Busting the myths and bringing fresh perspectives to the question of management systems, KPI’s and how to apply the theory in practice

In the beginning, back in 2015 when Alluxi was first born, one of the first blogs I posted clarified “What is a Management Control System” and how it should work.  That blog has been the most visited over the years.

As business evolves, theories and terminologies move forward, and advances in technology constantly change our information landscape, the now dated blog doesn’t necessarily bring the best advice or value in today’s commercial arena.

So I’m bringing some fresh perspectives to the table for SME business owners needing to evolve their business DNA with firm foundations for greater control over their organisations.  Solid management control systems will allow you, the business owner, to step back from the detailed day to day operations, and into a more strategic orbit – your Escape Velocity!

Why should you be considering your management control systems?

A management control system is a means by which to increase the economic efficiency of companies by streamlining existing processes into monitored documented procedures.

This article is designed to give you, the SME business owner, a comprehensive overview of management control systems so that you may deploy processes within your company that give you confidence in your workplace productivity

The Creator

Ernest Anthony Lowe was a Professor of Accounting & Financial Management at the University of Sheffield, way back in 1971.  He planted the seeds of academia in the study of management control systems, advocating the need for planning and control systems for 4 key reasons:

The need for a planning and control system within a business organisation flows from certain general characteristics of the nature of business enterprises, the chief of which are as follows:

• firstly, the enterprise has (by definition) organizational objectives, as distinct from the separable and individual ones of the members constituting the ‘managerial coalition’;
• Secondly, the managers of the sub-units of the enterprise must necessarily be ambivalent in view of their own personal goals, as well as have a good deal of discretion in deciding how they should behave and in formulating their part of any overall plan to achieve organizational objectives; 
• thirdly, business situations (and people’s behaviour) are full of uncertainty, internally as well as externally to the business enterprise.
• fourthly, there is a necessity to economize, in human endeavours we are invariably concerned with an allocation of effort and resources so as to achieve a given set of objectives.

These ideas were further developed by Maciariello (et al) in 1994 who started to hone down the ideal contents of a purposeful management system, with three key components that should be designed into the system.

Measurement

My mantra is If you Can’t Measure it, You Can’t Manage it

Resource Allocation

The management control system needs to incorporate some form of resource requirement planning to make sure you’re not overspending on resource, and eroding your profits.

Communication & Motivation

For me, this is at the heart of the whole system, as I’ll describe in more detail further on.

These academics developed the theory in the area of management accounting and accounting systems, but that’s quite a dry area.   One of the first experts a business owner will hire in is a decent FD or Management Accountant to deal with the numbers for them.

I can hear the yawns and groans from the audience, and admittedly it’s all a bit reminiscent of the lengthy lectures I attended during my MBA course nearly 20 years after Lowe defined his 4 reasons.  So let’s get some zest into this and give you some meaningful tools to apply in your business.

Definition of a Management Control System

When I speak about management control systems my audience often jump to the conclusion I’m referring to computer or IT systems.  The word System doesn’t necessarily mean that IT is involved (unless it says IT System on the tin). System comes from the Greek word Systema translating into “Organised Whole”.  Digging deeper Synistanai is “to place together, organize, form in order”.  Wouldn’t we all love to feel more organised, together and orderly in our businesses.

So, whilst an IT system is providing the INFORMATION for two of Maciariello’s key components (the Measurement and Resource data,  critical to building a robust management control system), the hardware and software doesn’t provide the third key dimension of Communication & Motivation.  That one key component is a behavioural requirement from the people using the system.

This is becoming increasingly arguable however, with the exponential evolution of Artificial Intelligence.  One day, in the not too distant future, we may be taking instructions from, rather than giving them to our artificial friends HAL (for the over 50’s amongst us), Alexa & Siri.

Principles of a Management Control System

Building on the definition of the system above, when designing a management control system for a business, there are fundamental principles the system needs to incorporate to be useful in achieving the organisation’s objectives ie. achieve the target profitability for the owner and shareholders, whilst keeping everyone involved happy too!

The system needs to provide a positive feedback loop – write the plan, do the work to achieve a specific goal, report back on how well or badly people carrying out the work did, review what went well or wrong, change things to improve and then start the cycle over again.  This is the fundamental principal of continuous improvement, and it’s not going to change with technology.

The key benefits that a business will immediately realise when introducing a well designed control system are the following principles:

1. Remove the need for people to rely on perception or gut feel

A company run on gut feel and perception is not going to deliver the best results, nor can it be scaled up successfully.  A strong system will provide the leadership team with the right information to take informed decisions and achieve an objective, fair and factual management culture.

2. Limit the influence of culture within the business

Culture can be a dangerous thing.  Blame cultures are common in businesses where roles and responsibilities are unclear, not communicated or ignored.  Your business control systems needs to limit the influence of workplace culture on processes with a structured and pragmatic approach that empowers workers to take ownership of well-defined responsibilities and accountability.

3. Drive Performance

If the fundamental business objectives are clearly communicated throughout the company, and the right information points are readily accessible and used on a regular basis to drive productivity and performance, then everyone in the business will be so much happier and understand the role they have to play in driving performance.

4. Lead to improved information flow and visibility across the organisation for informed decision making

Getting the right data into the reporting mechanisms is critical.  The information used for determining how we’re doing must be Current (not 6 weeks out of date), Correct (check the source) and Consistent (don’t keep moving the goalposts).

5. Create a Dedicated Forums to Review

Ensure that critical data, information and activities have a dedicated forum for planning, reviewing, refining and follow-up of the performance and output.  Key Performance Indicators (KPI’s) for each job role will determine the content, but every individual team member should have the opportunity to review their own work with their manager at least weekly.

In an ideal world, there would be no need for annual performance reviews, as the whole team would know exactly how they’re performing through the system.  With a meeting structure in place with structured and standardised agendas in place, the time spent in meetings overall should be reduced, and the efficiency of the meetings will be hugely improved as objectives, expected outputs and clear action plans are defined and recorded.

