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October 11, 2010 / PROFiTiViTi

The “ROOM FOR IMPROVEMENT” Gap – Close it in a Very Compelling Way

We’ve all heard the phrase said plenty of times – “There’s a lot of room for improvement”.  As leaders charged with improving business performance, we love this phrase because we enjoy fixing stuff.  Eliminating waste and improving productivity is what we do.  We strive to make things better.  However, with business improvement, one of the biggest topics of conversation today revolves around Return on Investment (ROI).

 –          What’s the ROI of the project?

–          What’s the business justification (and it better demonstrate financial improvement)?

 Senior executives, Board Members and business owners are all demanding rapid and significant ROI on projects today.  No ROI, no funding – it’s that simple. 

 Gone are the days of throwing good money after bad to try and fix business problems.  Cash is limited, yet business issues are abundant.  Companies need hard-dollar savings that improve performance, not projects which merely move spending from one process area to another.  Today, investments in improvement must move the needle.  They must increase sales and/or profitability, with long-term sustainability as a critical success factor.

 The questions then turn to identifying and quantifying improvement opportunities.  This is where Profitiviti shines.

 –          Improve the areas with the highest ROI (these are not always the processes people are complaining about)

–          Track improvements back to financial statements

–          Trend changes over time to ensure improvements persist

 At some companies, improvement efforts are started because executives hear that a process is flawed.  Resources spend a tremendous amount of time trying to justify the project when they should be working on the improvements.  Be proactive in your identification and prioritization of efforts.  Close the “room for improvement” gap by knowing where your company’s biggest opportunities exist and what the financial benefits are, then monitor those improvements over time.

 Lots of people are really good at using Excel to demonstrate that a project has a positive ROI.  Take “Excel-Magic” out the play by modeling your company the way it really operates. Make business improvement decisions based on accurate and quantified insight.   And as a bonus, set yourself up with a simple way to actually track if the ROI occurs over time as planned.  Because today, that’s a huge undertaking for most companies and something that’s talked about, but rarely done.

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August 19, 2010 / PROFiTiViTi

The Phrase, “Lipstick on a Pig” Applies Again

One of the focus areas for Profitiviti is to get our tool in the hands of Private Equity firms who are looking to improve their odds on getting involved with a company that will deliver significant return on investment .  Over the past couple months, I’ve spoken to many folks in and around the PE space to find out more about the approaches and frameworks used during the pre-money due diligence phase.  There seems to be two distinct camps here:

1) Those firms/partners that only analyze financials, the advisors and the top management teams to make their decisions

2) Those firms/partners who conduct deep due diligence about all aspects of the company they are looking to acquire/invest in

Yesterday, I ran into a PE partner while waiting to pick up food at a local restaurant.  We got to talking when I found out that they used to be in camp #1, but have lost a few companies to bankruptcy since the economic meltdown of 2008.  With a simple question of, “What happened?” I heard his new epiphany for detailed due diligence – or what we call, Business Operations Intelligence®.

Here’s a synopsis of what he said, “Yes, the economic meltdown played a part in decreasing sales, but…”:

– We quickly found out that company lacked the ability to rapidly diagnose the issues (took over 90-days to make changes)

– We quickly realized that the company was operating in silos and that the divisions had different incentives, so decision-making was incredibly slow

– We quickly realized that the company lacked strong people within the organization to understand, adjust, lead and execute

In the end, this partner’s take away (after losing significant amounts of money) was that the inner workings of the company were the keys to long-term success and profitability (people, processes, communications, incentives).  In his case, top management was known and trusted, but when things started to collapse, they didn’t have the people and processes in place that could execute the rapid transformations that were needed.

This was music to my ears because that’s exactly where our tools and frameworks excel.  This is why we are in business, to help companies quickly and accurately understand their business operations so proactive decisions can be made for improvements and risk mitigation.  As a result, we are getting together to discuss the Profitiviti solution and how it might fit within their company’s pre and post-money processes.  Love it.

August 3, 2010 / PROFiTiViTi

Executives Love the Words, “I’ll Handle It”

Prior to starting Profitiviti, we were all business executives working through the daily challenges and opportunities that came with our jobs.  Even though we worked in different industries, we shared two common sentiments: we were all way too busy and we all wanted to un-complicate our lives.

When an issue arose, it was music to our ears when a person on our team said, “I’ll handle it.”  But when things became a bit too hectic or we wanted some advice, we always turned to our handful of trusted advisors.  We all have them.  They are the only ones with business cards sitting next to our phones.

Trusted advisors are in your inner circle because they have consistently delivered value to you over time.  These individuals never have to call you and pitch their services – they’ve earned their standing.

Our goal is to earn the right to place our card next to your phone.

We identify the critical connections between strategy, structure, skills and profitability.  We deliver in-depth, yet intuitive business insight to senior executives faced with a variety of complex scenarios.  The result, benefits-driven, actionable and measurable improvement plans.

