I am a supply chain and operations consultant and former executive. Based on my experiences, I have seen many companies look for the “magic ingredient” in how to achieve profitability. Several high-priced consultants and programs (such as Six Sigma, Lean, etc.) later, the company is still searching for the answer. My question is: what really matters to profitability? I think it is going back to the basics.
I’ve found that the basics aren’t often thought of as the key to success. The basics are typically not seen as exciting or “sexy” – when at an industry conference and talking with peers about your company’s profit drivers, do you talk about the latest R&D ideas, latest trendy programs such as Six Sigma or do you discuss the basics – blocking and tackling? Moreover, which seems more interesting to implement on a daily basis? My experience indicates that the basics are often overlooked.
What are the basics?
I see the basics as people and process.
People are often relegated to the HR function, which is rarely included on the senior leadership team, involved in the critical decisions or future strategy sessions. I’ve heard many proclamations that people are our #1 asset from all levels of managers; however, when decisions are made, the people processes are prioritized as last. For example, have you heard “I’m swamped and have no time to develop 90 day goals for Susie”? Or, I’d like an extension on my performance evaluations because I have higher priorities – customer visits, production metrics, loads to ship, etc.? Why do I have to spend an hour a quarter in a team training session? I have too many calls or emails to respond to; I can’t go to the meeting on company vision and goals.
Processes have much the same fate. Have you heard, “I’m too busy to follow all these steps”? Why do I have to determine metrics? I know when the project is successful. Why do I have to fill out forms? It takes too much time. I don’t have time to go to a review meeting on x program; I have 600 emails to review. Why do I have to write up the plan? I know the action steps.
Why do the basics drive profit?
1. People are the thinking power and the executors of the organization.
2. People execute with processes.
How do people and processes drive profit?
1. Share expectations – the only way a company can achieve its goals is if the people know what the goals are, how they can contribute to the goals and how they add value. As simple as it sounds, it is often overlooked. In my experience, I’ve found that a low performing person could be turned around into one of the most valuable assets of the company solely by having clear goals and understanding how he/ she “fits in” to the organization.
2. Reward competence – that sounds obvious; however, it is often much more challenging to implement. When its raises time, all managers tend to want to reward their employees for effort, personality and other attributes instead of performance and results. In order to achieve this, people/ leaders must develop metrics that tie those metrics to the vision and goals of the organization and track progress.
Even though all leaders know that if people are held accountable to results, it motivates everyone – everyone knows who that person is that is “sliding by” and is watching to see what will truly be rewarded, many leaders have difficulty when it comes time to provide feedback and reward based on the criteria. Yet, for everyone watching, it can drive performance to the next level when we “do what we say we will”.
3. Appreciate differences – although this sounds like “motherhood and apple pie”, it is one of the largest factors in driving profit. If you develop a team of people who look like, talk like, and think like you, you’ll work in a comfortable setting; however, you may as well fire everyone and just have you.
We all have strengths and opportunity areas – the key is to build upon our strengths (so we can use them to develop strategic advantages) and surround ourselves with others who have a strength in our areas of opportunity. This will undoubtedly create debate and uncomfortable and frustrating team meetings; however, it will also create an agile, well-rounded team that will find the avenues to driving profit that you would never find with one viewpoint.
When I was being interviewed for my former role of VP of Operations by an investment banking group, they interrogated me endlessly about providing them examples of how I was creative. After coming up with 3 or 4 examples of the best I had to offer in creativity (which was more along the lines of optimizing vs. creativity), I merely said “if I was expert in every aspect of the business, I wouldn’t need a team”. In the end, my team desired none of my creativity skillset.
Filling the creativity through other team members (taking advantage of team diversity) was one of the strongest points of the team as I had challenges in getting my R&D leader to take time to execute after thinking of 18 new product features per day that were “essential to provide the customer”, understanding what my Purchasing leader was talking about when he thought of 200 options on how we could partner with raw material suppliers so that we could reduce cost while maintaining quality and relationships and learning fast enough to absorb the endless knowledge my HR leader had on how we could drive profitability with our #1 asset – the people.
4. Follow-up – again, one of the simplest concepts yet rarely utilized as a tool to drive profit. It doesn’t require fancy computer programs, palm pilots etc. One of the most effective skillsets is keeping a simple list of follow-up’s/ to-do’s. Ask questions, find out what is working, why, who, what, when, where, and how. Follow up ties into point #2 above – how do you reward performance if you don’t know if results are achieved? How do you turn around poor performance? Provide feedback – timely, with examples, and make sure the person knows you’ll follow up again. I was fondly referred to as a “pit terrier” in my career – relentless in follow-up, both positive and corrective.
Once the people elements are in place, processes compliment them. Implementing processes boils down to planning, executing, auditing and standardizing. Again, the key to success ties back to people. One of the advantages of this “magic ingredient” is its simplicity. Establish clear goals/ expectations, reward based on performance, appreciate differences, and rigorously follow-up. Then, profits follow. Why? Profit = delivering customer expectations/ growing revenue and reducing operational costs. And, how well you deliver those results relates back to people and processes. It may not be “sexy”, but it “works”.