Ten Reasons Why Businesses Fail

 Basic Business Cents

Ten Reasons Why Businesses Fail

There are many reasons why businesses fail but some of the more common ones are listed below. Note, it is not necessary to have several of these shortcomings; any one can be fatal.

·      Lack of a vision of the desired future, communicated and understood by all employees. This should be a memorable, inspiring, and compelling statement of the future state of the business. Every decision in the company should be viewed as to whether it helps to achieve the vision.

·      Lack of leadership. This does not mean a dictatorship nor does it mean anarchy by sitting back and letting the employees go in all directions. It means being out in front, setting the example for behavior desired. A leader’s role is a heavy responsibility because employees tend to watch and emulate the behavior of the leader.

·      Satisfaction with status quo. If leadership is happy with doing things the way they have always been done; the world is passing them by. Technology and trends are constantly changing and business must be learning and changing to keep abreast, or hopefully in front of competition.

·      Lack of a good strategic plan. With the aid of the vision of the future state of the organization, a list of actions necessary to reach that vision is needed to guide activity. Follow-up is required on a regular basis to monitor progress on achievement of the strategic actions.

·      Lack of focus. Any mature business typically has room for two competitors to make reasonable profits and one more to breakeven and barely exist. Any business should narrow their focus until they find a niche in which they can dominate.

·      Too much waste, rework, and redundancy. Experience has shown typical numbers for waste, etc., of 25% in medical facilities, 35% in manufacturing, 60% in service, and up to 90% in government organizations. A continuous, relentless pursuit of reduction of these numbers is critical for survival.

·      Attention to reduction of defective product and service and not on the processes and systems that produced those defects. All work is a series of processes and the output is only as good as the processes. Process thinking is a breakthrough on the road to prosperity.

·      Lack of financial projections. Managing by looking at the financial numbers of what has happened in the past is like driving a car by looking in the rear view mirror. A running twelve-month projection, by month, of anticipated revenue, expenses, and cumulative cash flow is a tremendous management tool. The cumulative cash flow projection will reveal how much money is required to sustain the operation.

·      Lack of understanding of customers’, and those who would be desirable customers’, true needs and wants. They may not truly know what their real needs are, so needs and wants can be two different things.

·      Inattention to growth of employees. Businesses have a large investment in their employees and turnover is a huge hit to the bottom line. By continually investing in skills training and broad education, a happier and more productive workforce will result.

There are other reasons, of course, like the economy, acts of nature, loss of a key person, etc. but the above ten are controllable. Avoiding these pitfalls can go a long way to ensuring success, prosperity, and survival of a business.

The Way

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The Way

In ancient China, the keeper of the Imperial Library, Lao Tzu, was famous for his wisdom. Perceiving the growing corruption of the government, he left for the countryside. On his way, the guard at the city gates asked Lao Tzu to write out the essence of his understanding to benefit future generations. Lao Tzu wrote the Tao Te Ching and was never heard of again. This book, generally translated into meaning, “The Way” has become one of the most influential books in history.

Toyota Motor Corporation created their version as a way of doing business called ‘The Toyota Way”. The two focal points are continuous improvement and respect for people. The principles for a continuous improvement include establishing a long-term vision, working on challenges, continual innovation, and going to the source of the issue or problem. The principles relating to respect for people include ways of building respect and teamwork. This is their guiding way for managing the business and guiding behavior.

Continuous improvement starts with sharing a long-term view with all employees so that everyone is in sync going in the same direction with regards to a vision of the future of the organization, values, and steps needed to attain the vision.  In other words, a strategy shared by all.

Next is a shared understanding that the right process will produce the right results. Processes should be continually challenged for opportunities to improve by eliminating waste. Toyota lists seven types of waste; overproduction, waiting, unnecessary transport or conveyance, incorrect processing, excess inventory, motion, and defects.

The second half of the Toyota Way is to develop the people. They believe in the ability and intention of their people and enlist their aid in achieving their goals. To do this, they supply on-going training in continuous improvement and supply standard methods to be used in problem solving, process improvement, and process innovation. They are taught how to work in teams to solve problems and are judged by team achievements rather than individual efforts. The employees are challenged to recognize and solve problems.

Suppliers are treated in much the same way as employees. Toyota challenges them to do better and help them to achieve it.  They provide the same training employees receive to help suppliers discover and fix problems in the supply chain, along with on-site application consulting. In effect, they become virtual partners with their suppliers to improve the total system from raw material to finished product.

