Your Business Is a System
To Make Your Business…
● More Efficient
● More Profitable
…Think of it as a System
Your business’ efforts to turn customer interest into profits is like a chain; it’s only as good as its weakest link. That’s why it’s a good idea to take a step back and think about your business as one whole thing rather than as the sum of its parts.
The idea of is to imagine any enterprise (like your company) and think of its workings like it’s a machine… one big system where one process naturally follows another until the job gets done. We sometimes like to relate this to the idea of a “black box”, where you feed one thing in the front and another thing comes out the back.
Thinking about your business as a system is a powerful strategic tool that helps you identify what parts of your operations are holding you back from growth or greater profitability. Systems thinking helps clear away clutter and focus on how the whole operation is working. By pushing aside concerns about each activity, you can see how operations flow. And seeing this flow, you can identify the bottlenecks and weaknesses that are the real limitations of your business.
At its most-basic level, customer interest comes in the front of your business and cash comes out the back. Of course there are lots of processes and subsystems at work beneath the covers. These are all the things you do to qualify work, win jobs, coordinate, execute, complete, bill and collect revenue. It’s easy to get caught up in the day to day of managing and running the inner-workings of the business. But no matter what goes on inside or what you do to measure and optimize it, you should never forget this one important measure of your level of success: its output.
For most businesses, the final output is some measure of monetary value, and the primary goal of making the thing work is to maximize this output.
For smaller businesses, this is easily measured in cash. As your business becomes more complex, you might see is as equally desirable to build other liquid assets, grow inventory, cancel debt, or build equity. These are all good outputs too, but cash is best… so we’ll just call this output of value “Cash”.
And for the sake of simplicity, we can usually reduce our goals for this system to variations of just 3 things:
1. Get the most cash possible out of the system (Profitability)
2. Get this cash out of the system as fast as possible (Velocity)
3. Get the best possible rate of cash output / customer interest input (Efficiency)
You may have other goals for your company that go beyond simple output, and that’s fine too. If being a great place to work is in your charter, or if you want to give back to the community or be a champion of sustainability, that’s great. But for the sake of thinking about the system, we call them requirements and don’t make them part of the output. So you’re still just trying to maximize your output, but now the system requires you to support these other goals too.
A Tool To Help You Improve
It’s really just a process to help you boil it down to a flow of how your business works and how to optimize this system to become a cash-producing machine.
An interesting thing happens when you start thinking about your business as a “System”. You start to separate the results of your company from the results of each job or the performance of each employee. After all, individual areas of excellence aren’t very important unless they help the entire system perform better and help your company be more effective and more profitable.
For now, try to imagine your business as one big machine and think if you can identify any bottlenecks that are preventing the machine from working at full capacity… address those shortcomings, and you’ll start building for more efficiency.
How many systems drive your business?
When you start thinking about your company as a system, you’ll quickly recognize that there are several interdependent functions going on inside. And each of these functions represents its own independent subsystem… a system all its own.
So one of the first tasks in evaluating the overall system (your business) is understanding how many independent subsystems are at work within it and how they relate to each other. Ideally, they should work in harmony, but that isn’t always the case
The Traditional Segmentation of Businesses
Traditionally, many companies look at each of these systems as an independent thing and may ignore their dependencies on each other. And this habit can be reinforced by the way we staff our companies, with departments or teams headed by a supervisor that is only responsible for their own, limited part of the operation.
The problem is that this “Inward Focus” leads one group within your company to be indifferent to the performance of the others. You may have even seen examples where one group excels but focuses so much on its own responsibilities that it detracts from the groups around it.
The Inward Focus
A few years ago, I worked for a 45-Million-dollar Landscape Construction and Maintenance company. The entire place was separated into uncooperative groups. Design, Construction, Maintenance. The CEO lacked the will, skill or power make the division leaders work together, which led to infighting and dysfunction.
Each VP was more interested in making their own little kingdom look good than they were on making the company perform better.
In the end, we would have all been better served by divisions that worked together for a mutual goal, rather than working only for their own isolated benefit. The end result was minimal cooperation across divisions and a company that grew at half the rate of the market around us.
This is one example of what the Corporate Executive Board calls the “Performance Gap”, the difference between the performance of an aligned company and one that is unaligned. And a big benefit of thinking about your business as a single system is to get all the parts to work in the same direction for better alignment and better performance.
Part of this is getting each part of your business to see that their job is not only to perform their own functions well, but (and more importantly) to help the entire system perform better. Depending on how you run and evaluate performance within your company, your “Star” employees may even be the ones preventing you from performing better!
Breaking the Cycle
By prioritizing the workings of each function to support better performance across your entire organization, you can help the whole system perform better.
In Your Business
Let’s think about a couple of systems that work separately but are interdependent. In any business, there’s a Sales process, followed by an operational process (doing “the work”), followed by a financial (billing and collections) process. These follow a chronological path that in general looks like this.
Sales –> Operations –> Financial–>Profits
That is not to say that the sales process is finished once production starts, but rather that the first selling (Sales) activity comes first, followed by the first execution (Operations) activity, followed by the first billing (Financial) activity, followed by the (Profits) the ultimate activity. By necessity, many businesses just can’t start them in any other order. The systems approach to optimizing this system is to recognize that the start of billing is dependent on reaching a certain point in operations, just as operations can’t commence until the customer has agreed to the sale of service.
Bottlenecks – To Be Relieved
You end up seeing that there is a series of handoff points, which can become to progress. Part of your company may be working on less-important tasks or even waiting idle, while they wait for the previous system to ‘get done’ and reach the handoff point so they can get to work.
In the Systems view, we recognize that relieving a bottleneck can have a huge impact on improving your company. You can make your whole business perform better (Relieve the Bottleneck) by improving the performance of only one group, if it helps them reach their handoff point faster, which allows the rest of the process to get started.
As a simple example, you may have a work scheduling system that relies on a customer credit check before staring a job. If this normally takes a day to complete, you could theoretically improve your performance by 23 hours and get jobs done a full day sooner if you start a process that enables credit checks in an hour instead.
Which Improvements Matter?
The Systems view also recognizes that improvements in one area are best able to improve the whole system if they relieve the weakest point. If your weakness is in production, adding sales capacity isn’t going to do much to help you book more billings. The best path to improvement is to:
1. Find the weakest link in your system
2. Fix it
True systems improvement often means you start off by recognizing one bottleneck and fixing it. Then, this change improves performance downstream from the bottleneck, causing another, new bottleneck to appear later in your process. After you go through an entire series of changes, you may even find yourself back at the first bottleneck because it has become the weakest link in your system again.
Identify the Bottlenecks
As you look through your company, you can follow progress from one bottleneck to the next.
Look for ways to improve system performance by working from start to finish and addressing each handoff point or each time one process has to wait for another.
If you can do this systematically, you can improve the entire process to help your company work faster, better and more profitably.
Uncork the bottlenecks…
…Show me the Money