Info Source - Volume IX, Issue 3 - Fall, 2009

So you’ve already cut costs, but where do you go from here to improve financial results?

By Len Green

Budget season is upon us.  As we finalize those budgets, we are faced with the elusive nature of this “economic recovery”.  Senior Management today, in the 4th Quarter of 2009 is faced with many scenarios, strategies and tactics that must be vetted and acted upon.  But which will yield the results that your organization needs?

Earlier this year, many organizations cut costs rapidly to protect their bottom line.  Many executives are now admitting their next concerns are: (i) what the future holds, (ii) how agile they need to be and (iii) how they will find and use talent to help them deal with that future, uncertain as it may be.

Cutting costs is relatively easy to do.  Enact a hiring freeze, cut compensation, limit expenses, negotiate with vendors…survive for now and then wait a while.

Companies are now looking at the post-survival phase. Many leaders believe a recovery does not mean a return to the past halcyon days – some have called it an “economic reset.” The economy may be better soon, but it certainly will be different – what have YOU done to allow your organization to adapt?

Determining your new operating model

TSI suggests that you answer these 3 key questions to determine your new operating model:


What Operations should you be doing?

To answer this question, start with an exercise to review or define your Business Model as you see it now and how you would like it to be. What does your new operating model look like? Based on market conditions, what functions or span of operations need to be extended, added, reduced or eliminated?  Consider creating a “Business Context” to inventory what functions you perform today, what you are good at and what functions add value. This analysis will determine the functions you should perform in the future.

Next, decompose those functions into processes/process groups and identify their relative importance (use a rating like Critical, Important, Routine or a scale of 1-to-5 or 1-to-10). Consider the value to your company in terms of intellectual property or competitive advantage when scoring these processes. Are you doing something in-house that should be done by the supplier or customer, or does it make sense to outsource it?

How efficient are you and how can you become more efficient NOW?

Now perform an AS IS analysis of one or several critical process(es) with key employees involved in the process.  You will find it to be very revealing and likely discover exactly what is done, what workarounds, inefficiencies, misconceptions, wasted efforts, unknown dependencies or consequences exist.  The AS IS state often is quite different from “Manager’s Understanding” or even the Procedure Manual.

Analyze critical processes from beginning to end to ensure you understand how the processes connect and deliver value.  This should be done especially for customer-facing processes.  Test and challenge why a step is done and how it is done that way. For non-critical processes, adopt a condensed approach and look to identify key pain points/suggestions to execute the process better, faster and cheaper.

Most processes rely on business software and technology tools to process data, share information and provide management insights into operations.   What are the technology constraints that impair your AS IS processes or that don’t help you gain insights into how well your decisions are working out?

What can you do to make it more valuable or less costly?

Once the AS IS state of a process is defined and the key pain points/root causes are identified, establish a baseline of costs or other metrics (e.g. FTE’s required, cycle time to complete a process, rate of customer complaints/returns, etc). Estimates are better than nothing, but don’t get caught up in analysis paralysis.  Take a hard look at these metrics.  Especially analyze the costs relative to the value derived in the process.

Now it is time to design the TO BE state of your processes. Go back to the Business Context exercise: what influence does this have on the way you now plan to make functions/processes more valuable or less costly? Use the findings to guide the team’s effort in identifying ways to improve processes.  What can we do to improve the value of our offerings in our customers’ eyes? Which processes can be eliminated, automated or outsourced to achieve cost reduction/efficiency?  What are the risks and key success factors that must be managed to achieve improvement?

While not every process issue requires a technology solution, TSI often finds that organizations underutilize good technology they already have in house.  Can processes become more automated if existing system knowledge is improved or if a new module or feature is added?  What incremental changes can you make that could really impact a process? What costs and benefits could accrue? 

Bring it all back together:

This exercise can create what may seem a daunting list of changes. Some improvements may be process based, others organizational and others technological. Review and decide what can make a material financial impact now (i.e. the business case/net benefit), what change can (or MUST) the organization absorb without taking on an insurmountable level of level of risk?  Develop an implementation plan, make a start and be prepared to monitor and refine along the way.

Conclusion

The best way to improve financial results is to undertake a structured approach where a fresh perspective drives defining or reviewing your business model and examining what functions should be done (and how). This “Business Model-drives-Process Improvement” approach that leverages a quantitative analysis is a sound way to decide how to transform an organization for the future. It reduces the risk of overlooking key consequences or opportunities that are a result of the changes that you know are necessary.

For more on determining your operating model, simply contact TSI.