Below are some business scenarios where we excel:

– Senior executives looking to right-size their cost structures, free up money for growth and improve margins

– Investors and/or Board of Directors needing rapid, business turnaround

– New executives interested in accurate, objective analysis to help in developing their 90-Day Action Plans

– Private Equity and/or Venture Capital firms seeking detailed operational due diligence

– Operational Excellence leaders looking to quantify improvement opportunities and track ROI back to financials

Yes, there are many companies and individuals that say they can help.  We know we can.  We have decades of experience, we utilize a proven analysis framework and we have the tools available to accurately diagnose your business.  With our high-powered analysis tools, we deliver results faster, cheaper and more accurately than our competition, without having to build error-prone Microsoft Excel models.

Why take a chance when proven, low cost solutions are available? In a short period of time, using easy to gather business information and requiring no capital expenditures, Profitiviti can seamlessly provide accurate decision-making insight about your business.  We’ll handle it.

May 3, 2010 / PROFiTiViTi

Show Me The Money! Real ROI Measurement

“Show me the money!” was a catchy phrase from the 1996 comedy, Jerry Maguire, starring Tom Cruise, Cuba Gooding Jr., etc.  Hard to believe it was released in 1996, as it seems like yesterday.  In any case, “Show me the money” is also a common blurb used throughout corporate conference rooms when executives are evaluating projects for their return on investment (ROI).

Let’s walk through a typical company process:

1) Identify a project which most likely requires capital dollar investment (CAPEX)

2) Analyze the project opportunity and build the internal political alliances needed to “sell” the project to senior management

3) Gain initial approval for the project, contingent on a palatable cost-benefit analysis (ROI)

4) Develop the ROI and enter the data in the corporate excel spreadsheet

Here’s where the creativity begins.  To get a project approved through the “green-lighting” process, people will develop some very creative situations.  Companies will utilize categories like these to group the benefits: cost avoidance, operational efficiency, soft-dollar savings (huh?), hard-dollar savings, reduction in force, etc.  From experience, everyone in the company knows what the IRR, NPV, ROI and Payback Term values need to be at a minimum to get the project into consideration.  Then they fudge and finagle their way until the spreadsheet says its so.  But they dare not go too high or else the returns are not believable.  If they go too low, their guesses may get audited by someone in Finance.  Most stay fairly conservative so they don’t raise a lot of red flags.

If this is what your company does, how about a better solution?

Conduct an operational assessment, establishing links between your company financials and the business operations.  If your project is to improve the New Product Development Process, let’s find out what it really costs to execute that process along with which resources are working on that process.  Instead of making up a number based on what you think Mary from Marketing does, define the real cost of the process.

Once  you’ve defined the real costs, make assumptions as to where the ROI, IRR, NPV, etc. will come from.  Again, real assumptions.  Mary from Marketing will spend 30% less time on New Product Development than before.  The entire NPD Finance Group will no longer be needed.  These are real costs, quantifiable and easily tracked back to the financials.  They are not an average salary+benefits allocation of a fictitious Excel resource.

Once the project is approved and completed, conduct another operational assessment, then another one in 6 months, then another one in 12 months.  During each assessment, you’ll now be able to track the real ROI of the project.  You’ll know which dollars were saved and now contributing to EBITDA.  You’ll know which dollars were re-allocated to another part of the business.  You’ll also know if nothing changed or if the process required more spending as a result.

Running a company is difficult as there are lots of moving parts.  Conduct periodic operational assessments to monitor your business costs and capabilities, across one project or thirty projects.  “Show me the money!” can be a real exercise and it’s easier than you think.

Check out our SlideShare presentation for examples of operational assessments: http://www.slideshare.net/sraack/profitiviti-answering-business-questions

April 25, 2010 / PROFiTiViTi

The 5-Levels of “Why”

Years ago I learned a root cause identification methodology from a mentor called, “The 5-Levels of Why”.  In my business and personal life, this has been a steadfast framework in a variety of situations.  Here is an example, as I call on my long time hobby of screen writing:

CUT TO: House Interior, 3-Year Old Child Crying with the 5-Year Old Child Standing Nearby.

DADDY – Why is she crying?

5-YEAR OLD CHILD – She fell.

DADDY – Why did she fall?

5-YEAR OLD CHILD – She was running and tripped.

DADDY – Why was she running?

5-YEAR OLD CHILD – Because I was chasing her.

DADDY – Why were you chasing her?

5-YEAR OLD CHILD – Because she made me mad.

DADDY – Why did she make you mad?

5-YEAR OLD CHILD – Because she ate my last cookie and that’s not fair!

By the time you get to the fifth “Why”, you usually have your answer.  In this situation, DADDY knew something caused the situation to escalate and it probably had to do with both the kids acting poorly.  Think back to a situation at work when you needed to figure out the answer to something.

— Why did a product go on back-order?

— Why did a customer return an item?

— Why did a project miss it’s milestones and go over-budget?

Getting good at reading people and finding out the root cause of embedded issues is critical to success as a manager and leader.  Try this approach next time and let me know what you think.  All the best.

