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| Business success requires a willingness to change |
I deeply respect and admire small business owner/operators. It
takes more than an average amount of grit, determination, and smarts to get a
business going and keep it alive and growing. One could also probably make a
reasonable case for those same entrepreneurs being some small degree of nuts,
too. The risks are high. The time commitment never really ends. And then there
is the grueling burden of administration, an aspect of your operation grossly
underestimated at the start, grinding away at your attempts to actually do
something that might make the company some money.
You, or you and a very small number of partners, are your
business. You provided the knowledge, skills, and drive to get the enterprise
off the ground. After years of hard work, the business has grown into a fine
operation, but still needs your input and effort on almost a daily basis. Your
finger is on every button and dial throughout the operation, keeping everything
finely tuned and delivering your product or service.
Business operations, as they grow, generally do not follow a
smooth progression. The revenue picture may graph smoothly, but the underlying
business processes and infrastructure tend to reach certain growth milestones
where a substantial step change is needed to overcome the next hurdle. Revenue growth
is unlikely to parallel the change in cost over the short term. Step changes
can be a little scary, as sometimes changes cannot be undone once put in place. Every business owner can surely identify examples of step changes in their own business
history. Revenue growth can be fairly smooth, but business infrastructure and
resource growth tends to be quite bumpy and erratic.
Revenue growth, the reason you are in business, comes through two paths, opportunity and
effort. Opportunistic growth is that call from a company you never heard off
that wants to buy a truckload of your widgets. Essentially, opportunistic
growth comes to you. On the other hand, effort based growth consists of
business acquired, nurtured, and built through an investment of time and
money. My sense is that the majority of revenue growth comes through effort, in
many cases the effort of the business owners. That brings us to what can be one
of the bigger barriers to business growth…the boss.
How to keep revenue growth a part of your business.
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| The path to success is not always clear |
Let's look at two areas where an owner or manager may be
hindering expansion or performance, with some possible corrective measures.
Doing too much on your own. Even though you may be the most competent person
at your company in performing some task, it may not be productive in the larger
scheme of things for you to be doing it. As an owner or executive of the
company, be sure to devote time to the macro level issues that affect the
company. Identify tasks on your daily to-do list that can be shunted to someone
else. If you are drowning in routine day to day activity, it leaves little time
for doing research and formulating useful strategy for the organization’s growth
and improvement. The demands on executive level time and talent can shift as an organization grows and changes. A smart executive will relinquish control over tasks that can be done competently by others, enabling a devotion of time to issues with the largest impact on the company's future.
Failing to apply human resources to their best use. A bedrock element of business success is applying resources where they
will generate the greatest return. Keeping too many business functions in-house, in an effort to save money or maintain control, can be counterproductive for the bottom line. Applying personnel to their best or highest value use can be difficult in smaller operations with limited staff. Structuring the workforce in a way that has everyone performing varied tasks to keep the operation going can sometimes be the result of failed thinking. There is an opportunity cost associated with having someone work on a task that does not exploit their highest contribution to revenue. For example, having a top producing sales rep spend time boxing up orders for shipping may not be the best use of the sales rep's time. How much new revenue might be produced by having the sales rep selling, instead of taping boxes? The lost revenue that could have been generated by the sales rep selling, instead of boxing, must be considered as additive to the cost of packing and shipping for purposes of decision making.
Some tasks which may eventually be handled in-house may
not currently be at a scale that justifies commitment (hiring) of a matching qualified
individual. Not having the right people do the work can result in diminished
quality or productivity. Mismatching people with tasks for which they are not well
suited is bad…bad for them, bad for the business.
How can I get the most return from my human resources?
- Identify the highest and best use of each person at the company.
- Adjust each individual's work description to keep primary focus on performing highest value tasks.
So, after getting every member of the company workforce focused in on the best use of their time, how do you get all the work accomplished that is unassigned? One avenue that can provide substantial leverage to your
operation is outsourcing. Outsourcing is not only for manufacturing, and does not necessarily involve having work performed overseas. There are contracting operations everywhere and some may be located closer than you imagined. Outsourcing is available for a staggering array of business functions, ranging from unskilled tasks to very specialized procedures. Administrative work can be outsourced, freeing human resources to focus on revenue generating activities.
Why aren’t you outsourcing already?
You probably are currently outsourcing several functions of your company, but do not consider it outsourcing. Do you use a payroll, office cleaning, or mass mailing service? You are outsourcing. Operations of almost any size can wall off certain tasks and
have them performed by an external provider.
What can get in the way of implementing an outsource?
What are the primary benefits of outsourcing?
- Reduced management burden: Managing an outsource procurement is less demanding than managing all the people, tasks, and materials that constitute the delivered product or service. Freeing up management time to focus on strategies and activities that generate revenue will move the business forward.
- Predictable cost for a delivered unit of work: Contractors deliver a product or service meeting your minimum stated requirements at a cost that is predetermined. Any risk associated with operation of the outsourced process or task falls on the contractor, not the procuring company.
- Application of company personnel to their highest valued use: Contracting out a properly planned schedule of activities allows your valued employees to do what they do best and generate the maximum amount of return for each human resource dollar.
Recommendations:
- Identify potential outsource work: After you match and assign the highest value tasks to each member of your workforce, review the work activities that remain unassigned. These have a high value when outsourced because they are essentially the tasks creating barriers to your workforce producing at its highest potential value.
Another area that can benefit from outsourcing is technical work. It can be burdensome to train and maintain skilled labor, equipment, and facilities for certain types of work. If you build something in-house, it may be advantageous to contract it out. Every situation is different, but keep in mind that sending work to an outside producer will free up your valuable internal resources to do other things. - Properly specify deliverables: Outsourced work needs to be specified in a way that gives the provider a clear standard against which delivered work will be evaluated. The same specification also serves as the internal quality assurance standard used to accept or reject delivered products and services.
- Avoid evaluation strictly on a cash cost basis: The overall goal is to enable your operation to produce a higher output without a corresponding increase in staff or physical assets. The real cost of work conducted in-house can be difficult to discern, but it is generally much greater than the direct cost associated with the labor and materials involved.
- Value your outsource contractors: Strive to develop long term relationships with contractors that satisfy you. Their value will grow along with your company.
Letting go of maximum control can be difficult for some small business owners. Their current level of success may have been built upon a foundation of self-executed tasks. If that is the case, past experience may now be a barrier to future growth. Proceeding thoughtfully and with careful consideration with an outsourcing plan may be just what a small company needs to make that step change to the next level.
Follow, comment, contact me with your questions. I can be contacted directly at CMS4i by putting @TomO in the message section. At CMS4i, we are here to help you make things work, so contact us anytime.
