Business Stability or Business Change?
(It's a trick question)
One of the most important things business owners must do is create stability. And one of the other most important things business owners must do is be prepared to change. So it’s no wonder that many business leaders find themselves caught in a conundrum.
If stability is most important, then how can they be prepared for change? And how can an ever-changing business be stable? The good news is that stability and flexibility are not as contradictory as you might think.
Business stability is frequently misunderstood. The most common measurement of stability – positive cash flow – is not the only measure of stability. In fact, if the other important aspects of business stability are not present, then positive cash flow won’t be either. Business stability is achieved when a business owner or operator has established superior management of all of the processes of their business.
So what are the processes of a business? They are different for each business type. A retail store’s processes include opening the store, opening the register, ringing up sales and returns, taking in repair work, sending repair work out to the contract bench jeweler or entering a work-order for an in-house bench jeweler, checking in bench work and preparing it for customer delivery, customer sales calls to generate traffic, closing the cash register, closing the store – and these are just a few examples.
Some of a manufacturer’s processes include establishing materials required for each manufacturing item, ordering inventory, receiving inventory, managing inventory, issuing work orders, checking out inventory to work orders, managing WIP, closing work-orders, recognizing finished goods inventory, packaging for delivery, writing sales orders, fulfilling and shipping orders, and many others.
Most business problems arise as a result of failure to control one or more of the business’s processes. Stability arises from having a clear procedure for each process, documenting that procedure, and following that procedure each and every time. In this way you can avoid the errors that come from multi-tasking, untrained help, and faulty memory. When a business has excellent control of all of their processes, they can achieve stability. Better yet – they are prepared for change.
Have you ever heard the phrase “all improvements are changes, but not all changes are improvements?” It’s true. Unfortunately, many businesses change processes that didn’t need to be changed, or change them in ways that don’t create business improvement. How can you avoid that? First you need stable, documented processes. Once you are confident that your entire business is well managed through stable process, you can begin searching for the change opportunities that will drop straight to your bottom line.
Eli Goldratt, the creator of Theory of Constraints, teaches that there is no such thing as unlimited capacity. We all know this, but still we try to run our businesses as if there is unlimited capacity. Theory of Constraints helps the business owner recognize that in a capacity-constrained world there is always one change that needs to be made that is more important than all the others. It’s your primary ‘bottleneck,’ and if you can find it and eliminate it, you will drop more money to the bottom line. The acronym to remember is IESER.
Step 1: (I)dentify the bottleneck
Step 2: (E)levate the bottleneck
Step 3: (S)ubordinate everything else to the bottleneck
Step 4: (E)liminate the bottleneck
Step 5: (R)eturn to Step 1.
Once your business processes are stable, you can effectively evaluate your entire business. Ask yourself, “what one thing, if improved, would make the biggest difference in my ability to run a profitable business?” There’s always something. It may relate to how you serve your customers, or how effectively you make your products, or even a business policy related to accounting or purchasing. Whatever it is, figure it out! That’s (I)dentify the bottleneck. This is hard to do if your business processes aren’t already stable though. Because if you don’t do your processes with consistency, you won’t be able to tell where an improvement might make a difference, since your results are different from time to time already.
Once you figure out what the single greatest improvement is, (E)levate the bottleneck. Focus on the change you have realized will make the single greatest difference. Make sure you spend time on it every day. If you don’t know the answer to how to improve it, research it. Make it a priority.
This is where it gets hard, and you need to (S)ubordinate everything else to the bottleneck. If you’ve already recognized that this one change could make the single greatest difference to your business, then it’s worth it to devote the time and attention it deserves, right? Be disciplined and don’t turn your attention away from the bottleneck until you’ve solved it.
Which is Step 4 – (E)liminate the bottleneck. Once you know the solution, you need to implement it. That may sound silly, but many businesses go under simply because the business owner failed to implement solutions they were completely aware of! Don’t let this happen to you. Carefully document the improvement so you can return to that stable state you started from.
And now, the part that guarantees that your stable business will always be ready for change; (R)eturn to Step 1. Since there’s no such thing as unlimited capacity, it’s important to evaluate your business again. What’s the next most important thing that, if you changed it, would make the greatest difference to your business? And now I’m sure you can see how a stable business is also a business that is perfectly adapted to change. The most successful business owners are the ones who are constantly looking for the next change. This activity will guarantee that you are adapting to a changing world and changing market, while restoring stability after each effort.
(c) 2010. Andrea M. Hill