Articles

Missed Opportunities In A Good Business Which Could Have A Better Bottom Line

March 17, 2020 - By Ian Munro, Director, B Bus Sci (IS Hons) M Com (IS)

This scenario is common: you have a good business, good employees and good processes, but you have strong sense that you could have a better bottom line. What to do?

There are, of course, various possibilities – from commissioning an internal deep-dive, to getting advice from external consultants, to doing nothing and hoping the problem goes away.

In this case study the organisation chose the first option: an executive and senior management task team was assembled with the express purpose of better understanding the business and improving profitability.

On the surface Legitimate Leadership wholeheartedly supports, even recommends, this option. And for many inside this organisation the task team exercise is still considered a resounding success. The team got together, profitability improved, everybody was happy.

We don’t disagree with any of that, but we believe that it was also a missed opportunity. Why?

First, let’s look at what actually happened.

  1. Simply put, shareholders and senior executives agreed that a good business such as this should really be giving a better return on investment.
  2. On a given afternoon all executives and senior managers were called into a room and a deep-dive task team was announced.
  3. Starting the next day, all managers were to arrive at work an hour earlier than usual. For a month and a half that hour would be spent better understanding the business and putting in place measures to improve profitability.
  4. The following morning managers dutifully arrived and began to unpack the business value chain from start to end.
  5. Soon, gaps were identified – primarily, improvement opportunities related to standards of timekeeping and lackadaisical and inconsistent billing approaches.
  6. No matter, these things were easily solved. Stricter timekeeping standards and controls were implemented (time was now monitored and captured by close-of-business each day in increments as short as 15 minutes). Daily monitoring of time metrics and trends meant that senior managers could keep a closer eye on targets and ‘actuals’.
  7. Senior managers now had the information to make the right decisions regarding billing and invoicing. Authority was pulled back up the line to where it should have been in the first place – back up to a management level where people could be trusted.

During and following the deep-dive there were two notable implications for the organisation.

  1. Profitability metrics improved. This was mostly because of compliance with the new set of standards relating to project billing. However, as compliance improved, initiative and ownership commensurately declined.
  2. As decision-making authority was pulled up the line to where people could be trusted, so levels of trust down the line declined. “Why should I behave in a mature, trustworthy way if nobody trusts me anyway?”

Also noteworthy is that there was very little, if any, impact on customer outcomes. Customers weren’t aware of the task team, and they weren’t mentioned in task team conversations.

THE MISSED OPPORTUNITIES

Nothing about the above is necessarily a train-smash, and from the perspective of a short term shareholder this could be (and is) seen as a significant success. From our perspective, however, there were some important missed opportunities in this approach.

  1. The opportunity of improving ownership, accountability, trust, and engagement. With an improved business understanding and a new set of standards to be implemented, there’s always a choice to be made: new controls or elevated trust. New controls have the advantage of delivering the short term predictable outcome. Elevated trust, on the other hand, requires deliberate empowerment. It takes time and courage and invites the possibility of being let down. In the long term excellent people are twinned with excellent outcomes.
  2. Developing and nurturing values-aligned behaviours and decisions: doing things for the right reasons. The problem with the rules is that sometimes people follow them simply for the sake of following them. Compliance with the rules literally becomes the end. People start caring less about what value they’re adding and start fixating on how long things take. We call this clock-watching and it is seldom good for motivation.
  3. Lastly, businesses don’t exist to serve themselves, and our customers certainly aren’t there to serve us. We are there to serve them. Supply serves demand, not the other way around. Imagine the opportunity if our customers received as much attention as we give ourselves.
Ian Munro
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