By David A. Fields and Laszlo I. Nemeth
The dog days of summer are an opportune time to turn to the art of pitching baseballs as a metaphor for running your business better. What can the experiences of Roger Clemens, Tom Glavine, and other greats who have perched on the rubber teach you about making your business a world champion? One lesson, which we will illustrate through a specific case study, is how to find and address the disparate opportunities in your organization that combine to dramatically improve your performance against the competition.
This article, which explains how to apply a particular type of modeling to accelerate profit growth, explores the fourth step in a six-step process for creating a high-performance organization. The first three steps are quickly summarized as:
1. Build a comprehensive model of your customers’ purchase decision process. You can only optimize your company if you know what factors trade off when you customer is choosing among competitive offerings.
2. Establish a single metric that measures the effect your efforts have on customers’ purchase decisions. Many companies manage different departments (operations, sales, finance, etc.) as if they have different goals. They don’t. Everyone across the organization has the same goal: efficiently build sustainable sales growth.
3. Create a holistic business systems (HBS) map that connects the customers’ purchase decision process to all the activities within the organization. This is typically a computer-based model that allows you to simulate how changes in activities across the organization interact to affect purchase decisions (Step 1), as expressed by your single metric (Step 2). The application of the HBS map is Step 4.
With the first three steps in place, we can return to our heroes on the mound. Pitching involves many pieces that must mesh seamlessly to deliver a strike, including arm cocking, shoulder rotation, trunk rotation, leg kick, stride, elbow extension and shoulder extension. Similarly, at a California-based specialty uniform company, sales, manufacturing, procurement, shipping, human resources, and a host of other corporate functions combined to deliver products to their customers—only, they were not striking out the competition. Quite to the contrary, despite superior product performance and status as the largest player in the industry, startup companies that could deliver better against customer expectations were rapidly stealing share.
Their situation was turned around by a ringer in their dugout: the holistic business systems map. The HBS map works like a biomechanical study of a pitcher’s delivery, where height of the leg kick, rotation of the torso, and so many other factors are precisely measured. What professional pitchers know is that you can’t work on one element of the throw independently—all the pieces are interrelated and affect the ultimate product: winning the game. A coach may suggest a higher kick to deliver more speed, but at the price of accuracy and, worse yet, eventual overstrain of ligaments. Additionally, the longer windup action gives runners a better chance to steal bases—which isn’t even an output of the pitching motion itself. The problem gets complex quickly. A good biomechanical study helps pitchers see how all the factors interact and spot a combination of modifications that improves overall performance.
An HBS map does for companies what a biomechanical study does for pitchers, and more. The challenge facing the uniform company, like all companies, was enormously more complicated than a pitcher’s, but surprisingly similar. Many components had to work together well, and a change in one place could have an unforeseen consequence elsewhere. In addition, prior to putting a map in place, the coach—er, CEO—had identified a few high priority initiatives to improve performance, such as retraining the sales team and investing in capital equipment to increase plant capacity. The CEO in this case was a Harvard MBA and adjunct professor of business at a California university, so his insights were keen and based on successful experience. Yet, the HBS map showed that his key initiatives were unnecessary and, while they may have provided minor improvements in performance, they missed an opportunity to multiply profit performance almost overnight.
The map tying customer purchase decisions back through the uniform company’s activities highlighted turnaround time as a major reason for share loss, and limited plant capacity as a major culprit. Hence, the decision most CEOs would make: increase capacity. But the magic of the HBS map started by showing plant capacity was tapped out because of constant production errors. In other words, the sales team would enter an order incorrectly, leading to production of the wrong product that not only created expensive write-offs but consumed valuable production capacity.
Answer: retrain sales, right? Wrong. Drilling deeper into the HBS map showed that order errors were precipitated by an order entry sheet that allowed contradictory information to be entered and didn’t clearly indicate which data fields were mandatory.
The error rate on order entries was heightened by the sales incentive system that straightforwardly rewarded representatives who delivered the most revenue. The top performer had captured the coveted Salesperson of the Month parking space so many months in a row that her car was virtually a fixture next to the office entrance. One of her secrets to success, shared by other high-performing sales people, was jotting an order down as quickly as possible so that she could grab the next incoming call. Needless to say, her quick jottings led to multiple errors. Negative consequences for her? None. Negative impact on company performance? High.
The HBS map unmasked one other factor contributing to the company’s unacceptably slow turnaround time: line workers squandered time making the right products at the wrong time. Since all components for all products were available to line workers, they would start with the products that used easy-to-handle components, then progress to other products only when the preferred materials were depleted.
Ultimately, the combination of solutions included new procedures for managing product components which limited work on the “easy” products, a new sales incentive plan which required order accuracy, and a new order sheet which facilitated accurate data entry. (Amazingly enough, the mere reorientation of the order sheet from portrait to landscape was integral to tens of millions of dollars in incremental profit.)
The result of these seemingly minor interventions was a quintupling of profits within a few months. Their order error rate sank to zero overnight (literally), and their turnaround time led the industry. All without a dime spent on training or new capital equipment.
An HBS map reveals what was simply impossible to pick out otherwise: a few, disparate elements make all the difference in how the parts of your company fit together to create results. Just as a biomechanical study might show a pitcher that a slight drop of the left shoulder combined with a slightly slower trunk rotation might dramatically increase speed and accuracy (so much for the leg kick), the HBS map highlights the unsuspected adjustments which, in combination, create astounding differences in sales and profit.
Business and baseball diverge in two important aspects: (1) The sequence of improvements is critical in a corporate setting. The revised component handling process would have shown little effect if the order entry sheet and incentive plan had not been corrected first. (2) While a pitcher can easily try out different combinations of movements, experimenting with the components of a company is costly, impractical and sometimes perilous. Hence, the ability to simulate the affect of combined modifications is an enormous boon to businesses that create HBS maps.
Summer is an ideal time for executives to start applying an HBS approach. Typically the year’s high-priority projects are well underway and there is less pressure to immediately implement the next major reengineering project (which, like increasing leg kick, is probably suboptimal anyway). Plus, the results of the approach can be so quick that there’s more time to grab a couple of cold ones at the park and watch your favorite pitcher work some magic on the mound.
Could the approach outlined here quintuple your profits in a few months? Call us at 203-493-0166 to learn more or to get a copy of Laszlo’s book, A Chink in Your MBA Armor, which explores many of these concepts in more depth. Or e-mail us at [email protected] or [email protected].
About the Author(s)
David A. Fields has created over $1.5 billion in incremental revenue opportunities for clients including Kodak, International Paper, and Church & Dwight through new market initiatives and performance improvement efforts. He holds a B.S. and MBA, both from Carnegie Mellon University.
Laszlo I. Nemeth has pioneered turnaround and performance-improvement projects for clients including General Motors, Delphi Automotive Systems, GE, and many smaller companies. He holds a B.S. from San Diego State University and a M.S. from University of Southern California.