Whether calendar year end or another time of year is when you close the books, there’s a certain inevitability to looking at your business with a critical eye for ways to improve as the end of the calendar year approaches. These five tough love questions are all related to the bigger picture of continuous improvement and being people-centric, focused on maximizing your opportunities throughout the value chain, to build on what you’re already doing with lean and achieve a higher level of impact.
Now, before you shoot the messenger, I know that many lean implementations go well beyond the shop floor. But many don’t. And that’s why you need to shine the light across your entire organization to spot substantial hidden opportunities for profitable growth and elimination of roadblocks and waste next year.
Tough Love Questions
1. At 10,000 Feet: Do you have a Profit Plan… or are your stunting your success with a conventional P&L?
No entrepreneur would ever start a company without a business plan, even if it was on the back of a napkin. No experienced business leader would ever try to grow their business without a well-crafted strategic plan. And yet we try to run our businesses all the time without a Profit Plan…as much as we think we have one.
A P&L is actually a Revenue and Expense Plan, NOT a Profit Plan, because profit comes last and is most often the leftovers of lower-than-expected revenues, and higher-than expected costs. A good Profit Plan pivots that P&L to take profit off the top, while recognizing that profit is NOT just about driving sales at all costs, and cutting costs relentlessly.
A good Profit Plan identifies your most profitable customers, your ideal customers going forward, and then builds specific retention, growth, and pricing strategies around those customers to create great value for them AND great value for you. Most companies get bogged down trying to calculate customer profitability by the numbers, with expensive and time consuming systems. The good news is that a Profit Plan is driven by behaviors, not bookkeeping.
2. At 7,000 Feet: Do you know how you rank on the uncommon KPI of Return on People… and have a 2018 goal?
One of my favorite sayings is that only customers create cash flow. But ONLY the talent and efforts of your people serve to earn that cash flow by differentiating you from your competition. As such, return on people is the BEST measure of how well you turn your biggest asset (your workforce, which walks out the door every night) into value that customers are willing to pay for.
In the manufacturing sector, the average return on people is $71K per employee, with a range as low as -$100K or more, and a high of +$1.7M.If you don’t know where you rank in your specific industry and if you don’t set a goal to measure the success of your people-centric efforts by being best in class, you’re missing one of the biggest opportunities in your business. Calculating where you rank is easy. The problem you still have is putting together that Profit Plan to change the profit part of the equation. Because downsizing people just to improve the KPI is NOT an option.
3. At 5,000 Feet: Have you calculated your Customer Profitability Ratio… and are you using visual management tools to improve it?
This metric reflects how your people AND your customers perform on all those small everyday behaviors that either create or destroy profitability, and its one of the fastest ways to create an Aha! moment that engages your staff in behaving like owners and being part of the value-earns-profit solution instead of part of the problem.
With the right visual management tools in place, everyone in customer-facing or customer-support roles can see exactly what they need to do next, not unlike the accountability that happens on the shop floor when lean visual management tools are implemented well. Your biggest challenge lies in identifying the behavioral drivers of profit in your business, and creating the visual tool to illustrate what good looks like and monitor the improvements.
4. At 3,000 Feet: Have you defined the customer experience you want to deliver, every time without fail… and are you succeeding?
Your customers can’t NOT have an experience at every single stage of the value chain. Your only choice is whether it’s good, bad or indifferent. That’s actually a conscious choice based on whether you deliberately craft and deliver an experience that goes beyond just get it right the first time and creates a reason for them to prefer you over your competitors next time.
Best of all, unlike your products, a great experience is almost impossible for your competitors to copy. Unfortunately, contrary to popular belief, customer satisfaction surveys rarely help you improve the make-or-break aspects of the customer experience.
5. At 1,000 Feet: How well do your people understand where they fit, why they matter, and how their everyday behaviors either create or destroy profitability?
At AME, you’ll learn a lot about people-centric leadership combined with lean. But job descriptions and standard work don’t really help every employee make the hours they spend on the job personal and meaningful to them.
In previous posts, I’ve talked about the PACT tool that helps them connect the dots and answer the 1,000 Feet questions. If you’re seeing too much presenteeism vs engagement, or spending too much time wondering why they don’t get it or why they don’t do it, that’s a clear sign that it’s time to help them connect the dots.
So… what’s your verdict?
Are your people engaged in continuous improvement across the entire value chain, or primarily on the shop floor and in the supply chain? Are they well-intentioned but lacking the visual management tools and proven processes at every stage of the value chain that would enable you to take the gains you’ve seen in Lean and multiply them many times over? Take these questions to your next leadership meeting. And resolve to take action to confidently be able to answer YES! to each of them by the end of 2018.