Pinnacle Business Solutions
Financial Review Issue #28 
Increase Business Profits with Process Improvement and Performance Monitoring!


Process Improvement / Performance Monitoring
Overview

In today's competitive marketplace, almost every category of product or service is characterized by accelerating changes, innovation, and massive amounts of new information. Much of this rapid evolution in markets is fueled by changing customer needs. Significant customer behavior and market changes happen almost overnight. Changes in market preference or technology, which used to take years, may now take place in a few short months. For example, the product life cycle for new consumer computer technology and computer printers is estimated to be as little as six months. Computer marketers must carefully plan one or two new product introductions each year, with contingency plans for making design changes with current product lines as they are being manufactured.
 
As the pace of change accelerates, it becomes more difficult to maintain profits, growth and stable relationships with suppliers, customers, brokers, distributors, and even your own company personnel. "Putting out fires" and reacting to new emergencies is unfortunately the norm for many large and small companies caught in the crossfire of technological change.  Are competitors stealing your best customers while you are out looking for more? Does your company have limited financial, personnel, and capital resources which make it especially vulnerable to instability brought on by rapid changes in customer behavior?  One way to help ensure your business success is to make quality, customer satisfaction and process improvement a top priority for your company.  It is essential for a small business to compete against both smaller and larger competitors.
 
 
Solution 
 
Many business owners want to improve their business performance, who doesn't?  However, when asked what processes they use to improve their business performance, the response is often we don't have a defined process we just try to do better every year or our sales are increasing each year, we must be doing well or these processes take too much time or cost too much money.  In many instances, they spend no time monitoring performance instead they make decisions purely on gut feel.  Many business owners really have no idea how their business is performing on a periodic basis, what the key drivers of their business are, or if they are creating additional business value.  What they don't realize is that it is very difficult to improve your business in a particular area if you don't know where you currently stand.   Furthermore, many don't realize they could be growing faster, reducing more risk or generating even more profit and return on investment, if they only had a good process improvement and performance (operational and financial) monitoring program.
 
Benefits
 
Most companies, small and large, operate well below 100 percent of their potential efficiency. Some of this underutilized potential may be measured in quantitative terms, such as plant capacities, the ratio of parts meeting standard to the number of rejects, or the turnaround time for orders to delivery. However, much of this underutilized potential is more subtle, difficult to see, and difficult to correct.  What is your evaluation of operating efficiency for your company? 50 percent? 75 percent?
 
Most companies survive with large inefficiencies and unnecessary costs because they have reached a point with large enough sales and margins that these problems may not be readily apparent.  In successful process improvement programs every employee in the company can provide examples where efficiency can be improved. If employees are encouraged and rewarded for process improvement participation, with higher job satisfaction and perhaps even financial incentives, customer satisfaction, production, efficiencies, sales, and profits will increase - often with fewer people than before.  Costs and customer problems will decrease. 
 
What are the cost-savings for increased good will or customer loyalty? These intangibles can lower costs and yield tangible gains in productivity, sales, and ultimately profits. When each employee is personally committed to quality and customer satisfaction, people will be doing more things right and better the first time. This results in lower costs, less waste, and higher productivity. These process improvement programs are a tried and tested approach to managing the organization's processes so that they consistently turn out products and services that satisfy customers' expectations.
 
Program Characteristics
 
Process Improvement Programs such as ISO 9000 have several key characteristics, these characteristics are listed below:
 
Customer focus -
Organizations depend on their customers and therefore should understand current and future customer needs, should meet customer requirements and strive to exceed customer expectations.  
Key benefits: Increased revenue and market share obtained through flexible and fast responses to market opportunities.
 
Leadership - Leaders establish unity of purpose and direction of the organization. They should create and maintain the internal environment in which people can become fully involved in achieving the organization's objectives.
Key benefits:  People will understand and be motivated towards the organization's goals and objectives.
 
Involvement of people - People at all levels are the essence of an organization and their full involvement enables their abilities to be used for the organization's benefit.
Key benefits:  Motivated, committed and involved people within the organization.
 
Process approach - A desired result is achieved more efficiently when activities and related resources are managed as a process.
Key benefits: Lower costs and shorter cycle times through effective use of resources.
 
System approach to management - Identifying, understanding and managing interrelated processes as a system; contributes to the organization's effectiveness and efficiency in achieving its objectives.
Key benefits: Integration and alignment of the processes that will best achieve the desired results.
 
Continual improvement - Continual improvement of the organization's overall performance should be a permanent objective of the organization.
Key benefits:   Performance advantage through improved organizational capabilities.
 
Factual approach to decision making - Effective decisions are based on the periodic analysis of data and information
Key benefits:  Better, more informed, decisions.
 
Mutually beneficial supplier relationships - An organization and its suppliers are interdependent and a mutually beneficial relationship enhances the ability of both to create value
Key benefits:  Increased ability to create value for both parties.
 
These process improvement techniques can be applied to every area of your company such as: Sales, Marketing, Manufacturing, Operations, Customer Support, Engineering, Product Development, Finance/Accounting, Legal, Human Resources.  Furthermore, they usually lead to: setting challenging goals and targets, regularly monitoring performance toward those goals, holding people accountable for their actions, rewarding good performance, continually improving the system through measurement and evaluation, improved, consistent and predictable results.
 
Exercise

Try a quality improvement exercise. Every company, regardless of size, can improve quality and customer service. A simple exercise to improve quality is to track an order from its inception to final delivery. Try this checklist and see if any improvements can be made: 

How are products and services sold (with what materials)? 
How and by whom is the order obtained from your customer? 
How is the order recorded for your company and your customer? 
How is the order processed within your company? 
Is there a system to check for any order discounts to customers? 
How long does it take to process and deliver the order to the customer? 
Do you have any accuracy checks for the order, with the customer and internally?
How is the final product or service delivered to your customer? 
Have you checked customer relationship "manners" with everyone who has direct contact with your customers? 
Have you allowed everyone associated with order processing to meet periodically and discuss improvement possibilities? 
Do you have a customer follow up procedure for orders? 
Do you review your order and service satisfaction level at least quarterly with each customer?

If your competitors are stealing your best customers or you have limited financial, personnel, and capital resources to compete in this rapidly changing marketplace, one way to help ensure your business success is to make quality, customer satisfaction and process improvement a top priority for your company.  The more participation by company employees in process improvement programs and the more ways they think up to improve customer satisfaction, the better the results!  A solid process improvement and performance monitoring program can get your company growing faster, reducing more risk, and generating even more profit and return on investment.
 
Please call us if you would like to discuss this or any other financial, accounting, or tax issue further.
Sincerely,
 

Paul J. Beckert MBA, CPA
President,
Pinnacle Business Solutions
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Key Points of Interest

Many business owners don't realize they could be growing faster, reducing more risk or generating even more profit and return on investment, if they only had a good process improvement and performance monitoring program.
   

Process improvement techniques can be applied to every area of your company such as: Sales, Marketing, Manufacturing, Operations, Customer Support, Engineering, Product Development, Finance/Accounting, Legal, Human Resources. 

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