6. Structure the way people work, leading to behaviour change

Without stifling creativity, the system will lead to improved workflows, the processes being continuously reviewed and improved and the work environment will become more positive and focussed as problems gradually melt away.  Endeavouring to pinpoint and reduce bottlenecks, backlogs, downtime or quality issues becomes part of the culture, where improvements are rewarded.

The system brings this about by design, rather than slow and random “mutation” or sticking plaster solutions that only bury the problems deeper, instead of getting them out in the open and resolving the root causes.

7. Lead to better RESULTS

By it’s nature, designing and implementing a tailored management system is to support a culture of continuous improvement, empowering every team member to contribute towards identifying areas for improvement.  That will be rewarded with better results, optimising productivity and maximising profitability for the business.

Components of a Management Control System

There are just 5 simple components to creating a management control system that will get everyone synchronised and working in tune with each other.

Forecast

You might call it your Budget, company Objectives or Goals etc, but whatever it’s referred to in your business, this is your starting point.  Defining WHAT you want to achieve.  There are many areas that your WHAT may cover: profit, turnover, quality, employee engagement – these are all different KPI’s which we’ll come onto, but critically the Forecast must be tangible, measurable and explained/communicated to everyone in the organisation, to set a common goal from the start (remember the SMART goals).

Plan

The plan must get into the detail of HOW you’re going to achieve your WHAT.  If you’re forecasting £20m profit, then that needs to be translated into operating indicators eg. how many sales does that represent at what average order value, how many clients do you need to onboard (if you know your historical conversion rates), how many people do you need in operations to produce the goods, deliver the service to the required quality, how much administration is needed in the background or outsourced, to ensure the employees are paid, invoices are sent out, IT systems are working optimally.

The plan has to clearly set out the OUTPUT expectations, and the budgeted resources you need to INPUT to achieve the desired profit margins.  These are the basic measures of PRODUCTIVITY.

Monitor & Control

This is the HOW ARE WE DOING moment, a critical point in the process to prevent going completely off plan, and costing you precious time, materials and money.

The terminology may sound somewhat draconian, but the principle is that each supervisor, manager or leader will have a regular review point built into their management system, to check on the progress of work frequently enough to make sure progress does not get so far off schedule it can’t be rectified, but not so often it feels like you’re micro-managing.

Regular check-ins with staff to review their individual progress against a defined plan is a systemic behavioural requirement, and the manager’s opportunity to help their team to SUCCEED.  The mindset around managing should be one of collaborating to achieve the overall company goals, not a culture of cracking the whip or treating people like robots.  The skills and competencies of all levels of management and leaders in the company has to be invested in.  Promoting the best performer to be a manager is not necessarily a good strategy.

Report

Reports simply provide data or information.  How that information is used is the main problem in many businesses.  The important principle here is that each individual should be responsible for reporting on their job role’s KPI’s and knowing how they are performing against the plan.

So many company’s I consult to have a disconnect between the information management are using to run the business, and the people actually performing the work not having a clue how they’re doing. The reports are essential to monitor historical trends, and offer snapshot views of how the work is progressing at any particular point in time.  The reporting should be the key focus of the final element in the cycle – ACTION.

Action & Commitment

This is the big heart at the centre of the cycle, for a very deliberate reason.  If the information from forecast to reporting are not used by management and their teams to drive action towards continuous improvement, you might as well stop wasting your time producing the data.

The management system requires at its heart, regular review points – meetings – to trigger active dialogue and discussion between managers and staff, in meaningful conversations driven by useful, focussed data.  I believe every employee deserves, and will thrive from, an individual review with their manager at LEAST once a week (or more frequently depending on how quickly the work can go off schedule).

Part of the design process of management systems is a meeting plan, with clearly defined agendas.  Training is also required to coach everyone involved how to use the system and reporting, bringing the data into review meetings, identifying where problems exist and work to find solutions to improve next time round.

Putting Theory into Practice

The 5 component cycle above, is a simplified explanation, but building a business control system into your organisation has to take into consideration the different levels and departments, each having their own system tailored to their deliverables.  The basic behavioural process is the same – the information and frequencies are tailored to the operations of the teams or departments.

This top-down, bottom-up approach shows how the business control cycle needs to be integrated at every level of the organisation.  The forecasting and planning includes goals and targets which simplify the annual budgets  – normally in the form of financial indicators (Turnover, Costs, Expenses & Profit) into more meaningful Operational indicators in each department.

The cycle then feeds from the bottom-up through the monitoring and reporting mechanisms, driven by the review meetings and action points, to feed the actual results back up to the Board. The beauty of the cycle is that each element is repeated at each level, but if any one part of the system breaks down, it will be highlighted above or below, so no-one can drop out inadvertently.

Example of a Management Control System

Clearly not all companies have a four-level hierarchy as used in this example.  Your system needs to be tailored to your own circumstances.  Here’s another perspective of how this may look in practice. The clouds represent the meeting/review points, ideally with an Action Log (pink), and fed by the Plan vs Actual reporting documents (blue).

You also have to visualise this in 3D, or two or three of these layered over each other, as a Managing Director may have anywhere from 2-6 managers reporting to them, and each manager may be responsible for more than one supervisor from various departments.  This doesn’t necessarily mean a report will be generated for each manager or supervisor.

The information flow is a completely different design process, and this is the point where your software and IT systems will play a big part.  The idea is not to create excessive amounts of admin in creating the reports.

Recent advances in artificial intelligence means repetitive reports and spreadsheets can be created automatically – the important point is that each manager, supervisor or employee takes OWNERSHIP of their reports, and are held accountable for the results.  Getting the results into a readable and usable format is the important technical exercise.

Take Care of the KPI’s and the £’s take care of themselves

Do you remember the old saying “Take care of the pennies and the pounds take care of themselves”?  One of the most concerning issues I’ve come across in many SME’s is the lack of information to determine how the business is doing against its annual forecast. Most business owners rely solely on the management accounts at best on a monthly basis, and even then having to wait 2 or 3 weeks after month end to see their results.

