6 Hidden Truths to Lost Profit

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					6 Hidden Truths To Lost Profit




             February 2010
                                                6 Hidden Truths To Lost Profit


                                 Contents

                                 1. HOW DEPARTMENTAL „HAND-OVERS‟ ROB YOU BLIND ............................................................. 3
                                 2. ITS NOT OVER „TIL ITS OVER ...................................................................................... 4
                                 3. PAYING FOR THE SINS OF OUR FATHERS ........................................................................... 6
                                 4. ARE YOUR MANAGERS CUSTOMER SERVICE DETECTIVES? ........................................................... 6
                                 5. MAKE YOUR BUSINESS BLAND, BORING AND PREDICTABLE.......................................................... 7
                                 6. DO YOU LIVE IN REAL TIME OR LAG TIME? ......................................................................... 8
6 Hidden Truths To Lost Profit




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F IGURE 1 – T HE L ONG T AIL   OF   P ROCESSES T HAT A FFECT Y OUR B USINESS


Making a profit is the number one objective for most executives and managers. They need to
increase the value of the business for the shareholders in their organisation. Losing hard-earned
profits is almost like taking one step forward and two steps back.

Processes are at the core of every business. Processes make “work happen” differentiating one
business from the business next door. By controlling critical processes business operations can lead
to more profit.

Processes are not limited to the high volume transactional activities covered in the financial or ERP
solution such as invoicing or raising purchase orders. Processes extend all the way to how we
dispose of company assets, how we report and investigate a safety incident, or how we implement
a corrective action plan for audit findings.

The Long Tail of Processes (figure 1) extends from the highly visible processes that are generally
housed in ERP, CRM and other business applications to less frequent but equally important activities
in your business. The high frequency processes are mostly well regulated through GAAP etc. and
have many detective controls to highlight problem areas. But a lack of predictive controls, to stop
negative process consequences in the first place, can lead to lost profit, lack of on-going
organisational improvement and even employee complancency.

                    Does this sound familiar?
                                                                                                        6 Hidden Truths To Lost Profit




The lower the frequency of a process, the less it is supported through automation and the higher
the negative consequences of process risk becomes. Some of these processes are defined in policy
manuals and often there is no way of knowing if is done consistently or if it is done at all.

          You lose hard-earned profits in high volume transactions through inefficiency, inaccuracy
          and cost of rework.

          You lose profit in the supporting processes through poor customer service and quality
          issues.




                                                                                                         2
                                          Low frequency processes lose profit through non-compliance, penalties and lack of
                                          transparency.

                                 All of them lose you profit as a result of the following 6 process characteristics that every business
                                 needs to address.


                                 1. How departmental ‘hand-overs’ rob you blind
                                 Business traditionally organises itself into functional areas or “silos”. Each functional area has its
                                 own geographical boundary (finance sits on a different floor to sales), its own management
                                 structure and its own business rules.

                                 Gartner calls these “Islands of isolation” that later becomes “Islands of automation” each with
                                 their own systems to support them. These systems generally don‟t talk to each other and they rely
                                 on human intervention to take information and data across from one system to another.

                                          Do you use “copy and paste” or “import and export” to take information from one system
                                          in your businessto another?

                                 The way that customers buy from you and how you deliver your products or services doesn‟t always
                                 follow the silos of your business. It follows a value chain that is essentially a set of business
                                 processes linked together in a systematic way.
6 Hidden Truths To Lost Profit




                                 F IGURE 2 – H OW P ROCESSES S PAN A CROSS B USINESS S ILOS (G EARY R UMMLER V ALUE C HAIN M ODEL )


                                 A process based value chain has little regard for your ERP or your organisational structure. It
                                 creates its own path through your organisation like a river creates its own way over time. It finds
                                 the path of least resistance and requires that you put controls in place to ensure that:

                                         It doesn‟t increase costs as a result of, inaccuracy, ineffectiveness, inefficiency or rework;




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         It doesn‟t have a negative impact on customer service through inconsistent processes, lack
          of information and service delivery;

         It doesn‟t increase your business risk, compliance and associated penalties and costs.

