I love Six Sigma and I love finance. It is my belief that the best odds for a business to exist in perpetuity is to structure the company around a central macro-process with many micro-processes within the macro-process. Companies that are process-centric are inherently mission focused. The main business process connects inputs with outputs. All micro-processes within the main macro-process support the central macro-process and again the company mission. Companies that are task-centric (as are the vast majority job small businesses) are overly reliant on a central figure, such as the owner or other critical team members.
I am an entrepreneur so I’ve had my share of successes and failures. I am convinced that the businesses I’ve owned that I structured around processes out performed the companies that were a team of individuals waiting for their next assignment. I’m not suggesting that people are sitting around waiting to be told what to do, but instead they have a job description that includes “and whatever else needs to be accomplished.” Process driven companies value the process and the positions within the process. Former legendary CEO of GE Jack Welch knew every product GE manufactured and every service it provided, but he didn’t know every employee. I haven’t had the opportunity to speak directly with Mr. Welch, but I think he could recite the processes that make up GE, but not the people that staff every step in the process and subprocesses.
My last company doubled its revenue year/year five years in a row. The first doubling wasn’t a problem, the second doubling was painful; billing systems couldn’t keep up with production, collections slipped, purchasing was unchecked, product quality suffered, less innovation, etc. I realized I was fixing problems as they arose. I knew I had to do something that would help alleviate the operational pains of growth.
I sat down with a friend of mine and discussed the operations of the company. I could tell my friend what the company manufactured and I could tell him the names of its employees and their titles, but the details of their daily work was murky. I didn’t come across as confident as I should have.
I studied ISO 9000 and Six Sigma methodologies to see how they could be employed to improve business. Both methodologies are focused on developing repeatable processes with predictable outcomes. Ultimately, the goal is to do the same thing the same way every time to achieve the same result. Hopefully the process results in a high quality product and by continuing to do the same thing the same way the result is consistent high quality product.
I set out to find out exactly what was going on in the company by interviewing every associate in the company. I also observed the team at work. Next I sat down in front of my laptop and began diagramming the work flow by following the money; the company diagram, or macro-process, began with sales and ended with collecting payment (I decided to follow the money, because that is what is important). Next step was to make sense of what everyone was doing in terms of the greater goal of the company: make money.
I began by creating a flowchart of the business beginning with a sales call and ending with collection payment for the product deliverable. Next I identified areas of multiplicity within the macro-process. Additionally, I put staff names next to each step of the process. What an eye opener.
Admitting the Problem
Some of the ah-ha moments included the times a single document was photocopied, five times for five different files. I was also able to identify my technology needs, such as what are the customer technology touch-points and how do we use technology within daily operations.
The next step in the analysis was to compare my actual financials and budget financials to the company process. The budget changed based on what the company was actually doing. Now I could make much better operational decisions because I truly knew the sensitivities of the company.
The result of this process was I was able to improve the processes within the company. This did not result in a reduction in workforce, but instead it resulted in increased output and improved quality. Additionally, my IT strategy became cogent. Having an IT strategy, even for a small business, reduced my IT costs and took that expensive, confusing and critical part of my company off my plate of concerns. Finally and most importantly the net revenue and net margin increased dramatically.
The company continued to grow and it grew within the parameters of the macro-process. In other words, the company grew but processes and job functions stayed the same. Everyone knew their job and they performed the same job no matter what the work load or revenue volume.