This is too late to then go back and take corrective action to improve the results if the profit margins weren’t achieved in the previous month.  Hence why the management system needs to translate the annual financial forecasts and budgets into operating indicators that can be measured more frequently, say daily or weekly, to ensure the activity of the business will eventually translate into a profit when the management accounts are published 2 months after the work has been done.  That means defining KPI’s that relate back to the financial objectives.

For example, if the annual budget forecasts a £120,000 turnover for the year, in a non-seasonal business, that would mean £10,000 per month.  If we know the average order value is roughly £100 per order, then the sales team needs to be generating 100 orders per month, or roughly 25 a week.  If we have 5 people on the team, then they would each be targeted to achieve 5 orders of at least £100 a week each . That’s two KPI’s to start with

We can take this one step further if the company knows it’s historical conversion rate. If we take an example conversion rate of 20%, then each salesperson would have to receive or make 25 phone calls a week to convert 5 orders, which would be another indicator the manager can use to monitor and supervise the team’s performance.

So just in this simple example, we have 3 KPI’s  that the sales team can report back on each day or week:

• of calls made
• No of orders
• £ Value of Order

At the end of each day, or week, the manager has an objective and tangible point of reference to review each sales person’s performance and progress against the planned 25 calls, and 5 orders at £100 average order value.

In addition, as part of the Managers role to train and coach the team in improving their skills, maybe grow the conversion rates, or manage their time to make more calls or deal with more enquiries, the manager could be joining a call or monitor how the salesperson deals with a client or enquiry and make suggestions to improve their techniques, or handle objections.

As the salesperson improves their skills the results begin to bear fruit.  After a few months you might then find you can increase the targets to maybe 30 calls converting to 10 orders – improving the conversion rate to 33% – at an average of £125 per order, pushing the turnover up by 25%.  This is continuous improvement, and it doesn’t have to be a threatening or pressurised process over the employee.

The important point here is that, instead of waiting until 3 weeks after month end to find out from accounts that sales are down, and profit margin reduced, the business stands a much better chance of succeeding if the operating indicators show where small changes, training or corrective action is needed in shorter time frames to achieve as close to the plan as possible – or exceed it!  This is Proactive Management and leads to better results.  You take care of the KPI’s on a day to day or week by week basis, and the £’s on the bottom line will take care of themselves.

So having shaped up HOW the system needs to flow, we need to focus on WHAT the key information is that the leaders and managers require, to determine whether their team is having a good or bad day/week without waiting for the financial reports.

The KPI’s should be determined when designing the job roles, and included in the job descriptions when recruiting staff so they understand exactly what is expected of them, and how their performance will be measured.

Don’t worry if you haven’t done this already – job descriptions can be evolved to include these, without necessarily changing the terms and conditions of the job (which you may need to check with your trusted employment lawyer).

There are four key criteria when developing the KPI’s, which should include at the very least indicators of performance in:

Quantity – what is the volume of work expected within a defined time frame

Quality – how are you defining the quality and where can this be measured

Cost – what budgets does the staff member have to work within if they have authority to spend

Time – how much of your resources valuable time is needed to achieve the planned amount of work

Using KPI’s to Manage Resource Allocation

The beauty of translating the budget or forecast into KPI’s is it allows you to determine how much resource you’ll need to achieve your overarching business objectives.  I spent much of my management consulting career working in corporate organisations making a high percentage of their workforce redundant as they’d grown too large, out of control, resulting in profit margins being eroded, putting the whole business (and all it’s employees) at risk.

The KPI’s allow you to build a robust Resource Requirement Plan (RRP), providing you with a measurable framework of how much resource you need to pay for, to achieve the work required to reach your profit goals.  You can then recruit the right number of people, allowing for a reasonable standard rate of work – not treating them like robots – and ensuring your salary costs are within budget.

What often happens, however, is the business owner tries to do too much of the work themselves, to save money.  As the business grows they begin to feel the pressure and rather than sitting down and calmly planning what work needs to be done and how much time would be required, they panic and recruit (or outsource) more staff whose work invariably ends up sorting out the problems rather than adding value to the business.

Instead of designing an efficient process or system, the work piles up, more problems arise and more people are recruited in a knee jerk, gut feel reaction, without resolving the problems.  The business starts to suffer financially and inevitably will fail because of the lack of strategic thinking, financial and resource planning from the outset.

A solid RRP will list all the activities carried out in any part of the business, a rough time guide of how long each activity takes so you can total up how many hours of resource you’d need to recruit for that job role and hire accordingly.  That way, you can build in a more accurate cost forecast for your products and services to make sure your prices definitely cover your costs.  Then add on your profit margin and you should see the positive results in your bottom line.

Employee Engagement Levels will Soar

One of the exercises I run with delegates as part of Alluxi’s Leadership Development Programme, is called “System/No System”.  It involves 3 teams competing against each other to achieve the best performance of a simple task in 30 seconds, over 3 runs.  In just a short half hour interactive game it clearly demonstrates how the results of an organisation can only be influenced by a behaviour change in the way people do things, which in turn can be positively influenced through a balanced, two pronged approach of systems and training.

The task is identical for each team, but one group is given the task with a system and training to improve their performance; the second group receives the system, a little bit of training, but then the system is removed from them in the last run; and the 3^rd group receive no system or training at all and just have to manage as best they can with the resources they have.

Before starting the exercise I produce a sealed envelope with my guess as to which team is will achieve the best results.  I’ve never failed yet.  The group who receive the system, and training in how to use it to maximise their performance, ALWAYS achieve results 30%-50% better than the other two teams.

Not only do they perform better, but in the short time it takes to run the exercise that high performing team become more animated, motivated and engaged with each other to continually get better results in each run.

The team who receive no system or training, however, become increasingly perplexed during the exercise as to why their results are so significantly lower than the other two teams. By the third run, they are visibly deflated and starting to get frustrated with each other.

Their motivation is declining and the team “culture” deteriorates.  The team who have the system taken away from them in the last run have, by that stage, worked out how to complete the task effectively, but the human brain only has so much capacity to memorise large amounts of data and cannot sustain the performance levels without the system.

