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The One Year, Thirty Minute Challenge :: Week 24 :: Business Continuity :: Operations

2020 has been the poster child for disruption. From global pandemic to localized rioting, business owners and managers have faced situations they’ve most likely never seen before. These events and the fallout from them have magnified the importance of a solid business continuity plan.

In the second One Year, Thirty Minute Challenge, we discussed business continuity in the context of protecting the data that powers your organization. This week we turn our attention to operations.

Let’s jump into the exercise.

People

Operations pivot on people and on the skills they bring to the workplace. To mitigate people risk in the context of business continuity –

  • Identify any processes that are not thoroughly documented. If a current employee becomes unavailable, it’s imperative that the processes surrounding their job are accurately and thoroughly recorded. Document not just what they do, but why it is done, when it is done (including deadlines) and to whom the finished work product is distributed. During this week’s thirty-minute exercise, you won’t be able to complete the documentation itself, but you want a complete list of all undocumented or under-documented processes in the organization.
  • Identify options for completing critical work if a large percentage of your workforce is unavailable (as we saw with COVID-19).
    • Can work be completed by other personnel?
    • Are those personnel cross-trained and do they have access to the process documentation from the previous step?
    • Can you access contractors, temp workers, or consultants to complete critical work?
    • If so, who are those people and how quickly can you mobilize them?
  • If your workforce if formally organized (unionized), work proactively before a work stoppage to engineer an agreement that allows the company and the unionized workers to benefit from the company’s success.
  • Make training an ongoing part of the company’s employee development process so that all workers are continually honing their skills and building a broader base of expertise.

 

Infrastructure

Clearly, some businesses, like a hotel, are location dependent and remote work is not an option, but for many other businesses, work can be portable. Depending on the nature of the event that triggers use of the business continuity plan, there are multiple options.

  • If onsite work is required and the primary location is destroyed or inaccessible, a “hot site” can be activated. Typically, hot sites are abbreviated replicas of a primary location complete with equipment and tech. In the event of a disaster, the hot site is activated and workers report to the new site and begin work. Cloud-based systems are accessed from the hot site location and business continues as usual. Obviously an expensive solution, but sometimes necessary.
  • If your business is multi-location, consider moving operations to what would normally be a branch office.
  • If the need will be longer-term (maybe due to something like a fire or flood), consider a coworking space for temporarily housing your operations.
  • In a world of ubiquitous broadband internet service, cloud-based systems and video conferencing, working from home is a more-than-viable option. If you don’t have a work from home policy, work from home procedures or tech that supports work from home, add the development of those things to your to-do list during this week’s exercise. Once you have those things in place, schedule some practice work-from-home days to make sure everything functions as it should.

 

Resources

There are multiple critical-path resources in a business. The absence of any of them can diminish or destroy the organization’s value creation activity. Effective business continuity planning puts those resources back in play as soon as possible – ideally without any interruption to value creation activities.

  • If your organization is dependent on specialty vehicles or other large equipment for which rentals are not available (e.g. tow trucks), craft a plan with a competitor for a shared business continuity plan. You’ll be each other’s back up and you’ll do a pre-negotiated revenue share.
  • If your organization uses specialty tools and those tools become damaged or destroyed, identify multiple sources for replacement tools.
  • Identify multiple vendors for raw materials. Craft agreements with primary, secondary, and even, tertiary vendors for essential items. Nurture the relationships so that each one represents a win-win for both parties. If a primary vendor fails, make it easy for the other vendors to respond quickly. Always track vendor performance in pricing, quality, and service.

 

Finance

Even a brief business disruption can have an oversized impact on sales revenue. Unchecked discretionary spending can quickly deplete cash reserves. Activating the business continuity plan might have its own built in costs (rental charges, overtime), so acting quickly is a necessity.

  • Build a cash reserve much like you’d do for your household. Three to six months of fixed costs, plus all “automatic” business continuity expenses is a good start.
  • Quickly assess the severity (and anticipated length) of the disruption. If necessary, quickly stop all discretionary spending.

 

Communication

Create a communication procedure as part of the business continuity plan. Where do team members go to get the most up-to-date and best information. Who do they contact if they have questions?

