The Power of Managing Complexity: Streamlining Business in a Turbulent Economy

In difficult economic times, it is important to minimize your company’s exposure to loss. This can be accomplished by evaluating which products are making money and which processes can be simplified. Evaluating these components will allow you to determine if there is a way to streamline production and ramp up revenue potential.

Simplify Production Costs
In good economic times, companies are growing and more layers of complexity are added. However, increased complexity can create higher costs and decreased production. In addition, in a difficult economy, evaluating these areas can help your company save money.

When evaluating costs it is important to par down spending without hampering innovation. Plus, you will need to consider the benefits of staying close to important markets. That is because having operations in local markets will keep you in touch with what customers want. This is especially true during a recession when competition is fierce and being connected to your market is essential.

According to the article “Winning in Turbulence” by Mark Gottfredson and Darrell Rigby, using a Zero-Based Approach can help simplify costs. This approach suggests that you imagine a time when your company only produced a few products without all of the complexities. This will allow you to brainstorm ideas on how to simplify processes and cut out unnecessary costs.

Evaluate your Product Offerings
Although it is nice for customers to have choices, if you have a small customer base seeking a product, this might be a place to cut. This is especially true if the profit margin is narrow. Plus, expanding your product line to include too many choices may even dilute your company’s brand if the new products are not perceived well.

Evaluate How Production is Achieved
When producing products, it is most cost effective to have large runs of products; versus small batches. Although many companies do small runs for convenience, you can achieve streamlined production with a few steps. First, implement a higher order minimum for customers – which will cut down on small batches. Also, implement longer lead times on production so you can combine orders and minimize costs. You may also want to consider outsourcing production when it makes sense for your company.

Evaluate the Productivity of your Equipment
If you have a product line that has a high percentage of scrap, evaluate those costs compared to how profitable the product is. In these situations, it might be worthwhile to consider not producing those products anymore. Also, make sure that low-volume projects are not being run on equipment that is designed to run high-volume projects. Making these simple changes can increase your efficiency and profits.

Streamline Decision Making
Streamlining the decision making process can reduce costs by increasing accountability and speeding up decisions. According to the article “Winning in Turbulence” by Mark Gottfredson and Darrell Rigby, this can be achieved by making a list of how many managers a decision needs to go through before arriving at the CEO. Evaluate if there are layers in this hierarchy that can be reduced or eliminated. Making these changes can save your company substantial operating expense each year.

It is also important that managers have clear direction on how decisions should be made (with appropriate accountability). Without these components, decision-making can be disjointed and time consuming; paralyzing a company that is struggling to stay afloat in a poor economy.

Controlling Costs
As organizations become more complex, costs often become difficult to manage. Without cost accountability, your company can face serious issues in a poor economy. To enhance your company’s performance, create a system for evaluating the validity of all costs; even the small ones.

Focus on Fixing Short Term Challenges
When you are evaluating the complexity of your organization, you may find many areas that need improvement. Unfortunately, in a poor economic environment, it is not practical to fix all of these areas at once. Instead, evaluate which processes will yield the best results in the short term. This strategy will produce quicker results; helping your company weather a difficult economy. And once you have survived the hard times, you can focus on the larger issues that need attention.

Evaluate Data Collected
Having good data can help executives make decisions and plan the future of the company. However, having too much data can bog managers down and decrease productivity. To solve this problem, evaluate what data is currently collected. Then, par down the data to include only what managers need in the current economy. Also, evaluate the data collection processes to determine if there are opportunities to streamline those functions.

Managing and improving your company’s complexity can help streamline processes and improve your bottom line. Plus, you will benefit from enhanced productivity and increase revenue – which can turn your company around in a difficult economy.

Resource:
Mark Gottfredson and Darrell Rigby. “Winning in Turbulence, The Power of Managing Complexity.”

Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy,” “Selling Your Business the Easy Way,” “Enhancing Your Business Value…The Climb to the Top,” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 or email him.