April 13, 2010 / PROFiTiViTi

Minimizing Resource Risks

Because we work with many companies under confidentiality agreements, I’m going to use the nomenclature of Company A to present this example.  It’s no surprise to many executives in the aerospace, defense, engineering, etc. industries that a large portion of their working population are nearing retirement age.  Trust me, the environments in these companies are far from those cultures of the dot com era or the current day social media organizations.

I worked for NASA for 4-months as a Instrumentation Engineer many years ago before choosing management consulting as a career launching pad.  At NASA “bells” rang to signal the start and end of each day, the beginning and end of scheduled breaks and lunch.  Honestly, it kinda reminded me of the old Flinstone’s cartoons (some of you will know what I’m talking about with that analogy).  Even though I worked for NASA in the early 1990’s the average age of the engineers had to be 55.  Fast forward almost 20-years and I bet most if not all of those folks have retired, taking a majority of their knowledge with them when they left.  This is a common situation for many companies.

So, what to senior executives do?

Well, Knowledge Management (KM) systems, processes, organizational groups, etc. began to emerge in great numbers.  SG&A costs increased as a result.  Like all internal programs that require people to change, KM efforts succeeded in some cases with strong executive sponsorship and failed miserably in other cases.  Getting engineers to populate meta-data driven tools with knowledge that kept them relevant is not an easy task – even when the carrots of bonuses were dangled in front of them.  These resources know they were too important because of their tribal knowledge.  They also know that being re-hired after retirement is quite lucrative.   Knowledge is power, remember?

Long story short, I’m not here to write about KM programs, tools or the like.  I’m here to provide insight on how to better identify and mitigate the business risks by knowing exactly who is entering the retirement years while also knowing what business processes they work on.  At Company A, they choose to use Profitiviti’s Business Optimizer(TM) solution to stay proactive with their business risk mitigation program.

Company A decided to allocate a data point for each internal resource.  They created the following groupings:

– Retirement < 1 Year

– Retirement < 5 Years

– Retirement < 8 Years

– Retirement Not A Concern

Because they already defined their business process list with relative Strategic Value and Contribution to Growth/Revenue ratings, Company A was quickly able to determine which resources were nearing retirement and which ones were working on the most critical business processes (http://bit.ly/aFEIe0).  By monitoring their resource risks in this fashion, Company A implemented mentoring and other KM programs specifically around the critical business processes which would be most impacted.

Through discussions with Company A, it was determined that each seasoned resource retiring without sufficient knowledge transfer would cost the company over $400,000 per year in errors, quality issues, additional training or the re-hiring of those resources as contractors for much higher wages.

The Baby Boomers are going to retire and leave the company – that’s a given.  Implementing tools, processes and procedures are one facet of a business risk mitigation plan.  However, knowing exactly who those retiring resources are and what they are specifically working on is typically the missing link in a more robust and effective program.

Get ahead of the problem.

January 5, 2010 / PROFiTiViTi

Does Your BI/Analytics Initiative Produce Poor Executive Insight?

If the answer to that question is “Yes” or “Kinda”, then you’re not alone.  Business Intelligence (BI) and analytics programs have delivered sub-par results for years (and after spending millions of dollars).  But how can this be –  smart people are involved in these efforts for the most part aren’t they?

Yes,  “for the most part”, but several things can happen along the way:

– Poor requirements definition
– Poor sponsorship
– Poor project management
– Political agendas get in the way
– Business users not really sure what they want and why, but they want something because they read an article or heard a keynote speech somewhere
– IT folks are more interested in deploying new technology and learning new skill sets rather than solving business needs
– Reports are department focused only (e.g., sales, supply chain, finance) and give partial pictures and half-truths
– Etc.

Business intelligence, analytics, performance management, etc. all come in a variety of shapes, sizes and technology platforms. Like everything else, success is based on the input, efforts and abilities of many people working as a team to solve problems which are understood and articulated – with trial and error being a part of the process along the way (e.g., iterations).

First and foremost however, insight and key decision-making knowledge starts with business issues and opportunities.  Technology should never be the focal point – it is the means to delivery.  We believe strongly in using proven methodologies and frameworks as the foundation for analytics. Data gathering and reporting for the sake of reporting is time consuming, expensive and frustrating.

We’ve used strategy tools such as Porter’s Five Forces, Balance Scorecard, etc. to define the business strategies, then used analytics to deliver the true integrated metrics to support those strategies. We’ve also used process definition for the most critical processes in the company (e.g., new product development, sales & operations planning, order fulfillment, customer service, etc.) to define the key metrics and reports needed to monitor their execution.

At my current company, http://www.profitiviti.com, we took analytics to a different level of business optimization – pulling in the best approaches from our experiences. We have a proprietary methodology integrated in our solution that facilitates process-based-costing with an angle towards Strategic Value, Contribution to Growth and Maturity. It’s powerful and extremely useful, plus with a SaaS framework – it has a low total cost and zero IT footprint. This framework has literally made and saved companies millions of dollars over the years.