Business is tough. Uncertainty is playing a heavy role in business decision-making and many decisions are not being made as a result, affecting bottom line profit. ZEIT.de reported, “Volkswagen on Friday reported a ‘massively restricted supply situation’ that has caused ‘significant disruptions in global vehicle production.’” Uncertainty abounds.
In other industries such as travel and hospitality, the effects are massive but also highly varied. Marketwatch reports, “revenue per available room — or RevPAR, a key financial metric in the hotel industry — tumbled 81% from the same period a year ago … ‘Never in Hilton’s 101-year history has our industry faced a global crisis that brings travel to a virtual standstill,” Chief Executive Christopher Nassetta said in June.’” A 257-year-old inn owner “with help from point-of-sale technology already in use, … was able to create e-commerce sites within hours of hearing that liquor stores were closed, to sell not just her wine but also branded sheets, candles and soaps, figuring people may want a piece of the vacation they could no longer take.”
The cohesiveness and agility of an organization is being proved. Communication and teamwork are being reinvented and tested through exclusively virtual interactions and business practice and processes.
Companies are fighting for survival. Small firms are particularly strained to keep employees connected and productive while not being able to meet in person, chat and share an environment. The last thing that a CEO, owner or director needs when navigating tempestuous seas is to have to verify that the compass is reading correctly, or how well the depth gauge is working. Decisions need to be made with the right, accurate information on-hand to be able to seize the opportunities and avoid the risks of our time.
At the Helm with Confidence
There are 4 areas where a business can take action to improve decisions and increase profit, whether running a sophisticated ERP system or working from a conference room white board.
Develop Employee Transparency
Employees are the greatest resource of the company. Change will take place where they work.
Information flows to and through each one, enabling intelligent reaction whether facing a customer dealing with a new challenge or assembling a module into a product on an assembly line. They should be able to see the company strategy (communicated using a Strategic Planning Sheet, VSOWTM Tool 2, or its equivalent) at work in their work areas – and if not, they should have an idea of what needs to change.
Presenting employees with an overview of operations is important to help them understand their environment. With this information they are in a better position to take relevant pieces of information and help it get to where it is needed or valuable. This can be accomplished using the VSOWTM System of Work (Tool 6).
Tool 6 – System of Work
Capturing the responsibilities and actual activities of employees in an open and trusting manner found in the Task Matrix (VSOWTM Tool 9) and balancing these responsibilities with the available time is important for establishing a feasible, stable operation. This functions in conjunction with the use of work instructions (VSOWTM Tool 8), which also provides focus on inputs and outputs. Making these transfer points robust by clearly identifying the input needs of each process allows for providing all the right information or goods accurately and in time.
Give Employees the Numbers
Employees need orientation of where this system stands. Often a senior director or C-Suite representative will present numbers to a gathering of employees. He or she may receive and answer questions about the operation. But these meetings cannot take place often enough or in a relevant enough way to influence the daily operation of the business.
First, every employee should know what it takes for the business to make money. Simply driving employees to maximize output for profit will eventually result in exhaustion and listlessness. First when an employee can relate his or her activity to the business achieving financial Break-Even, he or she has a real means of measuring success and driving toward profitability.
The Break-Even Point can be simply found at the point where Throughput (Revenue – Cost of Sales) is equal to Operating Expenses. Cost of Sales in this case are materials and per-product costs, but do not include labor, except for contract out-of-house labor, sales commissions, and royalties. Direct and indirect labor costs are combined with fixed and operational costs to comprise Operating Costs. These elements are all readily calculated and displayed in the VSOWTM Tool 3, Financial Planning Sheet.
The Break-Even Point shown in this manner provides a clear path for decision making, particularly in determining whether to pursue business opportunities, or whether to actively manage product mix to improve Throughput.
