Systems Innovation Analyzing and improving your = business systems The E-Myth Masry Program General Reference Business Development Process: GN-0030 “Creativity thinks up new things. Innovation does new things.” ~ Theodore Levitt, Harvard Business School When innovating a system, go see it. Get a first-hand “feef" for it, Talk to the people who operate it. Learn how it works in great detail. Diagram the gystem using the box-and-arrow technique. Show the system's benchmarks (contained within its “black box’) and showing connections with other sys- tems in your business (outside the “black box). Task TASK Task ‘Systems innovation the creation or improve- ment of business sys- - tems. Every system can be improved. I's the basic assumption behind sys- tems innovation. Describe the key indicators ofthe system's performance using the inout-output-costs technique (see Systems Evaluation, GN-0020) and describing the key indicators in terms of quantity, quality, timing, and intangibles. Diagram the “= Se - Analyze all four types of workflow ~ task flow (the | ae (sen Gee riaie oie sear eae et ‘benchmarks," that catias informaton ow, and the physical layout and rate ows work together within the Performance & eee system to produce a ‘Compare with Use the Innovation checks to help discover and creato | result. system may Desa now ways to operato the systom. Diagram the innovat- connect with other fd system with lis new benchmarks, and estimate is | “extemal” systems that Taam aaa new inputoutputcost perormance. Ifthe “innovated” provide it with inputs or noraetetie system doesrit exceed the performance ofthe “ol” sys- | Sepend on ts out image bekte tetova anaieieloyege your estimate isan improvement over the “ol” system, decide If the Improvement is sufficient to justify changing to the innovated system. Keep cyciing through the inno- vation checklist until you have developed an innovated ‘THE FOUR COMPONENTS system that is worth implementing in your business. OF WoRK FLOW Then install and operat the innovated system. ‘A Business Development Publication of The E-Myth Academy ‘Transforming Small Business Worldwide One Small Business Owner at a Time Gerber Business Development Corporation, Santa Rosa, Califomia, USA ‘his document scotland propa o Gerber Bees Oovlpment Corportn and cant bun ‘cca or uta that te pos tn Zonet rar Snares Oeapent Copia rsa ete ee by otal oy aan ease eye span, Sate SoyThe E-Myth Mastery Program General Reference Business Development Process: GN-0030 Page 1 Systems Innovation Analyzing and improving your business systems “Creativity thinks up new things. Innovation does new things.” — Theodore Levitt, Harvard Business School Systems Innovation —- The Leading Edge of Business Development “Pick system. Observe it. Evaluate it, Fix it, Watch it work, ‘That's the essence of the systems innovation process. There's a lot more to it than that, of course, and some systems are enormously complex and detailed, but the process holds for any system in any business. Once you leam the basie process, you can “fix” any sys- tem, make any system better, invent a new system) And you don’t need a Ph.D. in engineering to do it. You only need your common sense and a process that walks you through what has to be done. According to Michael Gerber, business development is a process of “innovation, quantification, and orchestration” and you do it through business systems. Systems innovation, then, is the lead- ing edge of the business development process. A couple of quotes from Michael's book, The E-Myth Revisited illustrate the idea of innovation: “Innovation is often thought of as creativity. But, as Harvard Professor Theodore Levitt points out, the difference between creativity and inno- vation is the difference between thinking about getting things done in the world and getting things done.” Gerber goes on to say, “Iris the skill developed within your business and your people of constant- ty asking, ‘What is the best way to do this?’ knowing, even as the question is asked, that we will never discover the best way, but by asking we will assuredly discover a way that’s better than the one we know now.” (he whole idea of systems innovation is to find the better way.) ‘And here's how you do it. Finding the BetterWay Every system can be improved. Do you believe it? You should.) It's the working assumption at the core of all your systems inno- vations. Even if you have a system that’s light years ahead of anything you've ever seen and beats the pants off anything your competitors have, you can take it on faith it can still be improved. (The only real question is one of priotities)) Which of your systems ‘ill you work on now and which ones will have to wait a bit? ‘deco tnt a opty Ou Bess Genet Cann as cent ‘Send wok etc y soe epi on a ashro! epee arb Stet‘The E-Myth Mastery Program Systems Innovation General Reference Business Development Process: GN-0030 aged a It comes down to the question of need - your customers’ needs Ry \\ and the needs of your business, You know about your