Toyota trusts their people but also expect their managers to have first-hand working knowledge and understanding of the processes in their areas. In this way, consensus-based solutions can be swiftly implemented once decisions are made. Teamwork is built through mutual ownership of problems and solutions.

Anther way of explaining The Toyota Way is continued growth in the business, customers, and employees. They do this with continued challenge, improvement, and innovation of work processes and systems.

What is The Way of your organization, the guiding philosophy of doing business and treating people? Do all of your employees understand it and buy in? Do you?

Advanced Strategic Improvement Practices

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Advanced Strategic Improvement Practices

The leaders in performance improvement practices shared their techniques and philosophy at a conference in the Twin Cities last month. Attendees came from not only as far away as Florida and Manitoba but also from Bemidji and Park Rapids. Speakers represented industries from banking, medicine, food, education, manufacturing, government, and even consulting. Methods used to improve performance are applicable no matter what the industry or type of business.

Professionals in the field of performance improvement sometimes refer to the little q-quality of products or services, and big Q-quality of processes and systems.

Little q is the traditional view of quality of inspecting after the fact the quality of products and services. Inspection is too late; the poor quality detected has already been produced. It is a measure of waste and rework, warranty costs, dissatisfied customers, and rework. Management and employees look at little q as the responsibility of the quality department.

Big Q involves the quality of the performance of the entire organization and is the responsibility of leadership. It is viewed as the continuous improvement and innovation of the processes and systems that produce the products and services. Transformation of big Q does not happen accidentally. It starts and ends with leadership.

This conference was about big Q.

The CEO of a major healthcare facility said the goal in healthcare is to achieve a better outcome for the patients, not money.  Having said that, he also said there is 30-40% waste in healthcare. Lean Thinking Techniques is one of the solutions to eliminating that waste.

A consultant and former General Manager of a manufacturing company who is a supplier to Toyota shared that the Toyota Way is to combine continuous improvement with respect for people. Their management focus is in three areas:  Growing the Business, Satisfying Customers, and Growing People. The latter has two elements, teach and coach a standard problem solving method and challenge and coach people to solve problems.

A state government official discussed the need to learn how to change the culture of the organization. He divided that effort into three parts; rely on data for decision-making, develop a learning organization, and share goals.

Several presenters focused on the need to challenge the status quo, constantly looking for better ways.

The truly encouraging fact from this conference is the recognition of the presenters that a change in the culture of the organization is required if the performance improvement journey is to endure over time. Many organizations in the past have made the mistake of introducing the tools of performance improvement without adequately communicating to all employees the reasons why and the importance of the effort.

A good system of improvement will make sure we are working on the right things, we are addressing the issues with the right tools, and engage all employees with the knowledge of the system. In this way, behavior and culture are changed to ensure continuous improvement and innovation is sustained over time.

Seek Advice

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Seeking Advice

Never fail by yourself!

This is a powerful adage that is applicable no matter what type organization or position in which you might find yourself. It is especially true for the small business owners who feel they have no one they can talk to openly.

So what are the options of finding someone who you can talk to honestly and frankly and get good advice?  Family members and employees are always an option but there are downsides, they are likely to tell you what they think you want to hear rather than what you should hear and it might have a negative impact on morale.

Our friendly banker is always an option, especially if you are not in serious financial trouble, which might present a conflict of interest for him or her. Nevertheless, they are a good source of advice.

One excellent source to confide in and get good advice is a Board of Advisors, not to be confused with a Board of Directors. The Advisors provide advice, not direction. Most of the time you are looking for mentoring, not dictating. The Board of Advisors should be made up of people you respect, are knowledgeable, have a track record of success, and are willing to invest some of their time to help you.

And there are consultants. They come in many different stripes and hues. Fees (they prefer to call them investments) range from zero to part ownership of your organization.

Free consulting is available from the Small Business Development Corporation, which can be contacted through your local bank or by calling 218-299-3035. Their consultants offer free advice to small businesses.

Another source of free counseling is SCORE®, a nationwide group of retired or semi-retired executives who donate their time to mentor small business executives. They have a local branch office located in Room 101 of the Hubbard County Courthouse and can be contacted at 218-732-2259 or score@hubbardcountyedc.com.

And of course paid professional consultants are another path to take. For comparison purposes, they can be divided into independent consultants and large consulting companies. They should be capable of finding and solving problems, see through smoke, capable of improving processes and systems, understand good management theory and human nature.