The process risk increases (see figure 1) with processes that have a lower frequency, are less
structured and are not as prominent on some of the high volume, transactional processes.

Hand-offs between these organisational silos are typical “process traps” where information,
transactions and actions get stuck and drain the hard earned profits from your business.




                       TIPS TO GETTING STARTED…

                       Ensure that you address processes and deliverables across your
                       value chain.

                       Appoint a process owner that is responsible for making sure
                       that there are no process traps and the value chain spans
                       seamlessly across your organisational silos.




2. Its not over ‘til its over
Processes span across the functional silos as discussed in the previous section. Sometimes
operations fall in the “process traps” and other times operational improvement just come to a
grinding halt as soon as the urgency is gone and the heat is off.

          Just image a warranty management process in a retail business. The warranty process may
          stop being urgent once the customer issue is resolved. Resolution may require that we give
          the customer their money back or that they receive a replacement part on a warranty
          claim. But, as soon as the heat is off things stop. The sales person once again has a happy
          client and the transaction is posted to the correct general ledger account. What‟s left? The
          defective part returned by the customer, is stored in the warehouse and may never be
          returned to the original manufacturer. Furthermore, the source of the problem, the cause
          of the customer warranty issue is so often not resolved.

The value of defective parts that need to be returned to manufacturers can easily exceed millions
of dollars. This typical real-life scenario of profit which ends tied up in working capital, is all as a
result of a process where only the first part (with the most pressure) is completed; where no one
follows the end to end process through, because it is not automated nor urgent. There is no
notification or escalation that ensures that each process completed the full life-cycle and spans all
the organisational silos.
                                                                                                           6 Hidden Truths To Lost Profit




          Does your business have scenarios like this?

Processes that span across organisational boundaries include some of the following:

Process                            Relates to

Target-to-Engage…                  …spans planning, creating, executing, and measuring marketing
                                   activities.

Engage-to-Close…                   …starts with managing sales opportunities and follows the process
                                   through to negotiation and closing.



                                                                                                            4
                                 Install-to-Maintain…                   …involves capturing, resolving, managing, and improving service
                                                                        for installed products.

                                 Request-to-Resolve…                    …covers responding to help requests, resolving problems, tracking
                                                                        resolutions and escalations, and enhancing service agreements.

                                 Source-to-Settle…                      …involves designing products, engaging suppliers for sourcing and
                                                                        procurement, and settling and analysing the process.

                                 Design-to-Deploy…                      …covers designing,              sourcing,   evaluating   and      deploying
                                                                        manufacturing.

                                 Plan-to-Produce…                       …spans planning, deploying, producing, and assessing production.

                                 Order-to-Support…                      …involves order entry, management, fulfilling and settling goods
                                                                        sold, and providing after-sales support.

                                 Plan-to-Act…                           …includes forecasting and planning to create operational business
                                                                        plans and budgets.

                                 Record-to-Measure…                     …covers recording,             consolidating,   and   reporting   financial
                                                                        transactions.

                                 Cash-to-Invest…                        …spans managing and positioning cash, executing deals, and
                                                                        managing risk.

                                 Propose-to-Complete…                   …involves planning, prioritising, and managing resources and
                                                                        projects.

                                 Attract-to-Onboard…                    …begins with recruiting and ends with hiring and workforce
                                                                        enablement.

                                 Assess-to-Develop…                     …centres on workforce deployment, including training, evaluating,
                                                                        and assessing employees.

                                 Track-to-Deploy…                       …includes tracking workforce schedules, time, payment, and
                                                                        deployment.

                                 Plan-to-Reward…                        …involves managing workforce compensation, incentives, and
                                                                        benefits

                                 T ABLE 1 –T YPICAL P ROCESSES W HICH S PAN A CROSS B USINESS S ILOS
6 Hidden Truths To Lost Profit




                                                  TIPS TO GETTING STARTED…

                                                  Use the table above to assist you to identify hand-over areas in your business
                                                  where process improvement and automation could put profits back in your
                                                  pocket.

                                                  Plug the profit draining holes by ensuring that processes are completed.

