Archive for February, 2011

Don’t Fire the People. Fire the Processes.

Monday, February 21st, 2011

Not surprising, lack of revenue can be a main reason for a business to fail. What is more surprising is that too much revenue can also be a reason for failure. As businesses grow, functions that worked well when they were small don’t seem to work anymore.

Let’s take the example of a small company that resells products they purchase from manufacturers. The owner and one other salesperson handle sales. They call the orders into the office where the office manager enters the orders into the accounting system and prints out a copy for the shipping department. They sell twenty different products from two manufacturers, so finding the items to ship is not difficult. Once a week the warehouse manager looks at the inventory and places orders with the suppliers. Customers are happy. Service is good and the company is profitable. The owner is not getting rich, but making a decent living.

Fast-forward five years. Business has been very good. The company now has ten sales people. The product lines have been expanded and now they sell two hundred different products from ten suppliers. But there are problems. Complaints from customers are common. Orders seem to go missing. Even when orders aren’t missed, not having all the requested items in inventory is frequent. Long-time customers have left. Staff turnover is high and overhead eats up any profits. While revenue is much higher, the owner is making less money now than he did when the business was smaller.

A typical reaction to things such as orders being missed and inventory not being resupplied in time is to blame the people. It’s the office manager’s fault for the staff not accurately entering orders. It’s the warehouse manager’s fault for not ordering enough inventory to fill orders. But the real answer here is not to fire the people, but rather to fire the processes.

Business for the most part is a series of processes. Order taking is a process. Having the owner and one other salesperson call in orders to the long-time office manager worked well when things were small. But that no longer works when the product list is more complex and new salespeople are talking to new order takers. Order fulfillment is a process. Again, having the office manager print the orders and walk
it down to the warehouse manager worked well when the business was small. But as the business grew, that process started to fail. Order takers would forget to print the shipping instructions or delay in walking them down to the warehouse manager.
Purchasing is also a process. Walking through the warehouse once a week was fine with twenty items ordered from two suppliers, but mistakes are easy when it’s two hundred items from ten suppliers.

The key to surviving success is to reinvent those processes. Fast-forward another year. Instead of orders being called in by the salespeople, a mobile app was created so salespeople can use their smartphones or iPads to take orders and enter them
directly into the accounting system. Customers can also place orders online through a web application. The accounting system now talks to the warehouse system, so shipping labels and packing slips are created automatically when the customer or salesperson enters the order. Orders no longer go missing. The warehouse system also talks to the accounting system, and purchase orders are created automatically
at specified inventory levels. Customers are satisfied again and staff turnover is low.
Most importantly, the business is very profitable.

To survive success, it’s important to have a technology partner who understands
how to apply technology to improving your processes. There are many software
development companies, but few who can work with you and assist you in refining
those processes. That partner is a crucial part of your success strategy. As a
business owner you have intimate knowledge of your business. You understand
what your customers want and don’t want. You understand which manufacturers
produce quality products and which ones don’t. Likewise, a quality technology
partner has intimate knowledge of technology tools and how to apply those tools to
fix the challenges facing your company.

Business can be difficult at times. To prosper, it’s important to select the right
partners to provide assistance. A quality technology partner who understands how
to apply that technology to improve your business is key. And when things are
going well, remember to not fire the people, but fire the processes.