customers’ needs. That was the idea behind the psychographic profile you created in Module 2: E- Myth Marketing Fundamentals. It's also the idea behind the product strategy and design work of Module 5; Foundations of E-Myth Client Fulfillment. The produets you produce, your delivery process, your customer services, your sales processes, and your advertising, all have to serve your customers’ needs. But your systems also have to serve your business,) And that comes down to economics and quality of life for you and your people. The economics require minimizing costs, maximizing ofits, and ultimately increasing the value of your business, Quality of life issues revolve around creating business systems that are productive and satisfying for your people) The Systems Innovation Process Here's an overview of the process (some of the steps are dis- cussed in more detail following the outline): Selecta Systar Select a system for innovation, Which system? The next doa naiovetion: ‘one on your Business Systems Development Plan (from your work in Module 4, MG-0010). Or a system brought to your attention through the Key Frustrations Process (Module 1, LD- System On Si 0060). Ora system your intuition tells you needs attention. Or santas one you've identified through the systems evaluation process ‘System (using GN-0020). The process works for any system, Actually, the real answer to the question “Which system should you innovate?” is every system. You'll take the most important systems and those that need attention most urgently first, but eventually, every system in your business should be put through the systems innovation process. Determine System Baseline Observe the system on-site. See it. Watch it in action. “Apply the ; eaten Innovation Checklist Talk to the people who operate it. Get their experience, their “feel” for the system, Read the system documentation. Get to Diagram the know the system. Innovated System Diagram the system. Use the box-and-arrow format to make Estimate a simple diagram of the benchmarks of the system. Give each Performance & benchmark a brief name and number them in sequence. Make joerc your diagram spacious, not cramped. You're going to use it for a number of purposes and you'll need the space. install & Test the Innovated System) “This doamer cool and propo One Suse Delgent Cora and eat be ua mastbod wo ucad nso gave what cayey Cason aon Sepa ‘ome .The E-Myth Mastery Program General Reference Business Development Process: GN-0030 Systems Innovation Page 3 Determine the system baseline by looking at its input/out- put/eost. Input includes the resources required to operate the system (staff, facilities, equipment, supplies, and information), Output is the result produced by the system plus any by-products and waste the system generates. Costs are the costs directly attributable to the system over an accounting period (month) and the per-unit costs when the system produces units of output, ‘Quantify and describe input and output in terms of its key indica- tors (quantity, quality, timing, and intangibles). [For more infor- mation, review Systems Evaluation, GN-0020.] Having gathered this information, you now have the baseline against which you will measure future performance. Analyze the system’s work flow. Work flow is the progression of activities, materials, and information into, within, and out of a system. Work flow has four components ~ task flow, materiel flow, information flow, and layout. Task flow consists of the steps you showed in your box-and-arrow diagram, Materiel and information flows may or may not be significant for any one system, and they may of may not coincide with the task flows - it depends on your specific business. Layout is the physical arrangement of work sta- tions, workspace, and the traffie pattems in the working area. Work flow includes connections with other systems in your busi- ness and even connections with outsiders like suppliers, regula- tors, creditors, and others. The system you're working on occu- pies a place in the overall business and is interrelated with other systems. You'll need to look at those interrelationships to under- stand their balance and their interdependencies, and the effect the system has on the larger scheme of things at your business. Later in this booklet you'll find a list of specific guidlines for analyzing each of the four work flow components, Apply the Innovation Checklist. Use the Innovation Checklist in the Worksheets section at the back of this book- let to explore opportunities for improvement, The checklist is a series of specific techniques for improving the work flow of any system. Some may be appropriate, some may not. If you're inventing a completely new system, the checklist is an excellent way to avoid mistakes in system design. Diagram the innovated system. Decide what improvements to try, or the best configuration for a new system, and dia- gram it. Again, the box-and-arrow diagramming technique works well. Take advantage of people who populate the “old” system to