The overall conclusion in the argument for systems and training are that:

With no system or training

A Group will improve somewhat through practice & experience

BUT – Opportunity for better results will never be known

Practice & experience goes out the door when staff leave

Introduce a system and training

Results improve significantly

BUT – Performance deteriorates if the system is removed

Significant & Sustainable results can be achieved

With a robust system designed to improve results

Reinforced with training to ensure the users make best use of the system

New Starters attain desired performance levels much sooner

Low staff engagement can be a hidden, intangible cost to the business.  The effects of a positive feedback management control system on employees should be a hugely rewarding environment to work in.  A few of the benefits you can expect, once it’s implemented and running smoothly are:

• Clear roles & responsibilities across all functions
• Each employee controls and manages their own area of responsibility instead of being controlled by his/her manager, driving autonomy and accountability from the board room to the front line.
• Managers and supervisors act as coaches and facilitators towards their subordinates, rather than authoritative commanders
• Flexibility to shift focus when there are changes in key areas
• Rapid reporting of operational problems, and their impact quantified to determine which are serious and which can be managed, and root causes investigated rather than just sticking plasters over the cracks
• Holistic continuous improvement across the whole organisation driven by operational plans and constructive challenge
• Common focus that drive goals across all the roles and functions
• Standardisation of best practice – eliminate the negative, perpetuate the positive
• Fewer, shorter and more effective meetings
• Fact based, informed decisions

Despite the paradigm that people perceive having a system is going to make the work feel mechanical and too controlling, the opposite is true.  So long as the leaders and managers in the company are given the skills and competencies to coach and facilitate their staff to succeed in their roles, the system will be the guide that keeps everyone on the right tracks.

The management control system acts like the conductor of an orchestra.  Every player is a master of their respective instrument, but there has to be a guiding force that keeps the beat, creating the beautiful music – that’s what the system does.  Alluxi acts as the conductor of an orchestra – working with you in your business to design and implement bespoke productivity evolution initiatives bringing our global productivity expertise to your own operations.

Bringing Management Control Systems into the 21^st Century

Understandably, many business leaders fear that a management control system will consume time and energy putting together forecasts and plans, getting reports built and implemented and expecting staff to fill in spreadsheets on top of their workload.

With the advancements in technology, especially artificial intelligence, and the software available today for project management, task setting and time managing, the actual collation and reporting mechanisms can be fully automated, leaving the team and management to focus on the important stuff that’s going to bring value to the business, but now having the tools and information to achieve greater results.

The important point to make is that, however the data is collected and whoever has responsibility for getting the information into report format and distributing it to the people who need it, the RESPONSIBILITY for the information and results remains firmly on the shoulders of each employee, and this in turn will bring greater employee engagement to your company culture.

YOUR NEXT STEPS TO GREATER PRODUCTIVITY 

Alluxi is here to offer you support through these times of change, bringing a facts and figures approach to evolve your business and realise your goals.

As a first step towards identifying your current business challenges and evaluating where your future opportunities exist within your business, we invite you to complete the in-depth Alluxi Business Success Scorecard delving into the 10 key critical success areas.

Take 15 minutes to respond to the scorecard and get your results within minutes.  You’ll be invited to book a follow-up Productivity to Profit Breakthrough Session to find out how you can implement rapid and measurable improvements.

Click here to take the Alluxi Business Success Scorecard now

The post WHAT IS A MANAGEMENT CONTROL SYSTEM – The 21st Century Rewire appeared first on Alluxi Consulting.

Is there Hidden Opportunity in Your Business?

There’s a saying that ‘What you Don’t know Won’t Hurt You’.  In business however, what you don’t know could be significantly impacting your profit potential.   When working with business owners, Alluxi’s key focus is to illuminate hidden opportunity in your business – stripping away layers of inefficiency and misconception, to highlight and exploit your true productivity potential that can translate into greater profitability.

As a first step, the Alluxi Launchpad Workshop, including a free Alluxi Business Success Scorecard, provides a taster of the Alluxi toolbox and techniques. In a short half day workshop, we do a deep dive into the detail of your business.  It doesn’t take long to expose where greater productivity can be achieved, and how to maximise the profit potential for your business.

In this month’s blog I’m bringing live examples that turns on its head the belief that ‘What you don’t know won’t hurt you’. From SME’s in three different industries, these short case studies demonstrate how looking at things from the perspective of a productivity expert, quickly uncovered additional profit potential – which may not otherwise have come to light had we not had the discussion.

Covid Restrictions Unexpectedly Created Greater Efficiency

As much as the pandemic is causing chaos for most businesses, for the care company I’ve been consulting to over the last 2 years, a compliance requirement from the Care Quality Commission (CQC) unexpectedly boosted this dynamic organisation towards greater productivity.

Providing domiciliary care, the business was required to minimise the number of individual carers visiting vulnerable clients, to reduce the potential spread of the virus.  Some clients receive up to 4 visits a day between dawn and dusk, each requiring different services and skills from their pool of resources.

With over 100 staff in the field on any one day, some without transport reducing the geographical range they can cover, the logistics can be complex.  Adding the extra parameter of minimizing the number of people visiting any one client into that mix, those logistics become even more problematic. 

Initially I was asked whether a spreadsheet could be created to coordinate, manipulate and manage the different combinations, postcodes, and visit types through pivot tables.  As I already had a broad understanding of their planning software, I suggested we review the possibilities of using the tools already available to them, rather than re-invent the wheel using a clunky, fragile and potentially corruptible spreadsheet.

A short Zoom call, brainstorming the functionality of the software with the MD, Registered Manager and one of the Coordinators, resulted in a list of queries the registered manager could approach their software support company with.  Within 2 days of setting up “clusters” on the system for specific postcode areas, a pilot was carried out in one small geographical zone.  This quickly achieved the desired results of reducing the number of different carers attending each client, reducing the COVID risk, and the concept was successfully rolled out company wide. 

Now, the upshot of adapting the working practices to comply with regulatory requirements, even though it’s only been functioning for three months, has provided new insights and benefits from a commercial perspective.