                                                  Digitise or automate processes with XMPro and enforce end-to-end process
                                                  management that will notify people of outstanding process actions and
           5                                      escalate overdue tasks to ensure that they are managed effectively.
3. Paying for the sins of our fathers
We are burdened with a large number of regulated, compliance-based process requirements. This is
a historical response to unacceptable behaviours, and the fact that history repeats itself. It ends up
costing you money to comply, whether you are forced by legislation for Occupational Health and
Safety, Sarbanes Oxley for finance or ISO 9000 for manufacturing. It puts constraints and controls
on your processes and non-compliance can have dire consequences. It almost always costs money
(draining profit that you‟ve already made) and it can lead to criminal records for business
executives.

        Remember Enron and WorldCom?

Compliance requires that adequate and effective process controls are implemented in your
organisation. It requires that information is timely, accurate, valid and complete. It requires that
everyone in your business completes every controlled transaction consistently and predictably. It
requires that not only the process is traceable (auditable) but also that all supporting
documentation associated with the transaction can be located.

Cost of compliance is high and without process automation it cannot be guaranteed or effectively
managed. Automating processes with XMPro provides the ultimate control, transparency and
compliance for your business. It reduces the medium and long term cost of compliance. It gives
executives peace of mind around the high risk business activities in your organisation.




             TIPS TO GETTING STARTED…

             Identify areas of your business which are compliance driven.

             Identify where automation of these processes can reduce lost profit.




4. Are your managers customer service detectives?
Are your business managers and executives involved in resolving customer issues, disputes and
remedial relationship management? Are they assisting with operational issues or are they spending
time on tactics and strategic work? Are they wasting too much of their time trying to get the facts
                                                                                                         6 Hidden Truths To Lost Profit




and get behind the “story”? Are they customer service detectives that hunt for clues about process
crimes in your business?

Paying an employee to perform a certain function and then paying a manager to get involved in the
outcome not only creates a bad perception with the client. It is frustrating for the client, the
manager and the employee. It drains hard earned profit.

Make your customer service processes transparent. Digitising business processes leads to greater
predictability around the process outcome. It makes the employee‟s job easier, leading to
empowered, motivated employees. Automation makes the process and the information associated



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                                 with it, more accessible for managers. They don‟t have to search for information to assist the client
                                 process. They can follow the process trail. It also makes it easier for customers to do business with
                                 you. You may even choose to include them in the process through the self service features of
                                 XMPro.

                                 Automating customer facing business processes doesn‟t only save on cost but improves the
                                 relationship with the client and the possibility of future sales to the customer. Business process
                                 automation has a significant impact on Customer Expectation Management (CEM).

                                 XMPro alerts you to the “20%” of processes that are the exception and takes care of the “80%” of
                                 processes that require no active involvement from your management team. It frees your managers
                                 to focus on process improvement and business innovation anddevelopment rather than on putting
                                 out fires.

                                         When was your last negative experience as a consumer? Can you identify how the company
                                         which you purchased, from could make the buying process easier? We bet you could!




                                                     TIPS TO GETTING STARTED…

                                                      Visit your sales department; ask your employees to give
                                                      you the details of your last 5 customer complaints.

                                                      Examine the complaints to identify processes which can
                                                      be improved and automated to ensure such complaints
                                                      are eliminated or minimised.




                                 5. Make your business bland, boring and predictable
                                 It is easier if everyone knows what to do. It is easier when you only have to manage exceptions
                                 rather than every transaction in your business. It is easier to quickly get new employees productive
                                 if their activities are systematised and automated.

                                 It may sound bland, boring and predictable. But it works. It is Right Every Time business.

                                         Did You Know That?

                                         A study1 by Harvard and MIT professors Andrew McAfee and Erik Brynjolfsson published in
                                         the July/August 2008 edition of the Harvard Business Review shows clear proof of the
                                         advantages of digitising business processes. It provides hard evidence how businesses that
                                         have digitised their business processes consistently outperformed rivals that had little or
6 Hidden Truths To Lost Profit




                                         no process automation.