develop suggestions and give their experienced opinions on vari- ous ideas for innovating the system, ‘Ths one cnertal ad ropa 10Gb Biss Onslpmon Coron od ant be wa ‘oom er sphsed wibout tm gra arse conn Guat Busnes vce Corin, Tae se ‘eta ot i hl yoshi op, sepa seh peThe E-Myth Mastery Program Siceceapmnomatien General Reference a Page 4 Business Development Process: GN-0090 0 Estimate the performance of the innovated system and compare with the current system baseline. Quantify and describe the key indicators of your newly conceived system, Use the “ROBUST” standard to determine if the innovated system is likely to be effective. If not, or if you want to try to generate an even more effective version, cycle back through steps 6, 7, and 8. If the system is acceptable, go on to step 9. Install and test the innovated system. This will require planning, training, probably some preliminary on-site experi- ‘mentation, and maybe even a period of continued testing and observation (like the “beta test” period used in developing new computer software). When the system has settled into its normal pattern of operation, you'll want to determine the “norms” of its operation (the normal range of input, output, and costs, again expressed in terms of key indicators), and document and use ongoing monitoring as part of your “orchestration” process. You Have to See It to Understand It - Go and Look &, ‘You may already know your busin: yystems so well you could Aer Sov describe them in detail from memory - but don’t do that. Most be op 4, memories aren't that trustworthy, especially when it comes to the e details of business systems. But even if you have a superb mem- ory, go look at the system. Get a direct “feel” for it. Talk to the people who operate it. Find out what comers get cut, and wh; Find out what ideas they have, and why. Find out what they've tried that worked or didn’t work, and why. Get a sense of how people, materials, and equipment move in and about the system. See how the system relies on other systems for input and feeds its output to other systems, and talk about it with people operat- ing the other systems. In other words, don’t make it a study, make it an experience. If you make it a study, you're limiting yourself to logic. Logic is powerful and essential, but your brain also works in non-logical ways. If you experience the system first hand, you're feeding the intuitive and instinctive parts of your brain, You're picking up clues and observations you might not even be aware of, but that will serve you well as you move into the truly innovative steps of the process, Boxes and Arrows — Simple Yet Sophisticated If you're trained in systems analysis or if you want to use any of the many excellent software programs to diagram your systems, “Tig der coe sad open Gerber Bsns Devalogrmet Caran and cant be ues, Seto auplsod wiht he or nen coaet ot Ger uaness Srna Ceo, {rte wo tyne ya i eaters cap slp, atten‘The E-Myth Mastory Program Systems Innovation General Reference Business Development Process: GN-0030 Eeaes by all means use them. But they're not necessary, and they can sometimes get in your way because they can give you a false sense of precision and they don’t capture the “fee!” of the system. ‘The box-and-arrow diagram gets the job done very well and it’s the simplest way to do it. Besides, unlike most other techniques, you can add your own notations and sketch in useful observa- tions and ideas if you like. Like all the tools and techniques pre- sented in The E-Myth Mastery Program, you adapt it to your business, make it your own, use it your way. There are a few rules you should follow: = Make your diagrams roomy, with plenty of space to add notes. = Boxes represent work activities, tasks, ‘They're also called “benchmarks.” ™ Each box should be labeled with a word or two to identify the task. Numbering helps. = An arrow shows the sequence of tasks, how tasks are linked. = The entire system is enclosed within a larger box (represent- ing the “black box” idea). = External systems are shown by boxes outside the “black box” and are connected with arrows showing where they provide input to or receive output from the system’s tasks. = Invent any other rules that work for you, Add any notations to your diagram that help you, Here’s what a system diagram might look like: __The “black box" pas? | TASK ERrerwaL | | ERTERWAL ERMAL EXTERNAL ‘Syste ‘Srstem SysTeM ‘SvsteMt Thi decennial nd ep Geter BueesOnroupner Copia sd came La {eccaed ot aphandwiheu fhe par ten cont ot Geo Basse Dvlpnent Coins Send eee be a ar onl ye, mo, SetThe E-Myth Mastery Program General Reference ton Business Development Process: GN-0030 age Systems Innovation Work Flow Analysis —- Looking Inside the Black Box \v 7) 4 a a ce ae pe a ee “Ae 4 The Systems Evaluation (GN-0020) process had you looking at the outside of the black box, at the external characteristics of the “! fm ~ its inputs, outputs, and costs. Work flow requires you to look closely at the inside of the black box, at its inner work- ings. You