Five things you can do to improve process management in your company: becoming the factory
One thing that differentiates outstanding companies from mediocre ones is their attitude and approach towards a thing we call: the process.
The best ones apply the best-in-class management principles and process thinking to every part of their organization. Such companies are also under the heavy influence of lean management and the theory of constraints. Less organized firms try to organize things ad hoc; they tend to improvise when they shouldn't, over communicate, and waste a lot of time.
The easiest allegory is straightforward: learn from top manufacturing companies and start treating your business like a production factory (especially applicable for services companies with a lot of human input).
It’s much easier to manage any business if you start treating it like a manufacturing plant.
How to think of your business as a factory?
The way we usually explain it to our clients is simple and doesn't require specialistic knowledge or vocabulary jargon. It relies on a few principles like this:
- Your production lines are moving at a certain speed, but you can work on how fast/slow they move, but only to some extent.
For instance, you can send only a few cold e-mails a day - you can maybe increase it but not two or three times. Understanding how fast you can move in one part is critical as you can plan other things accordingly.
- You can always add another production line, but there will be a production in progress and bottlenecks somewhere you need to remove.
For instance, add another person sending e-mails or running research. In this case, it doubles the production cost and scales only linearly. There might be a moment when adding another person creates production volume in one place, but it gets stuck elsewhere.
- There is an input and output needed to produce things. You can't use low-quality resources if you want a top product.
In other words, you must put the right resources into the machine to receive results. It is also called garbage in =garbage out. You cannot deliver outstanding results if your resource base is poor.
- There is a lead and effectiveness time. Not every task adds value to the final effect, so eliminating inefficiencies is critical.
If your sales team needs to check competitors' prices before submitting a quote or creating every offer from scratch, they spend less time on actual sales or prospecting. Mapping the value chain is essential to understand where you increase and decrease the value.
- Certain things need to happen correctly to deliver the desired impact.
You need to assemble your products in the correct order so they have the right quality and don't increase your cost base. Understanding when your legal process starts in a deal or where you can provide a price quote is necessary to move efficiently in a step-by-step process.
There are more important principles and rules associated with manufacturing. However, we would somewhat oversimplify things than overcomplicate them. Suppose we use the list of rules mentioned above as a general foundation for our thinking and believe that this is how our business works. In that case, we can provide a few good evergreen recommendations for any business.
Recommendation #1: Value Stream Mapping to achieve strategic perspective
Value stream mapping (VSM) comes from lean management and manufacturing. It is mainly used to project, analyze, and manage how production materials and information flow move to produce a final product and deliver it to the customer. In other words, it describes a step-by-step process necessary to provide the outcome.
The value stream identifies two critical things:
a) where your process creates more value
b) where your product eroded the value created
Value stream mapping can be applied everywhere if you assume that everything in your company can be understood as a process: the product and customer delivery flow. Product flow focuses on steps required to optimize product delivery and completion, while customer flows rely on customer needs and expectations fulfillment.
Why is it important? For the same reason why you need maps. They allow you to achieve the helicopter view of your company seeing everything from above. Imagine your playing in any strategic/simulator game, e.g., SimCity, Rollercoaster Tycoon, or Age of Empires. You can fast-forward the game and see how your processes work, where your work gets stuck, and where to move things to make them more manageable, accessible, and better.
Let me give you an example from our own. When we landed a new deal, whoever was leading the relationship moved the piece in a CRM to the "Legal" stage.
Later, our team started communicating with the client to achieve the inputs for the contract, e.g., company details, tax number, etc.
Also, they returned to sales to discuss the contract details, e.g., length in months, estimated number of hours on a project, and deal points. It required an effort from both client and ourselves.
When we mapped the process constant back and forth, we realized the inefficiencies and how they decreased our sales velocity constant back and forth. Not to mention the frustration and fell CX from the client.
What have we done? We have provided mandatory fields in the CRM, which you need to put in to win the deal. All of the inputs were available in the notes anyway, so all you had to do was to fill six more fields.
As a result, we have decreased the sales time of the final stage by 42%. We wouldn't achieve it without the correct value mapping of our processes.
Recommendation #2: Avoid general statements & communicate in numbers to achieve impact.
- "If you can not measure, you can not improve it." - Lord Kelvin
- "Without data, you're just another person with an opinion." - W. Edwards Deming
- "Data will talk to you if you're willing to listen." - Jim Bergeson
Everyone has already published these quotes a hundred times. So why are we doing it again? We want to prove the point and ensure you get it - communicating with the right data points is critical for success.
Every process needs to be measured and understood to the highest possible extent. Remember, you don't need 100% knowledge, but knowing 70-80% already moves the needle from being nowhere. It is also better than chaos monkey random 50/50 decision bet.
