Why systemised businesses are worth more

The value of a business depends on its growth prospects, profitability, cash conversion and the degree to which that future cash flow is at risk

o One of the main risks for small businesses is their reliance upon key personnel, particularly the owner, who know and do things that no-one else knows or can do

o This risk is present even if you have no plans to sell the business. If you the owner or one of your key staff are unable to work for an extended period what happens to your business?

o Systemisation is the process by which the processes of the business are documented and standardised and reliance on any one individual is removed

o This process also makes a business scalable; the processes can be replicated, additional staff can be selected and trained and the business can grow beyond the constraints of any one person

How can a business be systemised?

- Document all your processes. Start by asking all your staff (including you) what they spend their time doing and build up a diagram of the different flows of work from the start (say a customer enquiry) to the end (say an invoice paid)

o Post-it notes are a good way to do this. Use different colours for different people or departments and put a different task on each note. Record key dimensions on each task – how many times, how often, how long it takes. Record problems or issues with the task. Organise the notes into sequences of tasks (processes)

o Turn the hierarchy and sequence of notes into your draft written operating manual

- Identify where only one person has the skills to carry out a particular task and examine ways to enable more people to do this

o Delegation and recruitment

o Training

o Cross-skilling, so that people can turn their hand to multiple roles

o Altering the task so that it becomes less specialised

- Look for opportunities to improve processes

o Complexity that has arisen for no good reason over time

o Bottlenecks

o Different ways of carrying out what is essentially the same task

o Specialised resources being used for mundane tasks

- Automate where this is practical

o Streamline and speed processes up using computers and the internet

o Look for opportunities to provide self-service – this reduces cost and improves customer service

- Finalise and issue the operating manual

o Institute regular audits to ensure the manual and the reality match

- Starting with you, the owner, develop a succession plan

o Named individuals selected or recruited to replace the people above them

o The appropriate development plans in place for these individuals

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Improving productivity

What is meant by “productivity”?

- Productivity is a measure of output for some measure of input

• Maintenance visits per hour of direct labour
• Cakes sold per hour of shop assistant labour
• Boxes produced per square metre of steel
• Helpdesk calls closed per man-month

- It can apply to a person, a department, a company, an industry or even a country

• For your business you can choose whatever measures are most useful

Why is productivity important?

- Productivity has huge impact on profitability as shown in the table

• The company has 8,000 hours per year of productive labour. The budget is based on these hours producing 100 items which results in a 10% profit.

 

 

• A 10% improvement in productivity (each person on average producing 10% more in a given period) results in a doubling of profit
• A 10% deterioration in productivity results in no profit being made at all

- The same model would apply if the cost were raw material (the efficiency in this case being yield or, conversely, wastage) or machine time (utilisation)
- This approach applies to services as well as products

How can productivity be improved?

- Decide what it is you produce (the output) – this may not be obvious in a service business
- Identify the main costs or resources utilised in production (the inputs)
- Define your productivity measure(s) – in the above table it is labour hours/item
- Monitor productivity over time and between different employees or resources
- If the main productivity factor is labour then improvements can be made in training, supervision, communication, standardisation, documentation, tools, systems or support
- For non-labour measures examine product or process design

 

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Market triggers

What are market triggers?
- Most products and services have some kind of event that triggers the customer need
- These triggers may be seasonal (school uniform, umbrellas), calendar-driven (payroll, VAT returns) or ad-hoc (marriage, moving house)
Why should you understand your market triggers?
- Understanding your market triggers will help you to position your product or service where it is most likely to catch the customer at the right time or place
o If you run a carpet cleaning company then demand for your services might be triggered by someone moving into a new home – so post leaflets through the doors of houses with “sold” signs
o If you print business cards and stationary then demand for your services might be triggered by someone setting up a new company – so subscribe to a company registration data service and send start-ups a brochure
- Understanding the customer motivation will help you best meet their needs and so improve sales conversion rate
o Make it part of scripts and qualification to ask why the prospect is looking for your product or service
- It will help you cross-sell or up-sell other services related to the trigger
o Someone who gets divorced may well need a new will
o Someone who hires a lot of new staff may well need employment policies
- It will suggest related complementary services and so which strategic alliances would be beneficial to you
o Solicitors will form alliances with estate agents to get access to conveyancing work

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