Does a lack of processes effect profitability?
Do you have a process problem? If so, you can be costing your company thousands of dollars of profitability.
When I talk to small business owners throughout Milwaukee, they usually can’t help but reflect on the mistakes they made over the years. One glaring mistake that many small business owners now realize they were making is that they weren’t documenting day to day processes – individual work activity required to make their company run, and not realizing how it can have a drastic effect on their profitability.
This error is prevalent in smaller companies that have less than 50 employees and only a few departments. Business owners feel that with periodic meetings and remaining lean at the top of the organizational chart, documented processes are unnecessary and the trouble of documenting what could be a mountain of information will have a minimal effect on profitability. They feel like their employees “get it” and give reasons like “our teams talk so why write anything down”. That philosophy might work if you never lose any employees or never plan on hiring new ones.
This mistake became very clear to a local manufacturer. This is a small business with 27 employees and only a few departments. The company culture is an admirable one that says “don’t mention problems without solutions” and “don’t spend time condemning, spend time fixing”. This culture was created to stimulate innovation and prevent employees from saying the dreaded “it ain’t my job” slogan.
This family business was seemingly successful for a long time but they just could never breakthrough to greatness. They were in this perpetual roller coaster ride where they felt like they were on the verge of becoming great only to fall back down to reality, unable to hire more employees, grow locations, or reach new levels of profitability.
A primary issue almost immediately identified was most of the manufacturing processes were trapped inside the heads of 2 “key” employees. This meant that the company was inadvertently held hostage by these 2 specific people doing their specific work. If one was sick or on vacation, the other could hold the line, if only for a few days. The ticking time bomb was if both employees quit, got sick, or demanded vacation at the same time., what would these owners do? Who would take their place?
The owners can recall what they taught employees some 7-10 years ago but since then the market has changed; technology has changed; processes also had changed. These two individuals refined and updated these processes in their heads based upon the changes they faced.
Furthermore, when they would hire a new employee, it would require one of these “superstars”, with the help of other co-workers to leave their specific job in order to train the new guy. Given the entry level job was low-paying and turnover was high, it can drastically effect production during training weeks.
Once these owners began to understand the potential catastrophe their business faced, they took immediate action. They asked all employees to list their individual work activities and created small teams that would scrub, refine, and improve, if necessary, the processes by fostering collaboration.
Over the coming months, they found that productivity was increasing, processes improving, and other employees were taking leadership roles in multiple department. When an employee had an idea on how to improve the business, it was immediately discussed and the idea was refined. The refined idea was turned into an improvement project, where the work groups could distribute the work necessary to refine and implement the new idea; creating a new process or refining an old one.
This allowed the company to begin to realize sustainable growth, become much more productive, and do more work without subsequently increases costs. The first step to creating this continuous improvement machine was to eliminate the knowledge silos created by those specific people doing specific work by properly documenting processes.
If you want to learn more about how documenting processes can increase your productivity and build sustainable profits, contact Breakthrough Business Advisors for more details.