One Final Tool

For the final part of this week’s exercise, I’d encourage you to conduct a “pre-mortem”. We know all about post-mortems from every episodes of CSI (or one its spinoffs) that we’ve watched. When someone dies, the coroner examines them closely to determine the cause of death. A pre-mortem is similar, except, for purposes of this exercise, we propel ourselves into the future and pretend that our business continuity plan has failed miserably. Then we ask, “What did we miss?”, “What fell through the cracks?”, “What procedure broke down?”, “Who was unprepared and why?”, “How did we fail the customer?” You get the idea. It’s looking backward at the event from an imagined failed future state. Anything that helps us create another perspective of our response to the disruption is beneficial. Take the results of the pre-mortem and work them back into business continuity plan.

After you have the plan in place, review it with your team and put a reminder on your calendar to review it every six month to make sure everything still makes sense.

The One Year, Thirty Minute Challenge :: Week 12 :: Operations :: Genchi Genbutsu

In the last few One Year, Thirty Minute Challenge exercises, I’ve encouraged you to assemble some trusted team members to complete the exercise. This one is a solo effort. In fact, going solo is at the crux of this exercise.

The inspiration for this week’s challenge comes from the Toyota Production System (TPS). TPS is the poster child for operational excellence. One of the tenets of TPS is Genchi Genbutsu. It literally means “real location, real thing”. You might have heard the usual shorthand for this tenet, go and see”.

Why is it mandatory for an owner, manager or supervisor to “go and see”? Because some things can only be understood by being experienced. Many years ago, I managed a call center. There was a central group of 35 phone agents and 5 ancillary groups with more specialized tasks that together also numbered about 35. For the three years I ran the call center, almost every Wednesday morning (our busiest weekday), I took calls with the operators for three or four hours. I sat in the same cubicles, used the same chairs, talked on the same telecom equipment, typed on the same hardware, used the same software and talked to the same customers. It was the mother of all educations. And the benefits were enormous. I got big time “street cred” with the customer service reps. I knew what equipment wasn’t working well. I knew what worked well with the software and what needed to be changed in the next version. I knew what customers were happy about and what they were frustrated about. It became impossible for my staff to buffalo me. I was able to argue persuasively when I talked to my boss about resources. I would have had none of this had I not “gone and seen”.

Over my thirteen years as a consultant, I’ve checked-in resort guests, unloaded trucks, stocked shelves, talked to client customers about software problems, responded to client customers on social media and more. Why? Because I was working with clients to design processes they could roll out to teams and those processes had to be right. They had to work for employees and customers, and they had to be able to scale. After the work, when I was rolling out those processes to additional teams at the client site, they had been battle-tested and I had the scars to prove it. Afterward, when I was back in the boardroom with owners and CEOs, I was able to report on my work with confidence because I knew that what the client teams and I had created together was bulletproof. When I was advising the client to invest additional resources, I had both empirical and anecdotal evidence that the resources were needed.

The exercise for this week is very simple. What is that operational problem that won’t go away or that process that just seems clunky? The best way to solve it is “go and see”. You might be spending time with your sales team calling prospective clients. You might be on the factory floor examining people, production steps or equipment. You might be hanging out in the accounting department looking at the way you process vendor invoices. You might be evaluating vendor performance. Whatever it is, approach it with the least amount of prejudice possible. Ask a lot of questions and listen intently to the answers.

Here are some questions to answer as you flesh out the operational problem and begin to design the solution. As Charles Kettering said, “A problem well stated is a problem half-solved.”

  • How did we first become aware of this problem? From a customer? From an employee?
  • How can I get the “deepest drink” from this on-ground experience?
  • How long will it take to get an accurate picture of the circumstances that surround this problem?
  • How are employees impacted?
  • How are customers impacted?
  • How is revenue impacted?
  • How is expense impacted?
  • Are we more concerned about “fixing the problem” than “fixing the blame” and have we communicated that clearly?
  • How much of the problem is self-inflicted?
  • Is it attributable to poor product quality or poor service delivery upstream?
  • How quickly can we rectify the product or service problem?
  • Can we identify other upstream causes of the problem?
  • Can we identify other downstream consequences of the problem?
  • Is it traceable back to a vendor?
  • If so, do we have an alternate source that will solve the problem?
  • Can this problem be solved with money?
  • Can this problem be solved with a process change?
  • Is the problem caused by a management failure – lack of resources, poor working conditions, failure to deal with a problem employee, unrealistic expectations, lack of training?
  • Is this problem tied to a “sacred cow” that needs to be sacrificed?
  • Are we hesitating to “pull the plug” because of sunk cost?
  • Have I asked the people most intimately involved how to solve the problem?
  • If not, why not?
  • Can we enlist someone from another discipline to look at the problem, leveraging expertise from an “outsider”?
  • Is this a value-creation activity that should remain in-house or is it a candidate for outsourcing, especially if the outsource provider could do it better and eliminate the problem?
  • After we have a rudimentary understanding of the circumstances surrounding this problem and begin to address it, how can we stay connected to it to make sure the corrective actions are working?

