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? ........................................................... 7
5. MAKE YOUR BUSINESS BLAND, BORING AND PREDICTABLE.......................................................... 7
6. DO YOU LIVE IN REAL TIME OR LAG TIME? ......................................................................... 9
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
6 Hidden Truths To Lost Profit

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?

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.

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

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 )

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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;

 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
6 Hidden Truths To Lost Profit

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.

Does your business have scenarios like this?

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 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.

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.
6 Hidden Truths To Lost Profit

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

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 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
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.
6 Hidden Truths To Lost Profit

TIPS TO GETTING STARTED…

Identify areas of your business which are compliance driven.

Identify where automation of these processes can reduce lost profit.

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 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 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 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
6 Hidden Truths To Lost Profit

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.

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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 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.

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
6 Hidden Truths To Lost Profit

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…

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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 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.

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.

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

6 Hidden Truths To Lost Profit

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

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

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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

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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
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