Independent consultants usually charge fees in the range of $500 to $5,000 per day plus expenses. They bring expertise in a niche or narrow area and if that fits your needs, it may be a good experience. It should be looked at as an investment with a payback potential to make it a very good investment. How to measure that payback should be planned for and agreed to in advance. Do not agree to share your savings with the consultant, as that is considered unethical. It will lead to arguments over how to measure. They may not be particularly knowledgeable in your business or industry arena but are knowledgeable in means to improve your organization’s performance. They should be looked at as partners with you on solving problems or improving processes or systems. You know your business and they know improvement techniques, so if you work together you can be successful.

Large consulting companies offer a wide range of knowledge and charge accordingly. They may ask for fees starting at the top range of the independents going up to even asking for shares in the company. Their advantage is their consultants may have niche knowledge but they can go to other consultants in their company to access other knowledge you need. Again, their fees should be looked at as an investment and accomplishments documented carefully to see if the investment pays off.

Either you or your consultant should document accomplishments to-date and recommended actions after each consultant visit. After all, results and action are what is important and is what you are paying for, either monetarily or in time invested.

It may be that some combination of the above is best for you. You are unique, but there is always help available that can pay dividends for you. There is no need for you to walk alone.

REVIEW AND FUTURE PLANNING

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A Community Performance Improvement Plan for Small Business

MONTH TWELVE: REVIEW AND FUTURE PLANNING

The last month of the Community Performance Improvement activity for small businesses coming together for joint training sessions and applications of lessons learned between the training sessions will be reviewed for what worked and what did not work. The results of improvement efforts within their organizations will be presented to the group, discussed, and recommendations made by fellow attendees. Each organization is different and will have different experiences. By sharing, they can learn from each other without revealing company confidential information and gain new insight on what to do going forward.

Attendees from each organization will in turn, share their Performance Profile results with the class and receive feedback to help in the future. Examples of successes and failures will be helpful to the discussion. 

Plans for future deployment and continued learning will also be shared.

As stated in the first article of this series (July 6, 2011), the return on investment in this program should be huge. Large organizations have experienced real annual savings/project of $50,000 to $3,600,000. If we scale that down to one tenth of that for small companies participating in this Community Performance Improvement activity, and each participating organization undertakes several projects during the year, we begin to get a feel of the positive impact this program will have on the participating companies.

By sharing the cost of two days of training/month for twelve months, considerable savings can be realized and this can often be covered by a grant. The half-day of individual consulting per month for each participating company is then the responsibility of each of the companies.

The benefits of this program are to share the costs of experienced consultants, processes, and material in a manner that will benefit all at a reasonable investment and pay a large return in the improved performance of the participating organizations. Process improvement and innovation have proven to be very effective and necessary to compete successfully and profitably in today’s challenging business world by large organizations and the Community Performance Improvement plan is an effective method to bring the same proven techniques to small organizations.

The Chief Executive Officer of Midway USA, winner of the 2009 Baldrige Award recipient, stated, “If you want sustainability in an organization, and you want to go from great to really great, you’ve got to have some kind of model…and Baldrige is that model. Our sales are up over 20 per cent per year over the last five years. Our profits are up over 40 per cent for that same time. Customer and employee satisfaction are at an all time high and it’s all because of our efforts in engaging the Baldrige Criteria.”

The Community Performance Improvement Plan makes it possible for you to have a similar experience with your organization.

Improvement Plan Results

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A Community Performance Improvement Plan for Small Business

MONTH ELEVEN: RESULTS

All the effort put into this Community Performance Improvement is of little value unless the organizations have obtained desired results. It should be of little surprise that of the 1000 possible points on the self-assessment, 450 of them are assigned to the Results category. This section examines your organization’s performance and improvement outcomes in all key areas-leadership, product and process, customer, financial, workforce, and market. The major elements of the Results category to be analyzed are:

·      Product and Process Outcomes: What are your product performance and process effectiveness results?

o   Customer-Focused Product and Process Results

o   Operational Process Effectiveness Results

§  Operational Effectiveness

§  Emergency Preparedness

o   Strategy Implementation Results

·      Customer-Focused Outcomes: What are your customer-focused performance results?

o   Customer-Focused Results

§  Customer Satisfaction

§  Customer Engagement

·      Workforce-Force Outcomes: What are your workforce-focused performance results?

