to the benefit of all the other products that are being sold to the same customer.
Wait a minute, how does that go again?
I am of the opinion that all business is important and that all business should be profitable. It would seem in this scenario that some business is less important that other business. In this case it would appear that it is the Profitable business that is less important. After all, it’s not strategic. How do you decide which business is going to sacrifice its profitability for the sake of the other businesses? How do you prove the linkage between the unprofitable strategic business, and the profitable non-strategic business? Does the supplying company recognize that one (or more) of its businesses has been positioned and priced as a strategic business and measure its performance accordingly?
Strategic plans are those business plans where the growth and profitability for the business are mapped out over a longer horizon (usually 3 to 5 years). They provide directions and goals. They focus on the growth of both revenue and profitability of the business as well as the evolution of older products to newer ones. Strategic business, if there truly is such a thing, should also be focused on the long term growth of both the business revenues and profitability. It would seem that strategic business would only be associated with new products, new revenue sources and the new profitability associated with them.
Under these types of definitions for strategic business, it is very hard to justify any type of unprofitable business as strategic, particularly for existing products or services. I have said before that customers associate value with that which they pay for. If you provide goods and services to them at reduced prices then they will assume going forward that those goods and services have a reduced value. If strategic business is based on longer term future growth, do you really want to grow what has now been priced to the customer as an unprofitable business?
If there is value to your customer in the goods or services that you are providing them, then you should be entitled to a profit margin. It is the profit margin that enables you to pay your costs as well as look for new goods and services to supply your customers in the future. This is the basic tenet of business. Customers will continue to apply pressure for lower prices. Competition may also generate downward pressures on prices. As a provider of the goods or services you will continue to try and find new ways to reduce costs and to become more efficient. Downward price pressure and the ability to remove costs and increase efficiencies of the business will eventually hit the point of diminishing returns.
I have talked in the past about the need to prune products and services from the business portfolio when they have reached an end of useful life scenario. Part of that end of life decision is based on the time when either your customer will no longer pay you an appropriate price where you can generate a reasonable margin, or your costs are such that you can no longer reduce them to the point where you can generate a competitive price at a reasonable margin. As I said earlier, if there is value the customer will pay for it. If there is not enough value to the customer for them to pay for it, then the supplier should no longer provide it.
If you have an existing product, service or business where you are having problems generating the prices and margins that are needed for viability going forward, there may be a push to look at the “strategic” importance of the product, service or business for the “greater good” of the company. These types of discussions ring hollow. There is nothing strategic about unprofitable business for existing products and services. Each product, service and business needs to be able to stand on its own and justify its future viability based on its own revenues and profitability. Unprofitable “strategic” business is still unprofitable business.
One way to make sure that strategic business is in reality profitable business is to align the revenue objectives of the sales team with the profitability objectives of the business. Some business opportunities are more valuable (more profitable) than other business opportunities. If the sales team is rewarded for more profitable business, and is not rewarded for less profitable business, the focus will be placed on profitability and the more profitable business. Strategic business will either need to be profitable, or it will no longer be so strategic.