Small businesses have less complex structures and are less intricate than their global counterparts.
However, their core objectives and strategies have much in common. Most businesses, irrespective of size, aim to efficiently provide a product or service that will make a healthy profit.
Businesses invest in developing and implementing systems that streamline their overall operation and utilise capacity. Essentially, the end result is to cost-effectively produce high quality goods or services that will give them the edge over the competition.
In theory, the business then establishes itself as the market leader and cash-flow improves, while turnover rises. As all this is happening, the business is establishing a brand that enables it to command an even higher premium for its commodity. This, of course, generates even greater income, which can be re-invested in further strengthening the business and continuing the cycle of growth and operational excellence.
Reaching for the edge
There are numerous ways that a business can establish itself as a profitable operation with vast market appeal. It can invest in the best resources, equipment, personnel, operational systems, training programmes or communications strategies.
Although each of these factors play some part in achieving maximum productivity without compromising quality, equipment and personnel resonate throughout the core of any business. Businesses need some form of equipment to function and they need people to operate it.
As any business owner will know, it is these core operational elements that can prove most problematic.
What the small business owners may not be aware of is that it is harder to identify the cause of underperformance. This can prove costly in terms of wrong decisions being made and opportunities being missed.
Missing the mark
Many businesses that we talk to believe they face capacity constraints that prevent them from expanding and becoming more productive and profitable. They believe that they simply do not have the time or space to grow.
The root of the problem is often that they are not exploiting the full potential of the resources they already have.
The problem with many small and medium businesses is not that the owner-mangers or directors become complacent or lack drive and ambition. They are more likely to be in a habitual behavioural rut.
There is a constant danger of becoming too familiar with the operating location and physical resources of the company.
It is easy to overlook the fact that people who have been satisfactorily performing one set of functions over time may be capable of a great deal more; that equipment or resources that have been bedded into one set of procedures over a period of time may be working at a fraction of their full capacity. Habit can make inefficiency seem normal.
Over time, the bigger picture becomes clouded by perceptions of current limitations. For example, customer orders may be declined as the business does not feel it would be able to efficiently handle them.
Alternatively, in the absence of clear information, the wrong product may be withdrawn from the marketplace as the business incorrectly believes it is a loss maker.
Pinpointing underperformance
Underperformance may be a result of a fundamentally flawed strategy, inadequate monitoring, dated equipment or technology, poor management, weak communications or a combination of these. Operational diagnosis can help identify what is going wrong, why, and how it can be put right.
An OMS operational audit evaluates the performance of tangible assets such as equipment, as well as the less tangible aspects of a business such as systems and people. The audit forms the basis of a report that outlines existing capacity utilisation and the changes required to optimise performance.
Furthermore, these reports contain plans and costs for implementing changes, and advice on the likely impact that the changes will have on the daily operation of the business.
The audit questions various parts of the operation and often starts by determining what a business' core objectives are and how they link with the proposed outcomes of the audit. This is followed by a diagnostic audit that provides a detailed analysis of a company's strengths and weaknesses.
Key characteristics of the review include analysis of working manuals, handbooks and reports, interviews with staff and comprehensive assessment of a business' structure, processes and outputs.
The audit also considers any external factors that are affecting performance, which vary depending on the sector that the business operates in and the goods and services it produces. For example, a textiles manufacturing operation will have experienced fewer technical advances in terms of equipment and working processes than an IT services business.
A case in point
OMS recently undertook an operational audit for a leading producer of snack products that it sells across the globe. The company produces hundreds of thousands of products every week.
The key factor inhibiting the company's efficiency was its anxiety to accommodate its customers. This translated into frequent product line changes to accommodate comparatively small orders.
Customers who had grown used to this 'accommodating’ stance had simply ceased placing orders in efficient quantity groupings – they knew the company would bend over backwards to meet their needs.
While this may have been good for sales, tapping into smaller markets and customer relations, it was causing huge amounts of downtime as production lines were adjusted and realigned for the smaller orders.
Producing many of these short batch orders became unprofitable and constrained overall production capacity.
The management view had become diffused over time and was focused on customer satisfaction as opposed to production optimisation. There was no need for the company to make this compromise.
The audit findings prompted a full review of the company's product portfolio, costing methods and scheduling cycles. This, along with dialogue with the relevant customers, led to significant improvements.
Taking a proactive approach
Many of the world's leading businesses invest in operational auditing on a regular basis. They do not do this to identify failings, but to ascertain whether a successful operation can be fine tuned even further.
Taking a proactive approach enables a business to make informed and profitable decisions that will improve its operation.
Operational auditing can be conducted on a micro-scale and different parts of a business treated as individual profit centres. In the past, this has proved successful in outsourcing, relocation, re-equipping and reconstruction of certain business departments.
Small and medium businesses can learn from large multinationals by taking a positive and practical approach to growing their business. They should not be daunted by the perceived costs of upheaval or making changes.
In many cases, businesses already have what they need in place and just need to make a couple of minor alternations. It is pinpointing the changes that need to be made which can prove the hardest part.