Because the system has been set up to schedule care visits in much smaller geographical zones, the travel time and mileage costs are significantly reducing.  Additionally, as volumes grow, the time now freed up can be optimised to schedule in more clients.  Carers are paid per visit so this will boost their income and the business can offer their existing team more hours each week as demand grows. 

From a less tangible perspective, there are the longer term benefits of reducing recruitment and training time. Clients receive a more consistent service, and probably build a better relationship with their carer.  The team enjoy enhanced job satisfaction as they, in turn, get to know their clients better too, as well as the opportunity to increase their earnings if they wish.

Overall, it’s a three way win – for the clients, the staff AND the business.

Productivity vs Creativity

Behind the technical development work, web design involves a large degree of creativity, and the perception exists that maintaining productivity levels stifles creativity.   Working with the Directors & Project Managers of a thriving web agency, the surface issues highlighted that projects were running over budget, eroding the profits.

The Project Managers were spending too much of their working day updating and manipulating spreadsheets to try and keep on top of scheduling the outstanding work.   Although their existing software had extensive project task lists and the amount of work remaining to be completed was visible, estimates of how much budgeted time was still required to finish the job were not visible.  The project management was task focused, but not time managed.

This lack of reporting systems or logging time, meant information was not readily available to monitor how much time was spent on each project.  Individual projects could not be managed to ensure they achieved the required profit margin.  It was also not possible to tell whether sufficient jobs were completed in a week or over the months, to recover the overhead costs of running the business, until the financial reporting was completed a couple of weeks after each month end.  By that time it was too late to act, and address the inefficiencies.

As our work evolved, and their understanding grew of how productivity directly affects profitability, the Directors quickly recognised it would be a key measurement needed in the business.  They would need to track and monitor the time spent on the design, development and launch of the web packages, as well as the management and administration time involved in delivering the projects.

Despite our best efforts to establish productivity measures by asking the team to log in to projects on the company software being tested at the time, the software simply didn’t have the capability to provide meaningful productivity measurement reports.  We had to either revert to manual tracking and reporting mechanisms or look for a different software.

As manual tracking would add, rather than detract from, the already overburdened administrative tasks, the business owners took the bull by the horns and did their research.  Having only implemented a new software package the previous year, they took the brave decision to adopt a completely new software, that would deliver the productivity reporting, and start over again.

This has paid dividends (no pun intended), with information now being available to report on the levels of resource dedicated to the projects, compared against budget.  The team can be better managed to focus on what’s behind schedule, where too much time has started to accrue on individual projects, or where more projects can now be started as the work is being finished more productively. 

Additionally, as the time logs begin to provide more meaningful information as to how long each part of the project is actually taking (rather than estimating), this can be fed back into the budgetting for more accurate quotations in similar projects, for future quotations.

The company has the luxury of using this reporting and the data to decide whether to increase the profit margins by maintaining their pricing structure but using less resource, so achieve higher margins, OR maintain their current profit margins, and pass on the productivity improvement to the client, making themselves more competitive in the market.

The important point here is that had they not known the detail of how much time the programmed tasks would take, they would not have had the facts and figures to drive and inform their strategy decisions.

Hidden Figures

A prospect of mine, launching a radical new Accounting practice, approached me to deliver the Alluxi Launchpad workshop.  The business owner is hugely ambitious, and determined to bring accounting into the twenty first century.

Despite having a robust strategy document, there was no financial road map to match sales volumes or financial forecasting, and stress test whether the business would be profitable in the first year or two of trading.

In a few short hours, through the Launchpad Workshop, we created three foundation tools to focus and galvanise the business owner into action over the coming months.

1. A working business growth plan was delivered which the Director can update with real time information to immediately see the future impact of sales volume growth and resource costs on profitability.
2. A resource requirement plan will automatically calculate, based on the forecast sales volumes

a) Whether the existing resource in the business has reached its maximum capacity, and

b) how much additional resource will be needed at specific points in time, so it can be planned and recruited in advance

3. The workshop also provided an overview of the management systems and potential key performance indicators to drive the business forward to ensure profit margins will be maintained.

Getting the numbers and calculations out of the owners head and into a working spreadsheet immediately highlighted that the proposed forecast sales volumes versus the costs and expenses, would not produce the desired income and profit margin.  But by reworking the numbers and seeing the impact on the gross profit, the Business Growth plan crystallised exactly what would be required to achieve the results they wanted, and a future crisis has been averted.

What you Don’t Know Won’t Hurt You

In summary, these three examples demonstrate how, through opening up to fresh ways of looking at your business models, or how your operations are managed, your business can take a few simple steps in a different direction and your profits will grow as a direct consequence.

As business owners, we’re not always well versed in the art of running and managing a business.  This is the key downfall of many startups, where the business owner is an expert in the product or service they deliver, but needs specialist expertise to translate your business from the kitchen table, scale it up to a profitable enterprise through the path of least resistance.

Reach out if you feel there’s latent potential in your business, but you’re just not sure how to harness it.

YOUR NEXT STEPS TO GREATER PRODUCTIVITY IN 2021

 Looking ahead into 2021, Alluxi is here to offer you support through these times of change, bringing a facts and figures approach to evolve your business and realise your goals.

As a first step towards identifying your current business challenges and evaluating where your future opportunities exist within your business, we invite you to complete the Alluxi Business Success Scorecard. Take 15 minutes to respond to the scorecard and see how your business scores in 10 key areas.  You’ll be invited to book a follow-up Productivity to Profit Breakthrough Session to discuss the results in more detail, and identify how you can implement rapid and measurable improvements.

Click here to take the Alluxi Business Success Scorecard now

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A 5 week series for business leaders needing to transform their business towards the “new normal”

Challenge 3  –  Ensuring the Right Things are Being Done in the Right Order

When lockdown was first introduced I posted a short blog with Six Survival Guidelines for SME’s.  This highlighted how managing employees remotely doesn’t have to be complex, but it can be more difficult to make sure they’re doing the right thing at the right time, to keep your business moving in the right direction. 

Working remotely from our managers, peers and colleagues adds a very different dimension to achieving goals and targets. Business owners and leaders need to be very specific and succinct in guiding the teams priorities and day to day goals. Each team member will react differently to the impact remote working has.  As their manager you need to ensure you keep them focused and proactive.

