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As well as having organisational issues in the form of people problems, covered in our previous blog, substantially underperforming companies typically also have serious problems with both their core and support processes.
These process problems are often characterised by high cost, poor quality, and lack of flexibility/responsiveness. To rectify these issues, turnaround often demands critical process improvements – the key to productivity and profit gains.
Identifying critical process issues
Because business processes are often complex, identifying problem areas isn’t always easy. It begins with business process mapping and auditing.
By identifying and analysing existing processes, shortfalls will become clear. This analysis should consider the impact of the process on existing growth, stakeholders, employee motivation factors, customers, suppliers, and revenues of each process.
Market data and employee feedback can also be sought. This can offer good insights into what procedures are causing delays or affecting quality.
A board workshop should take place to challenge the relevance of each process on the existing business strategy and identify current strategic priorities. A turnaround expert can run this objectively and effectively.
The key assumptions driving financial performance should be analysed. Plus, there needs to be a drill down on budget and a reality check against historical performance.
Understanding what improvements to make
Business process improvements generally fall under the following:
- Time improvements: Typically, the focus is to make the organisation more responsive and more flexible by reducing the time taken to bring a product to market or reducing manufacturing lead times.
- Cost improvements: The approach is to simplify processes to reduce both fixed and variable costs.
- Quality improvements: This is self-explanatory and is about reducing the level of rework by systematically analysing the reasons for non-conformance and putting in place corrective actions to improve processes.
Once the problem areas have been identified, improvements need to be made, quantifiable goals set, and metrics determined to see if the changes applied to each process work over the next 12 months.
The five critical areas of CPI
The key to critical process improvement success is to focus on a few processes that can be fixed and implemented quickly. This approach will have a bigger impact on cost-cutting, increase working capital and improve quality and customer responsiveness.
There are five crucial areas we recommend a business focuses on when making critical process improvements. These are
- Improved sales and marketing
- Cost reduction
- Quality improvements
- Improved responsiveness
- Improved information and control systems
These can be further grouped into three overarching areas of focus: demand generation, demand fulfilment and support systems.
Demand generation
Assuming that product-market refocusing decisions have been taken, improving the selling process and the effectiveness of the salesforce is a key area for critical process improvement quick-wins.
Marketing mix improvements include brand management/repositioning, promotions and, particularly, pricing. New product development and improved customer responsiveness may also provide important improvement opportunities.
Although this area tends to be more critical in enterprise transformation than turnaround situations, increasing innovation rate and improving product engineering are important longer-term initiatives.
Demand fulfilment
This is typically the core area for process improvements and involves substantial cost reduction and improved effectiveness in procurement, manufacturing/conversion, logistics, and after-sales service.
Simple procurement initiatives can reduce cost, working capital and inventory risk and improve quality and service.
Gaining control of the shop floor and improving efficiency typically involves layout changes and the introduction of cellular manufacturing, just-in-time (JIT) and Kanban principles.
Support systems
The introduction of a production planning function to balance the supply-and-demand side of a business is an essential generic response to a very common business problem.
Other improvements are targeted at head-office functions and include introducing new performance measures, improvements to the management of the physical infrastructure, and restructuring the finance department to deliver timely, relevant and accurate information.
Building process improvement teams
Once a critical process improvement plan has been agreed on, project teams should be created to assemble action plans for each of the five crucial areas.
Interdisciplinary, multi-skilled, and management-supported process improvement teams are one of the key success factors of Six Sigma – a set of proven techniques for process improvement. This team needs to be able to effectively affect the change in the business and enable a cultural shift.
Often the ‘champion’ or leader of the team will be the person in charge of the process in question. This champion must then make sure the rest of the team are clear on the objectives of their critical process improvement objectives, why it’s a priority and what’s expected of them.
Monitoring implementation of the process improvement plan
Once each team’s primary efforts are completed, each new process must be constantly monitored and controlled to ensure efficiency.
To do this, teams should continually measure process outcomes against the previously defined metrics. This can help eliminate problems and identify risks. Teams can then become part of the solution, creating action plans to devise solutions.
Next strategy: Financial restructuring
Critical process improvements set a business up for future success – a crucial part of a turnaround. Another key turnaround strategy is financial restructuring. This is the only solution where a company cannot finance its debt and equity obligations.
Learn more about financial restructuring in our seventh and final blog of our turnaround strategies series – coming soon!
If you have a client facing financial difficulties and needs to turn things around, contact us today to set up a meeting. We’re experts in critical process improvements and the other turnaround strategies needed to get a business back on track.