o   Workforce Results

§  Workforce Capability and Capacity

§  Workforce Climate

§  Workforce Engagement

§  Workforce Deployment

·      Leadership and Governance Outcomes: What are your senior leadership and governance results?

o   Leadership, governance, and societal responsibility results

§  Leadership

§  Governance

§  Law and Regulation

§  Ethics

§  Society

·      Financial and Market Outcomes: What are your financial and marketplace performance results?

o   Financial and Market Results

§  Financial Performance

§  Marketplace Performance

After completion of the self-assessment on this category, the participants can add their scores from the previous categories to obtain their total score. For comparison purposes, beginning organizations in performance improvement activities should expect to be in the 200 range, really good companies in the 500 range, and world-class organizations score in the 700 range. Where else can you score 50% on a test and feel good about it? This only proves none of us are perfect and we all have a lot of opportunities for improvement.

The essence of the results category is monitoring and reporting the status of the quality improvement initiative.  Measurements help accomplish several important things,

• Define specific opportunities for improvement and focus attention on corrective action
• Create standards for comparison and monitoring improvement

The self-assessments conducted during the year reflect the opinion of the attendees at the time and hopefully they have learned more as the year progressed. Now it is time to take the self-assessment process back to the rest of the organization. A Performance Profile manual will be distributed to the attendees with instructions on how to facilitate a self-assessment by the leadership team of their organization as homework for the next session.

The Chairman and Chief Executive Officer of Dana Commercial Credit Corporation stated after winning the Baldrige Award in 1996, “One of the big things about this process is you measure everything and you find you’re not quite as good as what you thought you were. But more importantly, you find out specifically the areas you need to improve.”

Leaders Lead!

Basic Business Cents

Leaders Lead!

March 19, 2009

The sketch below depicts three types of leaders. With which one do you most associate your own behavior?

Most people realize that today you cannot behave like the dictator sitting in the driver’s seat cracking the whip over the team. Unfortunately, many managers do not know how to manage when they can no longer manage by edicts and threats and so they move to the back of the wagon. They sit there in a fetal position, hoping the team is going in the right direction. That is also not an effective way to lead the team to the desired goal. Today’s leader is in front of the team, feet on the ground, providing direction.

Everyone is having fun today dissecting the auto industry to understand where they went wrong. One reason is the unfortunate pattern of alternating “car men” and “financial men” into the CEO position. Donald Peterson of Ford (Taurus), Bill Hoglund of General Motors (Saturn), and Lee Iococco of Chrysler (K Car and also the Mustang while he was at Ford) were “car men” and had great success. “Financial men” who followed tended to focus on short-term financial results and the fall into mediocrity followed. Myron Tribus of MIT once said, “Managing your company on financial figures alone is like trying to drive your car by looking in the rear-view mirror. The numbers reflect what has already happened and cannot be used to predict the future. Management is prediction. That requires feet on the ground, leading your team in the desired direction.

What is that direction? It is the role of the leader to provide the aim of the organization. Every organization must have a vision, and by extension a vision statement shared with all employees. A strong and clearly worded vision statement allows employees to make decisions consistent with the organization’s overall goals and objectives. Without this clear direction, the employees will do their best but they may not be pulling in the same direction.

A good vision statement must meet three criteria.

· It must be memorable. If the employees cannot recall it immediately, it probably is not of much use to guide their behavior.

· It must be inspirational. It should excite the employees to want to enlist in the crusade to achieve it.

· It must be compelling. It should move employees to action. Understanding the vision and being excited about it means nothing if action does not take place to get the desired results.

In order for the employees to buy-in to the vision, it must be communicated to them in a way to achieve true understanding. Japanese friends say that it takes more than one of the senses to communicate. Merely sending it out in printed format, putting up posters, or pontificating about it will not achieve the desired buy-in and commitment. The leader must publish it in written form and also explain it to all employees about it in a true dialog format.

Success in today’s challenging business world is increasingly based on the extent of the leadership, personal involvement, and visibility in developing, deploying, and maintaining an evironment for excellence. Leaders lead the way.

Operations Focus

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A Community Performance Improvement Plan for Small Business

MONTH 10: OPERATIONS FOCUS

This category of the Malcolm Baldrige Criteria for Performance Excellence was at one time labeled Process Management, which I prefer. This section recognizes that all work within an organization is composed of a series of processes and these processes form a system for getting work done. A footnote in the Baldrige Criteria states, “Work systems refers to how the work of your organization is accomplished. Work systems involve your workforce, your key suppliers and partners, your contractors, your collaborators, and other components of the supply chain needed to produce and deliver your products and business and support processes. Your work systems coordinate the internal work processes and the external resources necessary for you to develop, produce, and deliver your products to your customers and to succeed in your marketplace.”