The 3x3x3 Approach

Worry and uncertainty are the enemy of productivity. Business must go on, and while we are in challenging times, this too shall pass. Once you’ve decided how you intend to run your business through these troubled times, clearly communicate the strategy with the team, and regularly thereafter. People make up what they don’t know, and clearly communicating how your company intends to survive and thrive is key. 

One very important step is to ensure any existing meeting’s scheduled, are maintained via video conferencing.  Keeping to schedule, come what may, is very grounding. There is so much we can do, when we’ve got the determination, to maintain business as usual – even when events are anything BUT usual.

An added ingredient you might want to include or set up separately to these normal scheduled meetings however, is the 3x3x3 approach.  This method is designed to stay focused and, importantly, keep everyone informed about current initiatives and plans. 

The 3x3x3 is very simple to use.  Each day, in advance of the team meeting, each staff member sets themselves up for success by writing down the following:

• 3 things they’re grateful for right now (always uplifting), and 
• 3 things they will achieve today to provide focus and, the most important actions they need to take.

Then at the end of that working day,

• Reflect on and identify 3 (or more) wins of the day.

These are all shared in the team connection meeting, and as team members see others achieving, should encourage them to do the same.  It should also create some great discussion points, transferrable insights, and opportunities for collaboration. 

As each individual is working through their 3 things they’ll achieve today, the manager can be guiding them towards the required outcomes if they’re not quite aligning their goals with your immediate business priorities.  Your priorities may be quite different during this crisis, than they are in normal circumstances, so this communication and coordination is critical.

As a side effect, it may create some healthy competition amongst the team, but don’t allow those who don’t always reach their goals, to get disheartened. You may find specific employees need a one to one, to deal with any negativity or feeling demotivated after a bad day. 

Working From Home & Winning Survey

Try the Working from Home & Winning Survey, to get better insight of how your team are really feeling.   The Free “Working from Home & Winning” survey gives you a quick and easy tool to get anonymous feedback from your employees working from home. It takes just 3 simple steps to set the survey up, share with your team, and receive  a summary report, in a very short space of time.   

Next week’s blog will address the fourth challenge Effective Time Management.  We’ll be sharing tips and guidance with you to ensure your teams are managing their time productively.

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A 5 week series for business leaders needing to transform their business towards the “new norm”

Challenge 1  – Working Reactively versus Proactively

Our first challenge is to stop reacting and start seeking out the opportunities the current situation could bring.  Find ways to be proactive in ensuring your business will flourish when you open your doors.

The solution – try the free “Working From Home & Winning” Survey

The key is to get under the skin of your team, understand their concerns and worries. Once you’ve established those, it will be easier to work together to overcome their fears.  The individual will feel more connected, work more productively and, just maybe, bring their insight as to how the business can become more proactive in the current climate, and the future. Now you’ve got them ENGAGED!

The “Working from Home & Winning” survey gives you a quick and easy tool to get feedback from your employees working from home. Its completely free of charge, no strings attached, takes just 3 simple steps to set the survey up, share with your team, and receive a summary report, in a very short space of time.

The survey responses are completely anonymous so your employees can be honest and upfront about how they feel, without fear of retribution.  In this way you can identify the main issues and problems they’re having, and gradually take small incremental steps to action their suggestions you feel could work, address concerns that are affecting a high proportion of the team, or implement initiatives to overcome the barriers they’re finding are hindering their productivity.  

Once you’ve got it up and running in your business, and get the first results in, you can download the free Success Guide “How To Keep Remote Teams Connected, Proactive and Productive”.  This provides you with invaluable advice and guidance on how to interpret the results and set up your plan of action. It could be the turning point you’re looking for, from reacting to the current environment and surroundings, to taking control and proactively moving forward.

Next week’s blog will address the second challenge of Fragmented Team Communication.  We’ll be providing some practical solutions, and more free tools to help you keep everyone on the same page.

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Trying to measure employee productivity is often met with groans of being micro-managed, or treated like robots.  It’s a necessary evil for businesses to ensure they maximise the performance of their most expensive overhead – their people, so why does the idea of measuring productivity as a management tool get so much bad press?

What if we monitored our business goals like our gym goals?

I’m a regular gym goer.  Over the years advances in technology have developed some great motivational tools to help us get fitter and healthier simply by encouraging us to set ourselves targets and focus on the numbers. These devices make us record, monitor and improve our strength and stamina, sweating it out on the treadmill or pushing weights.

In my gym there are monitors on the walls, where everyone who’s logged onto the app can compare, see how they’re doing, who else is in the gym, and how they’re getting on too.  Completely openly and transparently!  Calories burned, distance run, percentage daily target achieved and heart rate monitored are up there on the TV screens for all to see.

Engaging is motivating

In this leisure environment it gets people talking to each other, making new friends, and generating a sense of camaraderie and healthy competition.  Motivating us to actually push that bit harder to get to the next level, because we see the benefits the regular workouts are bringing to those who put the extra effort in.  We are all secretly aspiring to get the perfect body, or achieve optimum health.

Bringing the team together

So why can’t we achieve this same culture in business.  Why shouldn’t productivity measurements inspire people to work together more closely to achieve a common goal that, at the end of the day, will benefit everyone in job satisfaction and job security?  Your business would also benefit from the more intangible bonuses of motivating greater achievement, encouraging team spirit, and seeing the collaboration of more experienced staff developing the less experienced.

This requires the right tools and the right leadership skills to turn the negative into a positive.  Just getting some dashboards up on the screens instead of the distraction of boring soaps, or BBC news droning monotonously in the background, will begin to get people engaged, sitting up and taking notice.  Add a few regular words of encouragement and some healthy challenges to reach short term objectives, and it will be a small step to turning a lethargic workplace into a thriving hive of pro-activity.

YOUR NEXT STEPS TO GREATER PRODUCTIVITY

The post PRODUCTIVITY IN THE WORKPLACE – Lessons from the Gym appeared first on Alluxi Consulting.