These elements comprise part of the Scoreboard (VSOWTM Tool 7) of a business, which helps employees to see – as real-time as possible – its performance. Other parameters to help employees react to business dynamics are also necessary. This may include sales quotations, customer information engagements (from email clicks to participation in product seminars) or equipment utilization. These “lead” measures help drive action, while the Scoreboard also helps employees to see the overall profitability and cash position, examples of “lag” measures.
With a Scoreboard, now not just Go/ No-Go or product mix decisions, but also process-related decisions can be made, based upon the results shown. Particular emphasis is given to lead-parameters, which drive the business.
Once employees have these things at their avail, action will become apparent. This may be significant in relation to the employees’ daily workload.
These actions can be managed with a Project Planning Sheet (VSOWTM Tool 5) to capture the 5W2H’s: what needs to be done and why, who is doing it and where, when it needs to be done – as well as how it will be done and how much it will cost – time and money.
Each significant, discrete project should be captured and broken down into tasks. As a rule of thumb such tasks may be work that requires between an hour and a couple weeks to accomplish; this can be managed in regular progress meetings, to be addressed later.
In order to follow assist the actions in the Project Planning Sheets, teams need to come together to determine and collaborate on solutions to issues that arise, and to provide accountability to managers of the business.
These meetings are captured in the Meeting Matrix (VSOWTM Tool 11) and the available time for these is managed in the weekly and/or monthly Time Matrix (VSOWTM Tool 10). Here the balance between relevant involvement and demands of available time is made. If a meeting is not in the Meeting Matrix “it is not happening” and if an employee is not responsible for a meeting agenda item, “he or she should be somewhere else.”
“Meeting” is often something of a taboo word, a necessary inconvenience. This is a result of culture. If meetings become more burdensome, marginally relevant, and uninteresting, then a cultural change is needed. When the above steps are taken, meetings will take on a whole new look, and employees are more likely to be engaged and productive in them. A focus on increasing throughput to increase profit will become a common thread through them, and the need to justify meetings diminishes.
Remove Constraints and Improve Throughput
After transparency, numbers and action, constraints will almost certainly surface.
As described in the every business system has a constraint that limits its throughput. Using the VSOWTM Tool 12, the Throughput Improvement Plan enables a team to attack the constraint by identifying the interferences that cause it. This process is outlined in some detail in David T. Lord’s book, “The Visual System of Work” and the practical application is detailed in his new book, “The Visual System of Work Toolkit.” (link TBD, upon release)
Once the interferences are identified, the Project Planning Sheets will be used to break down each interference into tasks, which are distributed to the team.
Out of the employee meetings to determine and address the interferences, these projects will be given the appropriate priority in the Meeting Matrix, the Time Matrix, and the Task Matrices.
As one interference after the other is resolved, the constraint to which they contribute will open up and throughput will increase. Then the next constraint will emerge, and the TIP process can be applied in turn to that constraint.
At some point, the throughput of the business will reach market saturation. Demand meets and may exceed the business’s ability to sell the output. As Goldratt explains in his classic book, The Goal, he ideal point of throughput is just slightly below the market demand, so that no money is lost in excess inventory.
Continue Improvement, Make Money, and Generate Cash
When these elements are working on an ongoing basis, a business will have all it needs to make money and generate cash. If the hurdle seems high to accomplishing all of this, then it is likely that the burden is not yet being carried by all the available shoulders of the employee team in the business.
If all of this seems vaguely familiar but distant and abstract, it is necessary to get a start first. There are 12 Tools in the Visual System of Work to “help a business make money and generate cash.” Usually within 90 days a business will see tangible results.
If it all seems too good to be true, have a look at the testimonials in the new “The Visual System of Work Toolkit” book, and read about how company owners and managers used these tools to do as described above. These are just a few of the stories that there are and there are many more to come. Perhaps your story is the next.
We would like to introduce you to the Visual System of Work to help your business. To learn more, schedule an appointment with us to discuss your situation and establish a plan to make more and more money, faster and faster.