Suppose you want to run a successful production company. In that case, you want to measure overall equipment effectiveness, first pass yield, downtime to operating time, throughput, forecast the demand, ensure you understand your lead, cycle, and takt time, and many more. It is all a game of numbers.
If you are in a manufacturing business, I don't need to tell you this, but you are highly likely to own or work at a B2B software or services company. The measurement principles can be applied to everything, even things people might misunderstand as very "soft" and intangible. One of these phenomena was sales or marketing processes.
To give you a good example, a week ago, I was in a workshop with our client, and we were going through a round of price changes for existing customers. There were a lot of quotes like this:
- "A few clients might churn,
- "Some clients said they are accepting the new model."
- "Many people didn't answer the call."
I saw we were not going anywhere and wanted to step in until the CEO came in handy and said:
"Stop. How many? When? Where can I see it? I want facts."
It was super simple, straightforward, and powerful. In 10 minutes, the conversation moved from wishful thinking, beliefs, opinions, and hopes to actual, tangible facts. We knew the percentage shares, size of the customer base, and exact MRR gained or lost due to our actions. It allowed us to propose scenarios and prepare for positive, neutral, and negative outcomes.
Recommendation #3: Reduce lead time by removing inefficiencies to focus on value creation
In the most accessible definition: lead time is the amount of time that passes from the start of a process until its conclusion.
So if I start a process today when the final recipient receives the results, it takes all things that need to happen in the process and considers delays. For instance, if the sales rep requires clearance for signing the deal, which would take 1 hour, but the CEO can do it next week, you have a lead time that takes over seven days, heavily impacting the sales cycle length.
I know that "removing bottlenecks" sounds like a cheap MBA talk, but it is how it works at the end of the day. If you have your processes mapped, you can move towards calculating how long it takes. Then you can start reducing inefficiencies.
Let us give you a story of how our client's product work:
Imagine it takes 60 minutes to sign the document with the employee (let's say it's a contract update) in a company that had to switch to remote due to a pandemic. The most uncomplicated process was the following:
- prepared in Word,
- printed,
- signed by the employer,
- sent to the right person with courier service
- received and signed by the employee
- sent back
- archived
Now, you're implementing a contract management platform, which allows you to reduce the time to only 5 minutes, and you have the following steps:
- prepare the contract in the SaaS platform
- send to the right person
- sign by the employee and employer simultaneously
If you need to sign contract updates or documents at least four times a year (an average for most companies) and you have 350 employees who earn ~$50/h on average, you were losing ~$70,000/year in time & money. With the right tool, you have managed to reduce it by 83% resulting in savings of $64,167/year.
Enough savings to consider hiring a new FTE for a different role or moving someone's talent to a new position in the company. Worth a shot, isn't it?
The critical thing to remember: the impact achieved is created only in this simplified process. You have far more contracts to automate and more and more workflows to improve. Keep in mind that process thinking is about changing the habits in the company, not focusing on the pure output.
We're proud to mention that the case study above is precisely the case of our client: Pergamin, one of the best contract management and e-signage on the market. We have produced the value analysis with them, based entirely on their case studies. See their materials here.
Recommendation #4: Control production in progress and remove bottlenecks
There is this thing about the production: no matter how optimized it is, there is always a high chance it might get stuck somewhere due to bottlenecks.
A bottleneck occurs when a single component limits the overall capacity. It takes its name from the neck of a bottle slowing down the general water flow. The bottleneck has the lowest throughput of all parts of the process.
Imagine what happens on a highway when they close one lane. Or why the general traffic jam occurs. There is a limited capacity when encountering a specific flow of items to digest.
There is an elementary example:
- you have two machines: an "item" one and a "parts" one
- your "item" machine, at maximum capacity, can produce only one "item" in 60 minutes and requires 5 "parts" for production
- your "parts" machine, at maximum capacity, can make 10 "parts" within 60 minutes. The machine doesn't require any input.
To produce 10 "items," you need 120 minutes because the capacity doesn't allow for full-speed production. Other "parts" need to wait in the queue line.
When your "parts" are still in the production process, and your "item" machine produces them at the same speed, the "parts" start to pile up, resulting in high items in stock and inefficiencies.
Effectively, you have a few ways of solving this problem:
- Ensure the "parts" machine works only half the time.
- Create a pile of stock "parts" and produce from time to time.
- Buy another "items" machine.
- Increase the production capacity of the "items" machine.
As you can see, scenario 1 ends up with high inefficiency, scenario 2 requires warehousing costs, and scenario 3 requires capital investments. Contrary to them, there is scenario 4, which assumes you can optimize the current process. Naturally, it might require effort, money, and time, but it's the best scenario if you manage to do it.
