February 2020 Vol. 9 No. 2
charlie goodrich

I have talked about business processes before and how important they are. As I stated then, a good process means things happen consistently and efficiently and with no surprises.

In today’s newsletter, we take a look at how to know and what to do when your business processes need revisiting.
Please respond with your thoughts and comments,
Charlie Goodrich
Founder and Principal
Goodrich & Associates
In this issue…
When Your Business Processes Need Fixing
Heard On The Street
About Us
When Your Business Processes Need Fixing
A good process means things happen consistently and efficiently and with no surprises. There are many advantages to this. The first, clearly, is that things happen consistently and efficiently and with no surprises!

But there is another advantage, too.  A good process means there is less time working on the business as opposed to working in it. So, more time to focus on profitability, strategy, sales and so forth. For larger companies with dedicated process managers, that means less time and people managing the process.

Also, with today’s modern computer systems, good processes collect good, reliable data that can be analyzed to improve profitability — particularly at the customer and product level — reduce production costs, improve marketing and more. When many processes and supporting systems were put in place years ago, it wasn’t feasible to collect this data.

So, when should you revisit your business’s processes? When…

… you have never really thought out the processes in the first place;

… your business has changed, so the objectives of the processes have changed;

… bureaucratic creep has made processes clumsy and costly;

… the processes have not kept up with the opportunities for more and better data to make better decisions.

Let’s look at each of these…

#1. The processes were never really thought out in the first place.

This happens with just about any small company that succeeds and gets bigger. Process costs money and small businesses can only justify minimal expense for this. Plus, competitive success often comes by being more flexible than the bigger guys.

However, as companies get bigger, small activities become big ones. Now, the time and expense of thinking out the processes is warranted.

Bigger companies can face the same situation, too, they just get there a bit differently. As the business changed, ad hoc processes were put in place or old processes were simply ignored because they weren’t that important at the time.

#2. Your business has changed, so the objectives of the processes have changed.

For example, when I was in the rent a car business, in an effort to reduce cost, I was brought in to regionalize finance. Needless to say, the processes needed to support centralization and become standardized across the region.

#3. When bureaucratic creep has made the process clumsy and costly.

As computer systems change, for example, businesses ask more out of existing processes than initially intended. Red flags for this problem include creep in the headcount tied to the process, and process managers regularly diving into transactions to fix problems. Even worse is when outcomes are no longer consistent and often wrong.

Many years ago, I was brought into a company that had many industry publications covering everything from oil and gas to Hollywood. I was asked to review the accounts receivable department and provide management with the tools needed to “crack the whip” on the collectors who were not collecting. What I discovered was the collectors were not collecting because they were applying cash instead.

What happened? In preparation for Y2K (Millennials: When your parents were early in their careers, the business world seemed to think everything would fall apart when the clock turned to January 1, 2000, because dates were stored only to the last 2 digits), the company had forced in a new ERP [Enterprise Resource Planning] system. The implementation was a disaster.

How? Many ways, but most important, to meet deadlines, automatic cash application was not turned on in the new system. So, the collectors were unknowingly demoted to clerks applying cash receipts to accounts receivables and — no time to collect.

#4. When the processes have not kept up with the opportunities for more and better data to make better decisions.

Computing and storage continue to get cheaper, allowing the collection and analysis of more and more data. Production controls have gone digital and sensors are less costly as well.

If you have profitability, production and marketing questions that could be answered with data but have yet to collect it, this could be a flag that it’s time to revisit your processes, so that data can be collected in a reliable and accessible way and put to good use.

A Few Pointers Along the Way

When reviewing and changing processes, or just putting processes in place for the first time, involve everyone. That includes both the people that do the hands-on work — to make sure the process is feasible, they buy into it, and you learn everything you don’t know — as well as the right senior management, to ensure the objectives and desired outcomes of the process are, in fact, what is needed.

Most businesses use all-encompassing ERP and other industry-specific systems.  All of these software systems are typically designed to run processes a certain way — so run your processes their way. Usually, it will be cheaper in the long run.

That said, do go custom when the process supports how you compete differently. If all businesses in an industry do everything the same, they have commoditized the business. If the process supports something your company does differently than its competitors, and that difference really matters, do hesitate to force a canned system to support your custom process. (To learn more, read here.)

Final Thoughts

The world changes, as does your industry and your firm. So must your processes.

What worked well before — for any number of reasons — may no longer suit the current situation. Make sure to update and upgrade your processes regularly, as needed.
Heard on the Street
With all the talk about trade and the trade deficit, B. Ravikumar, Senior Vice President and Deputy Director of Research at the Federal Reserve Bank of St. Louis and his associate, Brian Reinbold, discuss the importance of looking at value added trade instead of gross trade, in this short article.
About Us
Goodrich & Associates is a management consulting firm. We specialize in restructuring and insolvency problems. Our Founder and Principal, Charlie Goodrich, holds an MBA in Finance from the University of Chicago and a Bachelor's Degree in Economics from the University of Virginia, and has over 30 years experience in this area.

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