Go and see isn’t effective just for solving operational problems, it’s also a reliable way to design processes for new initiatives.

Balancing Ownership and Operations Responsibilities

It’s been my privilege to work with several family businesses over the last 13 years. In some, the owners have no day-to-day responsibilities, but have turned over operational responsibilities to a CEO or GM. In others, they are both owners and operators. These clients have spanned several industries. However, in one business discipline, for both types of organizations, one challenge is identical, “When owners exercise their ownership responsibilities, on what should they focus?” The problem is more pronounced when, in their day jobs, they have real operational responsibilities. Those demands consistently tug and pull at them, even when they are attempting to wear their ownership hats. But even those owners who have relinquished day-to-day operations to someone else seem to gravitate towards operational problems. I think there are a few reasons –

  • Operational problems are easier – they are more concrete and the solutions are sometimes very clear (or at least the options for solutions are clear)
  • Everyone has an opinion – we all know what we like
  • There is likely some familiarity with the problem, even if that familiarity comes from another life or work experience

However, to effectively position the organization for health and growth, owners need to focus on a few specific items. I created the list below for a family business CEO to guide her family members/staff (who have operational responsibilities) through an exercise during which they could discuss their performance on ownership responsibilities and operational responsibilities. The list below was on the left slide of a table. On the right side of the table was a list of each employee’s specific operational tasks. Below the table were specific questions and performance metrics for each of the bullet points.

  • Culture – Define, model, build and perpetuate it – Culture is the unwritten code of conduct for the organization. It controls the way we treat everyone else in the organization – employees, suppliers and customers.
  • Learning Orientation – Understand that the industry, employees and customers change and so must we. Embrace lifelong learning realizing that we never will “arrive”.
  • Vision – Define the desired future state of the organization – Business composition, value creation, customer experience, investor returns, corporate image.
  • Investment-Grade Decisions – Focus the bulk of ownership decision-making on investment-grade decisions – those that will impact the organization 2, 5, 10 and 20 years from now. Leave operational decisions to those directly responsible.
  • Leadership Succession – What knowledge and experience will those who run the organization in the future need? How will they get it? What is the sequence of events for a family member who wants to join the business?
  • Stewardship – While every owner benefits from the “golden eggs”, their responsibility is to care for the “goose that lays the golden eggs”. How can we best manage the property, equipment, personnel and finances to ensure that the organization continues to generate maximum returns for years to come?

I want to dig a little deeper into each of the ownership responsibilities.

Culture – Peter Drucker reminded us, “Culture eats strategy for breakfast.” Without a doubt, the most important job of an owner is to live the way they want their managers and employees to live. Do you want employees to put the good of organization above their own personal enrichment? Then take a smaller dividend at the end of the year so you can reinvest more in the business. Do you want employees to be good stewards of the organization’s resources? Then don’t use any of the organization’s assets for your own personal use. Do you want employees to treat every customer like they’re the most important one – even if they generate very little revenue? Then show extraordinary kindness to every employee regardless of their place on the org chart. You get the idea. Your example has far greater impact than the mission statement posted on the lobby wall or the employee commitment that the employee has signed.

Learning Orientation – Ego is the enemy – always has been, always will be. As soon as we believe we’ve figured it out, we’ve started the countdown timer for the end of our business. The founding generation and successive generations may have done everything right in steering the organization to its current state, but their brilliant work may no longer be applicable in the future. Every business that wants to survive must engage in creative destruction (Joseph Schumpeter)– regularly replacing outdated production units (products or services) with new production units that are birthed by innovations in both in product and process. Embrace the core principles that make your organization what it is fundamentally, but “kill all the sacred cows” that keep your organization from effectively creating greater value for current and future customers. Keep growing. Keep asking good questions. Keep hiring people who have your core values but approach the world differently.