                                 It pays to map your business processes explicitly and define the all business rules that your people
                                 need to adhere to. This makes your processes consistent with a predictable outcome. And
                                 automating your processes makes your success repeatable. Having consistency is great, while
                                 repeatable consistency keeps your profits in your pocket. It ensures that you have a Right Every
                                 Time business.


                                 1McAfee, A. Brynjolfsson, E. Harvard Business Review. July-August 2008. Investing in the IT That
                                 Makes a Competitive Difference. [Reprint available on request from sales@exomin.com]


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A benefit of digitising your business processes is that you can capture the knowledge of your best
people and make everybody work like that. It allows you to make your best work practices
predictably consistent. Employees shouldn‟t have to think about the next step in a process. They
should be guided through the day to day operational activities in your business without continuous
managerial overseeing. The outcome of their process work should be consistent and predictable.

The XMPro business process management solution allows you to automate the everyday processes in
your organisation. It ensures that processes are defined, consistently followed, transparent and
auditable. It makes sure that everyone knows exactly what to do, what actions are required and
what follows next. It makes the outcome consistent and predictable. It makes processes highly
efficient. It saves hard earned profits.




            TIPS TO GETTING STARTED…

            Identify one of your star employees.

            Watch them and work out 3 things they do better than their colleagues.

            Can you take the processes they follow and digitise these so that all
            employees are guided through the same process?

            Note: Sales Methodologies and CRM‟s are an example of „the beginning‟ (the
            mapping of processes and recording of data). You keep profits in your pocket
            through empowering employees and guiding and supporting their operations not
            by simply „having‟ your people follow steps and record…




6. Do you live in real time or lag time?
90% of process time is lag time. It is the time that a process waits for action to be taken. It is the
time that the email is in the inbox and no one responds to it. It is the time that the memo is lying
on the manager‟s desk, waiting for action to be taken. Lag time is a consequence of overly complex
processes combined with a lack of understanding of (or lack of knowledge of), the urgency,
legitimacy and priority of tasks.

Very complex processes are mostly a result of historical issues where new approvals and actions
were introduced for control purposes. They are seldom revisited and they become the norm.
                                                                                                         6 Hidden Truths To Lost Profit




        Have you ever heard, “But we‟ve always done it like this” when the process logic has been
        questioned.

This attitude (or complacency) leads to increased process time and inactive lag time. It costs more
as a result and it drains hard earned profits.

Processes get “stuck” in lag time when the urgency to complete the task is perceived as less than
what it should be . This leads to procrastination and it requires notification and escalation
procedures to ensure that the process activities are completed.




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                                           Did You Know That?

                                           University of Calgary professor Piers Steel2, developed a mathematical formula for
                                           procrastination that includes the urgency or immediacy of a task.




                                                  Where:

                                                  U = Desire to complete the task

                                                  E = Expectation of success

                                                  V = Value of completion

                                                  I = Immediacy of the Task

                                                  D = Personal Sensitivity to Delay



                                 This formula explains much of the lag time of processes in business and digitising your business
                                 processes with XMPro will increase the “expectation of success” and the “immediacy of the task”.
                                 It will diminish the “personal sensitivity to delay” by escalating those processes that need
                                 intervention by managers.

                                 XMPro helps businesses to actively manage business processes rather than just automate the flow.
                                 XMPro provides proactive performance management, continuous improvement tools and effective
                                 process analytics to help manage the business. Move your processes from lag time to real time and
                                 keep your profits in your pocket.




                                                      TIPS TO GETTING STARTED…

                                                        Give us a call on 02 8412 1000…

                                                        …we would be delighted to hear from you.
6 Hidden Truths To Lost Profit




                                 2   http://news.cnet.com/A-formula-for-procrastination/2100-1008_3-6149636.html


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eXomin Pty Ltd
Registration Number: A.B.N. 26 140 948 803

Office: +61(0) 2 8412 1000

Physical Address
Level 16
124 Walker Street
North Sydney
NSW 2060


Email:         sales@exomin.com

Web:           www.exomin.com




                                             6 Hidden Truths To Lost Profit




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