As a business owner, do you know from one day to the next, what your employees actually do? Can you, hand on heart, say they’ve produced a fair day’s work for a fair day’s pay? Or do you have niggling doubts as to whether they’re as productive as they could be?

In the last of our series The Painful Truths, exploring the causes of low productivity for business owners, The Employee is the third factor in the equation, after The Business and The Manager.

Recent surveys have highlighted some alarming facts, which start to shape the possible causes of the biggest downturn in productivity the UK has experienced since 2008. Office workers are devout procrastinators, confirmed by a 2016 survey of full time office staff around the UK, where the average staff member admitted to wasting more than 33% of their paid hours on non-work related activities.

This blatant admission of time wasting could be costing your business as much as £11.5k per time waster per year (based on current UK average salary of £28,000 and E’er on costs). If you could recuperate just half of that by improving productivity, with 10 employees on your payroll, that could improve your bottom line by nearly £50k a year.

Pull your socks up: a case of woolly management

The sad fact is that, thanks to weak management skills, which we explored in the second article, The Employee has two fundamental dilemmas:

1. They don’t know what is expected of them, and ipso facto
2. They don’t know whether they’re productive or not

If the prevailing management style in your business measures performance once or twice a year through the (dreaded) Performance Appraisal, and for the other 50 weeks of the year employees are told to “pull your socks up,” or “you’ll have to do better than that” by their poorly trained managers; then it’s hardly surprising they’re setting their own sights and deciding for themselves how far up their socks need to be pulled!

Align your employees to your business goals

The solution lies in setting clear expectations, and engaging with each employee, individually, to ensure they have a thorough understanding of the standards of work required. I previously mentioned setting Key Performance Indicators. For your employees these will probably be non-financial measurements, and normally need to quantify the volume of work required, within defined time frames, and with clear quality guidelines. All of these parameters will form part of the Management Control Systems driven from the top, and aligned right down to the staff on the front line, to ensure your whole organisation is working towards common goals. Everyone should understand what good productivity levels are for their own job role.

Energised teams go from Productivity to Profit

Once you’ve got the numbers working, your employees will be much more focused, and probably feel a lot more motivated, with greater job satisfaction. Working in an environment of ambiguity and uncertainty is never comfortable for anyone, but with a focus on objective, fair and factual management; crystal clear targets and expectations, fluid dialogue and communication, you’ll start to see a marked improvement in productivity which can only reflect positively on your profit margins.

This is the last in the three-part series of The Great British Productivity Swindle: The Painful Truths, and in summary here are the key drivers to move your organisation’s productivity to the next level:

The Business

• Design and implement robust Management Control Systems
• Define solid Key Performance Indicators and productivity measuring mechanisms

The Manager

• Communicate the standards of work expected from the Manager and their Team, required to meet the business goals
• Develop your Managers people skills in communication and delegation through CPD and Training

The Employee

• Ensure each employee knows exactly what is expected of them in measurable terms
• Achieve greater employee engagement and job satisfaction by training them in how to achieve great productivity in their role

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In the first Painful Truth of this series, we highlighted the need for business owners to implement robust Management Control Systems and Key Performance Indicators, critical to measuring and optimising productivity.

The Bank of England’s “Lessons on a Plate” gave us some insight as to why businesses are woefully unproductive, and the impact on profits. This article explores the second Painful Truth: The Manager.

The Government is pouring money into Leadership and Management development, possibly fuelled by scathing claims by Andy Haldane, the Bank of England’s chief economist, that,

“Bad managers stand accused of holding back economic growth in the UK by undermining productivity, and preventing pay and living standards from rising”. Mr. Haldane continued “Just as most people believe they are better than average drivers, so most firms believe they are highly productive…A lack of management quality is a plausible explanation for the UK’s long tail of [unproductive] companies” and “there is a statistically significant link between the quality of firms’ management processes and practices, and their productivity.”

Training is a necessity not a luxury

I’ve spent thousands of hours observing managers in the field, and there are two fundamental problems I’ve witnessed, which business owners need to address:

1. Managers are not trained in setting expectations or communicating standards of work required to meet business goals.
2. Managers lack the people skills to communicate, delegate and constructively challenge poor performance or, conversely, reward and perpetuate good performance.

Both these issues have a domino effect impact on the managers’ teams’ performance, as the staff will basically just get on with doing what they think is right, but potentially completely mis-aligned with the company’s objectives.

I’ve often heard managers suggest their teams know what they have to do and they just need to let them get on with it. This then begs the question as to why companies pay managers and supervisors at all. And little wonder we’re now witnessing the Great British Productivity Swindle, with the biggest downturn in UK productivity since 2008.

A case of ‘a bad workman blames the tools’?

In my experience of working with team leaders and management in industries around the globe, it’s unfair to blame the managers themselves. Managers can only be as good as we make them, and the onus should be on the business owner, or executive team, to ensure their managers are equipped with the tools and people skills to carry out their jobs effectively.

How often have you promoted a high performing team member to a supervisory or management role, only to find overall performance drops sharply? A good worker doesn’t necessarily make a great manager. They have the advantage of a strong technical knowledge of the work to be done, but may have no management or people skills whatsoever.

The good news is that leaders can be shaped, and managers can be made.

For your managers to have a positive impact on productivity, you may need to invest in training to ensure they have the right tools, techniques and skills to guide their teams towards becoming more productive and effective, and achieving those all-important KPIs.

I’ll end this article with more words from our Chief Economist, which sums up the solution perfectly.

“If we’re to turn the tide on this slippery slope towards diluted profits, business owners have to invest time and money into their Managers. This suggests potentially high returns to policies which improve the quality of management within companies.”

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Productivity means higher output using your current resources, or achieving the same level of sales with less resource.

With energy prices rising every year, we probably do this in our own homes annually, and there is no reason why the same principle shouldn’t apply in your business.  There are many brokers in the market who, at no cost to the business consumer, will evaluate your current tariffs and put them out to the market to lower your energy bills.  These brokers may have dozens of smaller businesses who, when combined into a single body of consumers, can achieve significant reductions, that you probably wouldn’t achieve as a single entity.

