“No company ever shrank to greatness.” (1)
That quote caught my eye as I scanned the shelves of my local used bookstore. As I thumbed through the book’s first chapter discussion of the diminishing value of downsizing, I wondered, “Since this is such a relevant topic for 2003, why haven’t I seen this book promoted at Barnes & Noble or in Business Week magazine?” I found the answer to my question in the book jacket … Grow to be Great was published in 1995 … years before the need for growth had arrived!
Advice in Grow to be Great was ignored in 1995, for that was a time of economic expansion. But for a time such as this … the end of an economic recession … Grow to be Great offers three foundations for growth for any business at any time:
- Measure customer value
“Can I take your order?”That’s the predominant question we ask customers during a recession. We forget to ask, “What do you value most about our products and services?”
To grow a new or old business, survey customers. Develop metrics to measure their responses. For example:
If you’re a manufacturer or distributor of industrial parts, you have three customers to measure:
- the purchasing agent who placed the order … “Did we meet or beat your purchase order requirements?”
- the maintenance person who installed the part …“Did we ship you the right part at the right time?”
- the person who operates the machine … “Did our part help you do your job?”
- If you’re a service provider of home healthcare, you have three customers to measure:
- the patient who received the oxygen tank … “Were you pleased with our delivery person?”
- the doctor who prescribed the oxygen …“Are you pleased with our service to your patients?”
- the payer (i.e., Medicare, HMO, Insurance) for the oxygen … “Was our invoice correct?”
- Activity Based Cost (ABC) systems provide metrics that help grow your business. In addition to analyzing their product cost and profitability, a healthcare company recently used ICMS’ software to ABC their FTE’s. They discovered that only 18 of 33 Full-Time Equivalent (FTE) employees performed value-added activities for the customer. To grow the business, the President, VP Operations and their employees changing the order fulfillment process to deliver more value to the customer. Converting non-value activities to customer-defined value results in growth of sales and profits.
- Link your business to a profitable value chain
If your business links to an unprofitable value chain, growth will be difficult. Unprofitable chains shrink, taking you down with them. According to authors Gertz and Baptista, “the value chain only works if it makes money.”(1)
If your company is shrinking, it’s time to switch and hitch to a profitable, growing value chain. Re-focus your business to serving customers of profitable value chains. For example, hotels are finding it difficult to grow in a declining travel industry. On the other hand, small service industry businesses are growing. A creative hotelier might consider converting a floor of sleeping rooms into small offices. Serving this new value chain of home-based entrepreneurs would eliminate idles rooms and pump up food sales.
What growing value chain can you link your businesses’ people, processes and products? Be creative. To brainstorm ideas and develop action plans, gather your management team for a brainstorming session. To spur new ideas, give them new perspectives on the business from an ABC system. By ABC’ing their FTE’s, the previously mentioned healthcare provider learned that 7.7 FTE employees throughout the company perform activities consumed by an unprofitable product. Redeployment of the 7.7 FTE’s to a growing value chain of sleep apnea and asthma treatments consumed by baby boomers will grow sales and profits in the coming year.
- Align your processes, not departments, to the value chain
“At the risk of stating the obvious,” authors Gertz and Baptista write, “regardless of the strategy you adopt, your business must be organized in such a way that people have an incentive to do the right thing, that the right people are assigned to the right jobs, and that all of their individual efforts are channeled in the right direction.”(1)
Getting organized requires more than drawing boxes on an org chart. It requires the right activities be mapped into the right processes.
A man seated next to me on a flight was drawing an organizational chart. To make conversation I asked, “What are you designing?”
He replied, “I’ve been promoted to plant manager of a brand new factory. My boss told me to figure out how many people I will need, so I’m drawing up an org chart.”
“No offense,” I replied, “but you’re going about it the old-fashioned way. A functional org chart is fine for defining lines of authority, but little else. If you really want to impress your boss, sketch out your new organization as if it was a series of football plays.”
Our flight ended before he finished listing and linking activities. But I am confident my recommendation provided him a method to define the right number of people, performing the right activities, channeled in the right direction.
“Abundance comes from making others better off.” (2)
If shifting focus from cost-cutting to growth is a challenge currently facing your management team, begin by making others better off. Improve customer value. Improve your supply chain relationships. And add value to new value chains. Not only will customers be better off as a result of your efforts, but so will you.
Want to grow? ICMS will help you grow!
Activity Based Cost Management systems provide useful metrics for both cost-cutting and growth. Focus in recent years has been on the former but ICMS does not overlook the latter.
- Grow Sales with ICMS’ Gross Margin Profiling system … this simplified approach to ABC is used by sales and marketing staff to consistently set profitable prices.
- Grow Sales & Profits with ICMS’ 15% Fix … this leveraged approach achieves 85% of cycle time, cost and quality improvement by focusing on the first 15% of your process.For free information on Gross Margin Profiling or The 15% Fix, click here to send an e-mail request to TomPryor@icms.net .
(1) Grow to be Great, Dwight Gertz & Joao P. A. Baptista, The Free Press, 1995
(2) The One Minute Millionaire, Mark Hansen & Robert Allen, Harmony Books, 2002