Performing the self-assessment on the Operations Focus category starts the month 10 training activity. It examines how the organization designs, manages, and improves its work systems and work processes to deliver customer value and achieve organizational success and sustainability. It will also measure the readiness for emergencies of your organization.

The areas addressed are:

·      Work Systems: How do you design, manage, and improve your work systems?

o   Work System Design

§  Design Concepts

§  Work System Requirements

o   Work System Management

§  Work System Implementation

§  Cost Control

o   Emergency Readiness

·      Work Processes: How do you design, manage, and improve your key work processes?

o   Work Process Design

§  Design Concepts

§  Work Process Requirements

o   Work Process Management

§  Key Work Process Implementation

§  Supply-Chain Management

§  Process Improvement

Following the self-assessment on this category, each of the participants will be asked to draw a system chart of how their organization works. This is not as easy as it might sound, as management does not always know how the work really gets done. They will have to talk to their people to see what they do in reality to confirm their theory of how it is done and how it should be done. Workers sometimes do something different than what they are instructed to do, not because they are negligent or lazy, but because the processes which have been provided to them do not work. They do what they have to do to get the job done.

Instruction and coaching will be provided on flow-charting and drawing a systems map. This will involve the identification of the 3-5 key processes of their organization and the activities that are part of the value stream and those that are the supporting and leadership processes. The key processes are drawn in a box and represent the value added that the organization provides. Inputs such as labor and material suppliers are drawn outside the left side of the box with arrows going to the box. Users of the output of the organization like customers and other stakeholders are drawn outside the box on the right. Management is shown outside the top of the box and supporting activities like accounting, personnel, legal, etc. are shown outside the box on the bottom. This is a useful way to depict that those activities on the top and bottom may be useful, but they are overhead. Only those activities contained inside the box are adding direct value.

As you might envision at this point, this chart is extremely useful in managing the organization.kay

Workforce Focus

 Basic Business Cents

A Community Performance Improvement Plan for Small Business

MONTH 9: WORKFORCE FOCUS

In month 9 of the 12-month journey to improvement performance of the organization, the focus changes from process capability to the workforce capability and capacity needs to build a workforce environment conducive to high performance. The self-scoring Baldrige criteria in this category examines how your organization engages, manages, and develops your workforce to utilize its full potential in alignment with your organization’s overall vision, mission, strategy and action plans. The key components of this category are:

·      Workforce Environment: How do you build an effective and supportive workforce environment?

o   Workforce Capability and Capacity

§  Capability and Capacity

§  New Workforce Members

§  Work Accomplishment

§  Workforce Change Management

o   Workforce Climate

§  Workplace Environment

§  Workforce Policies and Benefits

·      Workforce Engagement: How do you engage your workforce to achieve organizational and personal success?

o   Workforce Performance

§  Elements of Engagement

§  Organizational Culture

§  Performance Management

o   Assessment of Workforce Engagement

§  Assessment of Engagement

§  Correlation with Business Results

o   Workforce and Leader Development

§  Learning and Development System

§  Learning and Development Effectiveness

§  Career Progression

People are the most vital resources in virtually any business. Deming called them a treasure and not to be confused with a commodity. They are not assets to be bought and sold but treasures to be valued, nurtured, and protected at any cost; after all, you have made an investment in them to get them to this point. Growing and managing this resource is essential to quality improvement. 

Most efforts at quality improvement that are considered to have been a disappointment can be attributed to a failure to adequately address the human concerns. It is critical to examine the underlying culture and determine what behaviors and traditions tend to reinforce old ways of thinking and acting and are therefore no longer relevant. Output from Month One will be used to develop a set of Operating Principles to guide behavior throughout the organization.

Leaders or point people for each of the Operating Principles are selected within the organization.  Simple reporting forms are supplied for them to report on progress and obstacles each month to organization’s operations meetings, and a straight-forward survey form to measure performance behaving according to the principles. Each level of the organization is measured-executives, supervisors, direct reports, and peers.

These actions will emphasize the importance of instilling a culture of continual improvement within each organization that will cause the improvement activity to endure over time.