Prepare for Recovery

January 1, 2011

If you are reading this, you and your company have likely done, at the least, the bare minimum to survive the recession, and you are now looking forward to a brighter future. If you are thinking about how to prepare for recovery, you are probably ahead of many of your competitors. In this issue of our quarterly e-mail, the ACA group weighs in, providing some over-arching goals and concepts that will help you launch your initiatives.

Preparation for recovery has several common themes, including: customer service, efficiency, efficient scalable processes, a lower break-even cost, and good communications. All of these are achieved through design and implementation of the systems (business processes) that function as the nerves and synapses of the corporation. Preparation for recovery requires both upgrading old systems and building new systems. A newly installed system can be an investment that generates a return, but only if poor practices are not automated and the use of the system is sustained over time. Once built, systems must be implemented in a manner that sticks, while ceasing the old methods. Efficient and timely implementation requires planning and good communication. Jim Strong describes the value of laying a good foundation for a new ERP system by cleaning up the data and establishing new practices for inventory accuracy. If it is worth doing at all, it is worth doing right. Sustainability is very difficult to achieve, and requires leadership, attention to detail, and a constancy of purpose.

Recovery starts with increasing sales. Without new sales to new customers, your company will not participate in the recovery. Thus, new customers must be enticed to come-in and buy. During the recession, customers have gotten accustomed to higher value and better customer service, and will continue to seek it everywhere they go.

Excellent customer service will help retain a core customer base, while attracting new customers. During the recession, companies with poor customer service suffered the greatest loss of business, and many have gone out of business. Just consider the restaurants in your hometown. The best restaurants, those with excellent customer service and good value, are thriving, while many marginal operations have gone out of business. Doug Howardell provides an excellent outline for improving customer service.

All these new customers are seeking better value. To provide better value you have to be efficient. Efficient companies harvest new business during a downturn, as they absorb the customers of their failed competitors with very little incremental cost. Wasteful companies offering poor value have seen their margins evaporate, and are now in the red or have already failed. Efficiency is critical, both during the downturn, as well as during the recovery. Remember, your company pays for waste, not your customer.

When you improve customer service and become more efficient, you can expect to grow. Growth requires working capital. Working capital can come from only one of two sources: retained earnings or investment. Borrowing is not a sustainable source for working capital, because at some point the company finances will exceed the debt-to-equity ratio caps imposed by the banks. Implementing lean initiatives, such as optimizing workflow and reducing inventory, help liberate working capital that is currently tied up, and also reduces the amount of new working capital that will be required to fuel your growth. Implementing lean initiatives during the downturn is a smart investment for any company preparing for increased business volume.

Planning for the growth you’ll experience during the recovery is critical. Without a plan, it is difficult, if not impossible, to be successful. Certainly, it is not possible to build and implement new systems without plans. Lisa Anderson explains the importance of planning for growth.

What kind of investments, improvement projects and new systems should you plan for during the recovery? Examples include: streamlined transaction processing, lean office, customer service training, and employee recruiting and retention programs.

Planning and implementing process improvements to improve efficiency depends on good communication. It is very difficult to communicate effectively if we don’t all speak the same language. Carlos Conejo makes an excellent case for Vocational English as Second Language (VESL), and outlines how it can benefit both the employee and the employer. Learning English is essential for citizenship, and is the common bond between the incredible mix of cultures in Southern California. Even if everybody is speaking English, it can still seem like everybody is speaking a different language. Does the company have a Lexicon on the company intranet, where common terms and acronyms can be easily looked up? Does each employee communicate in a manner that strives for understanding? Do meetings have minutes? Do action items have assignments and a due date? These are all simple mechanisms (systems) for communicating clearly and effectively.

Without proper systems, too much is done manually, quality is highly variable, processes are inefficient and consequently, the business is unlikely to scale-up very well. Without a systematic approach, customer service is likely to be inconsistent and uncompetitive. Can you think of an aspect of your operations where a doubling of activity would require doubling the staff? This is an indication of a business process that needs improvement. Today, “systems” are commonly understood to be “computer systems”. However, systems existed long before computers were in use. The Egyptians, the Greeks, and the Romans had systems, each rooted in a common written language. A system is nothing more than a defined process, where many things are “pre-cooked” and the balance is procedural to enable each task to be performed easily and efficiently. A process that has not been explicitly designed is likely to be inefficient.

Preparing for recovery requires the pursuit of efficiency through the elimination of waste, and increasing efficiency through the strategic implementation of systems (business processes). Submit your own experience and let us know how you are preparing for recovery.

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