The example from the above is oversimplified, but it shows how to approach your lean management. Try focusing on improving inefficiencies and then move towards more radical steps. Few examples of bottlenecks in services companies:
- a cold e-mail account, which can send only 25 e-mails a day without getting burned, and the researchers can produce 50 contacts a day
- a software developer who can do a specific type of work while no one can (read "Project Phoenix" as there is a fantastic example there)
- a customer support specialist who has only 8 hours and 20 clients for 30 minutes call
- a busy CEO who needs one hour to work on the agreement with a huge lead but can only "sit on that" in the next three days
Realizing that the executives create the most bottlenecks in companies is mindbending. I have invented two rules we use at Valueships and also recommend them to the clients:
1) "In the long run, every high-salary senior employee should focus on ensuring a maximum percentage of their day-to-day duties go to lower salary junior employees or automate the tasks completely.
At the same time:
2) "In the long run, every employee should focus on ensuring a maximum percentage of their day-to-day duties impacts the profitability of the company: either cost reduction or revenue increase."
With the 1st principle, you can focus on developing your skills and career, automate redundancies or kill low-value tasks, save expensive hours, and utilize them better. You are effectively removing the bottlenecks in people's work.
The 2nd principle allows us to ensure profitability, which creates a culture that discourages the creation of competing counties, doing redundant, idiotic, and irrelevant tasks to others, even though they don't make sense.
Final Recommendation #5: Ensure you see everything as a system of pipelines of critical factors.
What is the biggest problem in production? When it stops. For whatever reason it happened, delays and process outages are the worst.
You want to ensure the processes in your company move smoothly and don't crash. However, you also don't want them to deplete in any way.
It sounds simple, but ask yourself: "what would happen if I had focused my efforts on ensuring at least one process in the firm goes smoothly and without errors?". All the things we have written above are summarized in this section.
Every good factory relies on multiple elements: production throughput, maintenance, supply chain, procurement software, etc. All these things need to move with the correct flow. Otherwise, you won't be able to utilize the resources correctly.
Imagine a stable and predictable pipeline of leads fueling your sales process or productized projects you can do so there are never fires to cease. It sounds like a dream, but the best companies strive to make it happen.
I don't even need to mention the prominent manufacturing examples such as Toyota, Hyundai, or Volkswagen and their production excellence. Watch the video of Toyota's factory to see how smoothly the lines move and what happens if there is an error. What I love about this example is that many operational innovations (see window fetcher) come from people - they're almost entirely bottom-up.
There is also Alcoa with its outstanding "zero accidents" policy. It's good to mention Caterpillar or John Deere with their industry 4.0 predictive maintenance to give their clients a stable work environment (they will replace the parts before they break).
Pipeline management can even become your new revenue stream and create innovative value propositions, as with the case of Michelin, which moved from selling tires to monetizing mileage with their tonne-kilometers approach. Similarly, Rolls Royce charges you when your engine works efficiently to make your airline's flight schedule runs smoothly without problems.
But the case is the same for services companies. For example, if you go to Nielsen (a top marketing research agency), they will most likely offer you something based on their framework and already known approach. They know how many people should be staffed on the project and how many hours, and they tell you exactly when you should expect the output and how it will look.
If you go on a Hubspot website, you have already entered a well-thought pipeline process supported by SLA mechanisms between the marketing and sales teams. "The Sales Acceleration Formula" book describes how the company managed to ensure the stable inflow of inbound leads and how well they process it in their system.
A top software development company will ensure they have the right balance between projects sold and a bench of developers they hire. Now you can only imagine how hard it is to do it. That's why 5% of companies in the Polish market capture 95% of the revenue. When the winner takes all, those who have achieved operational excellence take the majority of the cake.
Summary of "Becoming Factory"
Creating a stable process pipeline flow is not easy, but it relies on a few principles and summarizes the points from above:
- Map your current process and see where you increase and decrease the final output value.
- Measure everything and track everything. Without that, there is no way to take action. Check if you have a measurement for every step of the process.
- Remove inefficiencies and reduce the lead time between the steps, e.g., through automation or removing/improving grades with no value.
- Track production in progress to remove bottlenecks. You have a map; you know where the destinations are; you even see the length and complexity of the routes. Now try avoiding busy roads.
- Apply systems thinking to your complex set of pipelines. Every little thing you and your people do in a company regularly can be described in a process. And if you can map it in the process, it can be measured. If you can measure it, you can optimize the redundant tasks or remove the bottlenecks.
Speaking of bottlenecks, maybe you as a CEO are the biggest one in the end?