do that by identifying all the benchmarks, the steps, that make up the system you want to examine, diagramming them in the box-and-arrow format, and closely defining the sys- tem’s dynamics ~ what is called its “work flow.” Work flow is the pattern of tasks, materiel movement, information flows, and physical layout that form the system, Conderstanding is what you'te afte) The idea isto understand completely and in detail how the system works. You'll be tempted to jump to solutions and new approaches as they occur to you and your people, but resist. Force yourself to completely understand the system before taking on the task of innovation, Otherwise, you'll leap to premature conclusions and incomplete solutions. based on partial information. It docsn’t take that much longer to do a complete analysis, and the end result will be systems that are significantly more effective. You Can't Understand any System Unless You Understand Its Work Flow, and that Means Details, Details, Details The trouble with business systems is that you can’t understand them, and you certainly can’t create or improve them, unless you immerse yourself in the details ~ in understanding them and insisting on getting them right. You can’t systemize your busi- ness looking at it through a telescope. It takes a microscope. You can evaluate a system from the big picture point of view, and you do that, as you've seen, by looking at its extemal mani- festations, its inputs, outputs, and costs. But you can’t even begin to innovate your systems without looking into the innards of your business systems and absorbing both their logic and their “feel” at the most detailed possible level. You have to dig into the “black box” and there’s no way around it. But that’s actually good news.(Details are your friends. The details will set you freé) When you've dug into the details of your systems and gotten them running like a Swiss watch (or today’s high-tech equivalent), then you step back to the big pic- ture viewpoint and monitor your systems through their key indi- cators. You innovate at the detailed level, you monitor at the big picture level. Get the details right and you don’t have to deal Tis docu is teal an propretay 1 Oe sess Geropmant Canin sa cee xe. ‘ecened fsa wna rr wa sae Gat! Buses Davee Cepeon Theat Spe oraeed by eis syegbnrme ve namo copay are,‘The E-Myth Mastery Program Systems Innovation General Reference Business Development Process: GN-0030 Page? with them any more, except when something goes wrong or when the time comes for another round of innovation. Industrial engineers with advanced degrees spend their entire careers immersed in work flow. They use tools like PERT charts Program Evaluation and Review Technique) and linear programming and say words like “critical path” and “time and motion study.” And, no, you ‘won't be doing any of those things. You don’t need to. You'll be taking the practical, non-theoretical, no-nonsense approach, You'll look at the work flows of your systems and answer two questions: €What gets dome by the system and GHow does it get done?> Your tools will be your own eyes, some Tow-tech box-and-arrow diagrams, a floor pian, and the experi- ‘ence and common sense of you and your people. The Four Faces of Work Flow The heart of any system is its work flow. Get the work flow right and you've got a system that works right. Work flow can be com- plex, but if you approach it the right way, it’s straightforward First off, you need to know the four kinds of work flow: sce 1. Task flow - the work activities of the system, what you show in your initial box-and-arrow diagram. “S~ 2, Materiel flow (Yes it’s spelled correctly) - the equipment, apparatus, and supplies used in the system, including informa- X tion when information is part of the work and is integral to the \ result, *3. Management information flow - accounting data, operating instructions, key indicators, management information. ..infor- é mation abour the system. a — ~ 4, Layout and traffic flow - the physical location of worksta- ‘THE FOUR COMPONENTS tions and the traffic in and around them CP ORE SLOW You may need as many as four diagrams, one for each type of work flow. Three of them are copies of the basic box-and-arrow diagram you've already drawn showing task flow. You just make copies and on one you trace materiel flows, on another you trace management information flows. You might only need one ot two diagrams, depending on the size and complexity of the system, Sometimes you can draw all three on one diagram. You want to make your diagrams large and roomy so you can write notes and ideas directly on them. The fourth diagram is a map of the sys- » tem a floor plan or other sketch of the physical layout and pat- tems of movement of people and equipment. ‘Ti doen eer nd prota 10 Gtr Buses Devgan Creo act be ue, ‘Seay smn nw tn Gut ros en Cpa. That ‘Sey epemned Tr ree‘The E-Myth Mastery Program General Reference Business Development Process: GN-0030 Systems Innovation Page 8 These diagrams don’t have to