Business leaders rely on a few essential financial measurements to gauge their business performance. These start with the ‘the bottom line’ or net profit, sales growth, expense trends and cash flow. A slightly deeper dive into sales management, production, customer service or supplier management processes and practices can reveal a lot about the operating performance of the business that helps to focus attention on needed improvements. To appreciate fully the effect of a significant factor that influences all of these measurements requires a different perspective than that provided by financial statements.
That factor is the performance of essential business processes and their ability to produce more work faster and at lower cost. This might be the core processes of production or service delivery or customer acquisition and engagement. Linked to each core process is the need for information to flow seamlessly between core systems so that the entire operation functions at peak performance. Businesses often acquire a ‘best-in-class’ software solution to automate a key function in their business and then fail to recognize the old adage; ‘a chain is only as strong as its weakest link’. That means if the integration and information flow between systems and processes is not operating at the same level of performance as the core process, then that weak link will act as a choke on the entire business system.
Occasionally, a software supplier contributes to this problem. Their primary concern is to sell their product for the purpose for which it is intended. Spending time and money integrating that product with other systems is not interesting to them and, for the most part, they are happy to turn that responsibility back to the customer. When the customer asks about integration between systems, the software supplier is apt to say “no problem, we have an API for that” (Application Programming Interface). Business owners who are not familiar with technology assume this is a good answer, until the new software is installed and goes into operation. It is worth spelling out the acronym for API because it inherently tells you what the problem is. It is a programming interface, not a solution to integration between systems. Two systems, each with their own set of APIs, require someone to create a new program to automate the flow of information between them. Poor integration equals poor performance.
Another critical area that deserves attention is access to information for decision-making and the flow of work performed manually by people, frequently aided by large complex spreadsheets. These systems may not be critical business processes required to produce, sell or acquire products in the operation of the business. However, they can be a huge productivity drain on the people and as importantly, on the leadership of the business. Teams of people bogged down in paper-driven workflows, compliance and inspection reporting, management reporting and customer and supplier management are a huge drain on precious resources that are better suited to focusing on your core business processes. These processes are also generally easier to automate and improve in an incremental fashion without disrupting any existing systems.
The drag exerted by poor system and operating performance can be difficult to find on income statements, but it is very real. Business leaders need to maintain a vigilant and diligent effort at understanding how their operational systems are performing and investing in improvements accordingly. Those investments translate into the ability to produce more for less, serve customers better, make more informed and timely decisions and improve the morale and motivation of the team. The results will show measurable contributions to sales, profit and cash flow performance; i.e., the bottom line.