Vision – No one has a bigger stake in the game than those who have invested their resources in acquiring and operating the business. And no one should have a clearer picture of what that business could or should be. Sadly, I’ve run into several circumstances where that is not the case. Managers or staff members see much more potential and promise in the organization than those who own it. They have a greater awareness of the organization’s challenges and greater clarity of the incredible upside if new markets, products or services were added. Many times, the vision of the founder, which might be several generations old, is still the mold for the business. There’s nothing wrong with that if the vision is big and embraces the change that inevitably happens over the course of time, but frequently that’s not the case. Owners must ask hard questions about the continued viability of the business model (how do we create value and is that value sustainable), the need for ongoing revenue and asset growth and the perception of the organization with customers and in the industry. Then they must craft a vision that clearly depicts a desirable future state for the organization.

Investment Grade Decisions – The challenge of building something that will outlive you is pretty daunting, but that’s the purview of owners. Whether your exit plan is to sell the business, get a payout from the business, pass it on to the next generation or something else, today’s investment decisions make those future plans possible. With the vision firmly in hand, the challenge is to make decisions that truly merit board attention – markets to enter, product categories to launch and facilities to build. It’s tempting to spend time talking about buying delivery trucks, replacing computers and painting bathrooms, but the management staff is more than capable of making those decisions. Give careful attention to the capital and operating budgets at the beginning of the year and, within those constraints, leave those decisions in capable hands. If there’s a seismic shift in the world during the budget year, it’s certainly appropriate to revisit the budget. As the organization grows in size and complexity, there will be increasingly more operational things that clamor for your attention. That makes your commitment to entertain only investment-grade decisions even more important.

Leadership Succession – I didn’t list these in order, but if I did, this probably should have been pushed further up the list. Very few things are more important than the people who are leading the organization. Owners, especially those who have chosen to turn over day-to-day operational responsibilities to a CEO or GM, must be diligent to find, support and invest in the person who will act in their stead every day. For those owners who have operational responsibility, DNA doesn’t automatically equip those in your family tree to successfully lead in the organization. So, whether it’s in the family or someone else, what readies someone to take the reins in the organization? Organizations that successfully pass the torch from one leader to the next are very deliberate about defining the hard skills, soft skills, knowledge and experience that must be present for those in key positions. Then, they make sure they put potential leaders in positions to build those skills. Let me hasten to add this, once the leader is in place let them lead. I hate to pull out an overused quote, but this one from Steve Jobs is pretty good, “It doesn’t make sense to hire smart people and tell them what to do; we hire smart people so they can tell us what to do.”

Stewardship – These stats from the Family Business Alliance should give us pause – More than 30% of all family-owned businesses make the transition into the second generation. 12% will still be viable into the third generation. 3% of all family businesses will make it to the fourth generation and beyond. Every time I read these stats, I think about Aesop’s fable, The Goose and the Golden Egg. If you don’t remember it, a man possessed a goose who laid a golden egg every day. Over time, the man became dissatisfied with just one golden egg every day. He decided to kill the goose and get all the eggs at once. He killed the goose and cut it open. He found no golden eggs inside and the goose was dead. While every owner should enjoy the financial rewards from their business, the ability to change the financial trajectory of an entire family is a wonderful gift. Those who are inclined to take advantage of the opportunity must skillfully manage the resources of the organization so that it continues to create value for customers and generates adequate returns for future generations of owners. To borrow from the fable, enjoy the eggs, but your primary responsibility is to nurture and care for the goose.

Ownership is not for the faint of heart – whether you’re involved in day-to-day operations or not. The challenges are many and the stakes are high – many times effecting the lives of family members and employees who depend on us. That being the case, I want to remind you of something we learned from Gary Keller in his book The One Thing. We don’t want to run the organization the “best we can do it”. That implies that the ceiling is our current level of skill and knowledge. Instead, we want to run the organization the “best it can be done.” The distinction is subtle, but it carries with it a commitment to stay hungry, stay curious, learn, grow and be the best owners we can be.