Some of the best deals may involve signing up for 2 to 5 years to get the lowest possible rates.  When I’ve been shopping around, my experiences have shown a 2 or 3 year contract to be the most flexible.  For example, in the UK in 2015 we saw a significant downturn in the price of fuel following pressure by government for energy providers to reduce the tariffs in line with the reductions in worldwide oil prices.   Had I been on a 5 year tariff I would not have reaped the rewards of this decrease for maybe up to 4 years.

This is a bit like playing the stock market but can produce significant savings, which will boost your profit line.  In larger organisations the Accounts Department, Purchasing Manager or Operations Manager should be delegated these responsibilities of ensuring best value for money.

The post 20 WAYS TO BE MORE PRODUCTIVE – Review Utility Costs Frequently appeared first on Alluxi Consulting.

Productivity means higher output using your current resources, or achieving the same level of sales with less resource.

This should be an easy win, but its amazing how many companies still don’t monitor and look at cost effective ways of optimising their raw materials.  When in it’s infancy, with relatively few people to train and organize, it’s easy for a business owner to watch over the stock and see how people use raw materials, but as it grows and materials pass through more pairs of hands, the yield from these may deteriorate, costing you money.

To maximise the usage, work procedures should clearly define quantities of ingredients, recipes or templates, diagrams on the wall to help workers know exactly how to use each raw material.  The stock usage should be compared to volume output as part of the control systems, to ensure the correct ratio of material to finished product is consistently achieved.

Industry standards of measurement can also be used to ensure the finished product is not giving away anything you don’t have to.  Weight per item for example normally has an industry norm range.  For example, if a one litre tub of ice-cream must be within a 5% tolerance – you could quite legally* pack 951g of product and sell it as a litre tub, improving your yield ratio.  Always check your relevant industry standards and legal requirements.

* check Weights and Measures regulations in your region to ensure you are compliant with local laws.

Raw Hide – Case Study

A small shoe manufacturing factory in Hungary used treated leather cow hide to cut shoe parts for the production line.  The shoes were manufactured for an Italian client and were of a good quality. The hides were the key cost of the shoes, even above the labour cost, but the factory was struggling to break even in its manufacturing process.  A few days spent observing the teams cutting the hides started to highlight the weaknesses.

Each worker had their own method for cutting the leather, laying the templates out in completely different patterns on the individual hides.  Some left wide gaps between the templates resulting in a lot of expensive wastage of the leather, whilst others would use different parts of the hide for the same pair of shoes resulting in rejects as a matching pair would have different textures of leather grain which was not acceptable to the client.

By working with the supervisor, a fixed pattern of cutting was established which took out the thinking required by the cutters, thereby changing their behaviour.  The template pattern was drawn up and fixed to the wall in the cutting room.  The supervisor started to train the cutters in exactly how to place the templates to ensure they were kept at minimum distance, the same pair would be cut as closely to each other on the hide as possible, and smaller areas of the hide would be used for the smaller sized shoes.  The yield of shoes from hides increased by 15%.

This all sounds really obvious and common sense. Yes, it is.  But when you’re a supervisor, far removed from the management systems, and not being consulted as to what is going wrong due to weak systems, poor communication and management, ideas rarely come forward. Improvements aren’t identified and the weak behaviour perpetuates.

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Productivity means higher output using your current resources, or achieving the same level of sales with less resource.

Fundamental to keeping your cashflow positive, gaining better purchasing power with your suppliers, and optimizing the stock usage to your advantage, is to ensure you have an accurate stock control system.  This can be as simple or as extensive as you feel you can manage.  The most expensive or highest rotation stock items must be managed so as never to fall below the minimum to allow the business to function, but not go over a maximum quantity so as to end up with all your cash on the shelves in the store room and not in the bank.

A few basic principles to follow are:

1. build a good relationship with the supplier you feel provides best quality and service.
2. know your suppliers order process and lead times which will dictate your minimum quantity requirements in your stock control system.
3. Review your suppliers prices at least annually and compare with alternatives in the market, to ensure your are consistently achieving the best deals.

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Productivity means higher output using your current resources, or achieving the same level of sales with less resource.

Duplication occurs when a workflow or process has evolved over time, possibly between different departments of the business with no one controlling how it evolves.  It can also occur when staff are not trained adequately or don’t understand the work they have to do sufficiently, that they create additional work to ensure they cover their tracks.  I have witnessed crazy things such as a highly qualified accountant taking out a calculator to add up a column of numbers in an excel spreadsheet.  When he was asked why he needed to do that, and not just use the SUM function in the workbook, he replied that he didn’t trust the computer (yes this was this century).  This is a rather extreme case of duplication, but you get the point.

Duplication can be difficult to see.  Sometimes it may be a result of two people doing the same or similar function in two separate parts of the business, and both are under utilised.  This is a duplication of effort, and costing you the salary of two people instead of maybe one, or one full time and one part time. Being in different departments is not a reason to not combine the workload

Centralising, or sharing common tasks performed in lots of different areas of the business can be cost effective as organisations grow.

The post 20 WAYS TO BE MORE PRODUCTIVE – Reduce Duplication appeared first on Alluxi Consulting.

Whilst mapping out the workflow as suggested in point 13, even in administration areas, the physical layout of the work area is paramount to achieving greater efficiencies.  Although technology now requires less paper to be pushed between desks, the physical flow of work should still be taken into consideration in the work area whether in the office, shop or factory floor.  I have seen (extreme) cases where the photocopier or printer is two floors downstairs requiring staff to be away from their desks for five or ten minutes.  It’s disruptive and time wasting, as well as encouraging slack if workers have a chat while they’re down there.

It makes sense to ensure machinery or workstations are aligned and positioned to reduce the movement of people, paper or product, especially on the factory floor where time may be of the essence, for example in food manufacturing, or where a product may be breakable.  Minimizing movement reduces the risk as well as the manpower required.  It may sound daft, even in the twenty first century but I know of factories where the storage facilities are at the opposite end of the production lines, requiring time, machinery and resource to move pallets all day from one end of the line back to the start.

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