be masterpieces of engineering or artistry. They merely have to capture the details of the system clearly enough for you to understand. They're your working papers, and you're the only one they have to satisfy...you and anyone you ask to work with you on it, The trick is to get the right information onto your gras (What information? )Here are some guidelines: ‘Task flow a The tasks - the benchmarks, or steps ~ of the system Sequence - the order in which the tasks are performed = Dependencies - which tasks have to be done before of after other tasks = Balance - matching outputs and inputs; output from one task is input for another Material flow = Types and amounts of supplies, raw materials, components, information, equipment = Point of origin/entry into the system a Interim stops within the system = Productive stops (when the materiel is put to & productive use) a= Idle stops (when the materiel is between operations or in temporary storage) = Point of exit from the system or consumption in the system Management information flow = Types of information, and form (paper? electronic? how transported?) = Point of origin or point of capture = Interim stops within the system = Productive stops (when the information is put to use) a Idle stops (when the information is not in use ot not moving to a destination) = Point of exit from the system Layout and traffic flows = Configuration and nature of the physical space = Location and arrangement of work stations (task locations) = Utilities - type, access, and capacity = Traffic pattems ~ movement in, around, and between work stations and other systems = People “is docs cones an propre eter Sees Cevment Coprin an cant se lone Sane ah! wio eet ot Gat Goats vse Cora Theat ‘eth nr esd by el opi sand red ape sy etn Fjiesememe,‘The E-Myth Mastery Program General Reference Business Development Process: GN-0030 Systems Innovation Page 9 = Materials That's a lot to think about, but unless you go to that level of detail, you can’t be sure you're systems are operating to their potential. alee = Machines Cant take heart! Even though there’s a lot to consider, innovation fun. It’s creative. And it’s rewarding, Approach your innova- tion process and the guidelines presenféd in the Innovation Checklist with enthusiasm, If you do, you'll get extraordinary “ results. 1. fee Don't Rush it! - fh // Atck 1 fae wollen te fares’, ple os * let fi hfe P* * te pt Don't jump to premature, i vs iscipline yourself to thoroughly understand the complete system. As you begin to look at the det tem, you're likely to see immediate opportunities for improve- ment, but don’t rush the process Don’t make “fixes” as they ae U.>Go through every Step of the work flow analysis. Get the whole picture. Then, and not before then, move on to the innovation work. That way you'll avoid false starts, impul- sive tinkering that you'll have to reverse later on, pattially effec- tive solutions to problems, and low-yield innovations. Remember that effective, robust systems are at the very heart of the successful businesses. And systems innovation is the only way to keep those systems effective and robust, and your busi- ness healthy and thriving, year after year. You now have the power to create and implement positive change in your business. Use it often, wisely, and well. “ern ra opt Get eens ure npn i el Scan itn ol cp oso usr gare eaThe E-Mytn Mastery Program Systems Innovation General Reference Business Development Process: GN-0030 Page10 Business Systems Innovation Checklist The problem with innovation is that there's no single formula that takes in all your information and returns the one and only right answer. But there are many useful guidelines and principles. These guidelines are compiled for you in the form of the Innovation Checklist, which is presented here. Use it to jump-start your common sense and imagination. With your work flow diagrams and your input-output-cost information handy, use it to look for opportunities to improve or even reinvent your systems by focusing your attention on each of the items on the checklist. Don't consider this a complete list. Rely on your experience, your judgment, your imagination. Rely on the people who operate your systems and get the benefit of their experience, judgment, and imagination. Think “outside the box" and don’t be afraid to be unconventional. When in doubt, experiment. Trial and error can be an effective way to innovate as long as it's guided by intelligence and an understanding of what you want to accomplish rather than a ran- dom series of “try this” and “try that.” 7 Output: Does the system’sesul)meet all your expectations and requirements? Are the by-products valuable or should they be minimized or eliminated? Are levels of waste and rework at an absolute minimum? J Benchmarks: Are the benchmarks ~ the (Steps that make up this system - the appro- priate ones? Are any additional bench- marks needed? Are there any that should be eliminated? 