Hidden Profits Blog

Finding the Gold in Your Business

Hidden Profits Author:

Lynda J. Roth

As the president and founding partner of Woodland Hills-based LJR Consulting Services, Lynda advises clients on ways to improve profitability and productivity through both technology and business processes. She also works with companies and private equity firms on the role of information technology in mergers and acquisitions.



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To Change or Not To Change

Filed under: Uncategorized — Lynda Roth at 4:43 pm on Wednesday, August 26, 2009

I have spoken to numerous businesses in the past several weeks regarding the systems and processes the company uses and whether they should change or update them.  I hear alot of ‘We are not sure if we can afford to do get a new system or change our process’ or ‘We are not sure it is a good idea to change’.  And of course there is the old adage ‘If it isn’t broke don’t fix it!’. 

The question is ‘How do you know if the system or process is broken or not?’ and ‘What is the cost of not changing?’  In their book ‘Lean Thinking’ James P. Womack and Daniel T. Jones discuss the Toyota approach of ‘kaizen’ - continual incremental change and the need to rid the business of ‘muda’ or waste.  If we honestly look at the business, especially a business with an accounting/manufacturing system that is not current and business processes that have not been revised in several years, there is probably alot of muda or waste. 

What is the cost of the waste?  Extremely High!.  In it’s most innocent form the company hires many more people than are required to perform all the functions necessary to create, market and deliver products or services.  The next level is where the company does not receive critical information to indicate problems that exist in the business and identify solutions to rectify problems.  The most egregious level of waste is when the company can no longer be competitive and looses marketshare and reputation as a result of waste.

You think ‘Oh Lynda that can’t happen today because every company has a computer system and probably a website!’.  Yes it is true that every client and prospect I have spoken to has some sort of computer system and almost all of them have a website. The question is how effective is the accounting system, when was the last time it was updated, are they using the features in the system and are they using other technology that makes the system and processes more effective.

 Let’s look at a few situations where the waste resulting from not changing can really cost a business.

Scenario 1.

A company uses a system that

  •  is no longer supported by the software vendor or by the consultant that developed it,
  • the hardware it runs on is no longer supported and it cannot process on new hardware
  • the system has been modified or the process circumvented so much that the data in the system is no longer reliable.

As a result of this the company cannot  meet product delivery deadlines, their inventory is growing because they do not know what materials are needed for the jobs, they have to write off millions in inventory shortages because they cannot accurately track the inventory usage.  What is the cost to that business for not changing its system?  What is the exposure that company has if the system fails? 

Scenario 2

A company is growing rapidly.  The system and processes they used before are now becoming very cumbersome and they continue to hire people in multiple locations to support the operations. They have acquired other businesses and now support multiple systems.  The financials show that even though the company is growing in revenue the margins are shrinking. Or management feels out of control because they do not have access to critical information.  What is the cost to that business of not reviewing processes and finding ways to automate more functions so they hire less people? What is the cost of not consolidating onto a single corporate system?  If the trend continues the company may become unprofitable or loose momentum.

Scenario 3

A business invested in a new system and implemented it but they did not see any change or very minimal change so they feel they wasted money and time.  They did if they purchased a system that only supported the current processes or if they did not implement lean processes when they implemented the new system.  What is the cost to that company of using a new system to do what they have always done?

You ask  Does this really happen?  I see it every day. ‘Why don’t the companies see this and make the necessary changes?’  Often it is because managers and executives need to do their jobs, they don’t have time to learn all the systems, technology and business practices that are available.  Also, many companies just adapt to the problems, find ways the put band-aids on the problem and then say they don’t have the time or resources to get new systems.

The reality is ‘They can’t afford not to make the changes!’.  Our business and technology environment changes rapidly today.  Businesses that don’t change and don’t become lean will be left in the dust. 

The best way to address  these issues is

  1. to have either an outside consultant or an internal team review the company’s process and systems on a regular basis,
  2. identify areas that may be improved and the solutions to support the change
  3. prioritize each issue
  4. allocate time and resources to the projects
  5. reward team members for embracing the change.

For more information visit my website and listen to the recordings of our free teleseminars.  www.ljrconsultingservices.com/teleseminar.html

You can also call us for an assessment or inquire about our seminars at 818-709-6583.