As a small business, how do you streamline business operations to reduce costs and increase profitability?
The first step is to identify the repetitive tasks your business takes to create products, deliver services, provide customer value, work with vendors, or reach a business objective.
Management science views these tasks as business processes. Things have an input, throughput, and output. A business process is to management science what an algorithm is to software engineering.
3 Things You Might Find
You may be surprised to find the following three things when you examine your business processes:
(1) You have no process when you need one. For instance, you may have a negative cash flow and be doing nothing to address the issue like implementing small business factoring. Instead of waiting for customers to pay you after 30 or 60 days, you can sell your invoices to a capital company and receive an immediate advance to cover your overhead.
(2) You have processes that are not working. For instance, you deliver products far slower than customers expect and often get calls from irritated customers who have still not received their shipped products. Instead of trying to do everything in-house with an understaffed company, you could outsource delivery to a fulfillment company and satisfy your customer.
(3) You have processes that are working and should be scaled up. For instance, you have an excellent sales team but are doing little to incentivize them to continue to stay with your company. Instead of taking your salespeople for granted, you could initiate a training program to help them do even better and develop a reward system to win their loyalty.
The Stark Difference between Failure and Success
When your business works well, you can improve every aspect of it. You can run it more efficiently. You can have higher levels of productivity. You can reach a higher level of customer satisfaction.
Alternatively, if your business is hampered by financial losses, frequent customer complaints, a high employee turnover rate, and delayed shipments from vendors, then you really need to look into your processes.
Developing Process Based Management
All businesses have processes. However, many of these processes are reactive, based on stimulus from vendors, customers, and other parties. In a small business, flying by the seat of their pants management style is more typical than the use of process-based thinking.
Using process-based thinking can put you far ahead of your competitors.
A 6-Step Methodology
Process-based thinking does not have to be developed from scratch. There is a tested methodology that you can deploy consisting of 6 steps:
Step 1: Map all your processes.
Begin by identifying all your processes. There may be some that work well and don’t need to be optimized. For instance, you may have a great management team and hard working employees.
Then figure out which processes to work on. You can expedite this by using conceptual tools. For instance, as early as the 1920s, American Engineer Frank Gilbreth invented Flow Charts to figure out the path a process follows. Today, it’s easy enough to get software that allows you to use the Flow Chart methodology to create meaningful diagrams for your processes.
Step 2: Analyze each process.
What processes need to be put in place, adjusted, or scaled up? Begin by looking at constraints and bottlenecks in your business, then figure out if you can apply a process to ease frustration and get things working the way they should. One method of analysis is to use Root Cause Analysis. This works in the same way that a doctor diagnoses a patient and then prescribes a remedy and steps for future prevention.
Step 3: Redesign processes.
Once you know what’s wrong with a process, you can come up with creative ways to get different results. If the solution is not immediately clear, use brainstorming to come up with possible solutions to try out.
Step 4: Acquire resources to improve processes.
Sometimes you may not have the means to fix a process. You may need to raise money, hire an expert, outsource the work, or buy equipment to improve a process.
Step 5: Implement each process.
Now that you’ve figured out what’s not working and how to make it work, you can take the necessary steps to launch the process. Part of this launch consists of informing everyone concerned about the new way you are planning to do things. Many processes are not isolated events, but require a community buy-in to work well.
Step 6: Review your processes.
Your new processes may or may not work. You will only find out through observation. Usually, the best insights come from retrospection as you acquire enough data to notice meaningful patterns. In worst case scenarios, you may have misunderstood a process and need to overhaul it to try again. In most cases, you may have to tweak a process. In rare cases, the process works perfectly right out of the gate.
Every Business is an Organization
Although the words “business” and “organization” are often used as synonyms, small business owners often fail to think of a business as a series of interrelated parts. Instead, they use an ad hoc approach to figure out how to get things done. However, the application of a management science approach can help a floundering business to flourish.
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