1 Sequence: Are the benchmarks in the most effective sequence? Can any steps be oper- ated “in parallel” (at the same time) rather than “in series” (sequentially, one after the other) in order to reduce cycle time? (J Internal balance: Are the benchmarks within the system in balance? Is the output from one benchmark what is needed by the following benchmark and vice versa? (7 External balance: Are outputs from other systems received in the right amounts at the right rate, and are they of the necessary quality? Are this system’s outputs to other systems produced in the right amount, rate, and quality? ‘is acute an opty o Gao Buses Deon Copeaon ar aot a, coda xin wih te por mien crc Gabe (7 Spin-offs and mergers: Are any of the benchmarks important enough that they should be spun off and developed as sys- tems themselves rather than merely bench- marks within this system? Are there any other systems that feed into this system that should be merged into this system as benchmarks? (J Consolidation and fragmentation: Can you combine any of the benchmarks into a single step? Can any of the benchmarks be broken into separate steps? C7 Staff distribution: Can you distribute your manpower for better effect? Is it bet- ter to have one person perform a chain of benchmarks or to have several people each performing a single step? For instance, if you have three people doing assembly work, is it better to have each person doing all three assembly steps, or to have John doing only front-end assembly, Mary doing only middle assembly, and Pat doing only back-end assembly? ieosDreupnen Caper. Tht anurpusishee wo Pole Oy etal appl red no toe Sp, an Sa perth‘The E-Myth Mastery Program General Reference Business Development Process: GN-0030 Systems Innovation Page 11 1 Movement of supplies and materials: Are the supplies and materials needed at each benchmark available when they are needed, in the necessary quantities, in the form need- ed, and are they conveniently accessible? 1 Information: When information (such as operating instructions, product specifications, customization instructions, standards, etc.) is a necessary part of a benchmark, is it readily available in easy-to-use, easy-to-understand form? 7 System layout: Does the physical layout ~ the floor plan, the plant layout, the configura- tion of the repair truck, the office traffic pat- tem, the physical movement of materials and tools, the placement of work stations (“adja- cency”) - enhance or detract from work flow? Are work stations configured not only for efficiency, but also for human factors (like safety, comfort, convenience, or appearance)? J. Inspection and quality control points: Are there a sufficient number of quality control points in the system? ‘Too many? Do they interfere with the operation of the system? Can they be made to happen without interfer- ing with or interrupting the system or any of its steps? 7 Idle points and transitions: As work flows through the system, are there points within the benchmarks during which work stops or slows? Can they be eliminated? Are there points in the transition of work from one benchmark to the next that the product rests (is not being worked on)? Can such idle points be eliminated? (1 Equipment: How could technology help? Does each workstation have what it needs to get the work done? Could it be done better with different equipment? Could the working {Is coms i skeet pln Gre uote a a conditions be better for the people operating the system if they had different equipment? Centralized vs. decentralized: Are there benchmarks in this system in common with other systems, and can those steps be central- ized? For instance, in many businesses, word processing or data entry are benchmarks for a number of systems. By creating a centralized data entry or word processing capability, many systems benefit and overall costs are reduced. On the other hand, it may be better to decentralize some centralized operations for better quality control or responsiveness to the customer, ‘Management decision points: Does man- agement or some other decision maker have to review and approve any part of the sys- tem’s operation? For example, does an assembly system stop until a manager approves the assembled item, or does a draft report have to be approved by someone before it can more forward, or does the reorder of parts or materials have to wait until someone approves it? Do such deci- sions interrupt or in any way interfere with the system? Can decision points be eliminat- ed? Are more needed? Gathering management informati Rather than creating new, potentially intru- sive information-gathering steps, can infor- mation gathering be “piggy backed” onto existing document flows? Can production information be gathered from inventory tags rather than creating a new form? Can a copy of an inspection tally sheet be used instead of creating a separate quality tracking form? Is it possible to make use of existing informa- tion flows? Devaar Copoatn a canbe we. esd of td wien ther witen cmon of rer ‘tines Derepre Capron. Th aunts won pote dtl phan nto mater n,n, eis arpa «Paes.