Beyond ISO – leveraging processes

In my final year engineering degree project, I fronted my dissertation with a quote from a guy called Lord Kelvin.  He used to run about Scotland a couple of hundred years ago measuring the temperature of the water at the top and bottom of waterfalls and as a result came up with the Kelvin scale of temperature measurement, he said.

• “If you cannot express your knowledge in terms of numbers, your knowledge is of an unsatisfactory and meagre kind” (possibly not that exactly but something quite close to it)

The thing with ISO is that it requires you to define and document your processes.  It does so in an attempt to ensure they are more staple, repeatable and predictable.  But it is only really hinted that you should align those processes with key performance indicators.  But it’s a damn good idea to do so!   But, if we are to do that we need first to take a step back and look at what those processes are attempting to aim at.

Traditionally businesses are compared to well-oiled machines, but we believe a better analogy would be an organism that will survive and thrive according to how well it performs its sole function: to find, keep and profitably serve its customers.

Consequently, the question that needs to be asked (throughout the whole life of any business) is “how do I “systematically” give my customers the best results?  The results of the business need to become “system” dependent not “people” dependent.  This is the process for working on your business not in your business and it requires you to work through the following steps:

• Articulate intent – know your aim or purpose
• Know the flow – define your processes
• Master the measures – align your KPI’s to your purpose and processes
• Engage the people – to drive improvement
• Drive the learning – for better results

And in this blog we are aiming to concentrate on the measurement activities…

So, in knowing the aim of the system, to satisfy your customers, the performance measurement system should really start with measuring what the customers want and think of the products and services you provide, and then work backwards into the processes and practices involved in doing so.

Customers are usually interested in what happens at the beginning and the end of your processes; The customer may request a quote at the start of the process and receives a service or takes delivery of a product at the end.  These are the parts of the business where you have direct contact with the customer, so they need to be measured and compared against their expectations.

The remainder of the performance measurement system should be built around the internal flow of work through your organisation with the aim of reducing waste and increasing profitability.  But how do you do that?

Given the intent has been defined, the purpose has been set.  You then need to codify the methods for systematically delivering value.  This starts with the production of a flow chart or diagram that shows how the various parts of your organisation work together in order to deliver value to your customers.  At a very basic level, we start with the idea that most organisations have very few top-level processes, an example would be:

• Get job – marketing and sales
• Do job – delivery and operations
• Bill job – finance

You then need to apply leverage.

Leverage

Each of the above areas of the business has activities that you can and cannot control, for instance, you may want more customers, but you can’t just conjure up more customers from nowhere, customers are the outcome. It is only the input, your activities, that you can control; the number of telephone calls made, the number of emails sent, the number of exhibitions attended… Get the picture?

Each component of your business will have a series of levers that you can “pull” and you need to understand the interaction between those levers and the outcome.

There are some great tools used to ratchet up different parts of the process but they all have to be modified so they suit your particular business.

Get job leverage

We have gone into this in considerably more detail in a earlier blog, but The Five Ways is a great tool invented by a guy called Brad Sugars who runs an organisation called Action Coach.  This is the framework we need to create, and indeed bastardise (obviously a technical term) to suit your own needs.

There are eight components to the model, five of which are levers that you can “pull on” but each of those levers provides insight into the different parts of the process that you can smarten up in order to drive the other three components of the system, the outputs.

• Lead Generation
• Conversion Rate
  • Customers
• Average Sale
• Average Number of Transactions
  • Sales line
• Profit Margin
  • Profit

Just think of this the next time you go to McDonald’s and the kid behind the counter says, “Would you like fries with that?”  That same sentence is being uttered the world over and ratcheting up the average sale for McDonald’s across the globe.  I’d love to know how much that one sentence alone has put on the bottom line of McDonald’s over the years.

But there is a logical order to this leveraging process, some things need doing before others.  There is absolutely no point in loading in more leads at the top of the funnel if the conversion ratio is rubbish.  For more on this check out the The Five Ways blog.

Do job leverage

In exactly the same way that levers can be pulled on the sales processes as part of The Five Ways there are levers that can be pulled as part of your operational or delivery activities.

Again, these levers are going to differ depending on the type of you organisation you’re running, the levers are likely to be fundamentally different for different sectors; service, manufacturing, construction company or building services … but they might include things like:

Whilst the above provides a little bit of insight, it is obviously just an incredibly small sample of potential levers.  You need to get into the detail of your get job do job process to understand which are most appropriate for you.  But, understanding your levers in association with other tools like Lean, Six Sigma, 5S, Kaizen, TIMWOOD and others drive significant improvement.

Bill job leverage

Looked at simply from a “pure ISO” perspective, ISO isn’t actually interested in whether or not you get paid! Crazy, I know!  Many years ago one client remarked “If my client is driving me down this road and I’ve gotta do all this work to codify my processes … what about them paying me on time!” It’s a perfectly fair question but one that (sadly, and to its detriment) ISO seeks to ignore.  Having said that good debt collection processes should be at the heart of good business practises.

There are various levers in the finance functions, questions asked might include; Do you have to wait to the end of the month to send invoices? Can you set up a subscription model for some part of your business?  Can you increase or implement an upfront payment?  Can you better automate parts of the billing processes? Can you make a call 7 days before an invoice is due to confirm it will be paid on time? What will an X% price increase deliver?

In fact, taking that last point, we came across a client recently that had not increased their prices for 12 years!  We then did a fag packet calculation to establish what the impact would have been on the bottom line with just a 2% increase for each of those 12 years.  That was depressing.

Conclusion

The whole purpose of ISO is to help you make your processes faster, slicker and better.  ISO provides the framework for doing so and hints at some of the tools for helping.

Using our simple get job, do job, bill job framework we can see there is cash out at the beginning of any customer transaction.  You pay upfront for staff time, products, services, components and you don’t get that money back in until the end of the process when the customer pays.   Cash out at the beginning and cash back later.  That’s your cash to cash cycle and the more you can speed that cycle the happier you (and your bank manager) will be.

If you think in terms of the get job, do job, bill job process, then think in terms of leverage, then apply each leverage to each sub-component of the business you can deliver some serious returns.

Related tools and ideas

• The Five Ways
• Leveraging sales, ratcheting up
• KPIs – delivering quantifiable improvement

Recommended references

• Dragon Slaying – A better way to manage
• 4th Generation Management – Brian Joiner

Downloadable resources

• A 1-pager on ISO systems
• How to implement management systems that improve sales and bolster margins
• Mission, vision, values… what’s the purpose?