Small to Midsize companies must consider a process improvement initiative sooner rather than later to uncover hidden opportunities for improved productivity and customer satisfaction.
Why You Need Process Improvement and Enhanced Customer Experience
Time and again, I have seen many processes across a variety of industries with an error rate in the range of 20-30%. Most of the time, this error rate is unnoticed, ignored, or considered part of doing business. Here lies the opportunity for significant cost savings. But process improvement isn’t just about saving costs! Imagine the numbers of upset customers these types of error rates generate. Unhappy customers go out of their way and actively persuade others not to do business with you. And nowadays, with social media an unhappy customer will tell thousands of other people how bad you are within seconds! One customer can cause serious damage to your brand and exponentially increase the need for better process excellence. You need to take Customer Satisfaction seriously. Do you know your repeat and referral business? Is it low? What if it can grow to 30-40% of total revenue? That is what brand promoter and loyal customers do. They tell everyone to buy from you!
Process Improvement is Only for Large Companies? Think Again. Don’t Wait, Act Now!
It is a myth that only large companies have the capabilities to hire expert resources in process improvement! Process improvement can be done with your own resources. You just need to be taught in a simplified and demystified way how to solve problems.
I know that the methodologies for problem solving can be overwhelming or too complex for most common business problems.
My experience has shown that understanding the Voice of the Customer, and using straightforward data collection and analysis techniques is sufficient to tackle many common business problems. These capabilities can be taught to many people without the need for them to become statisticians.
For small to midsize companies it is critical to make problem solving simple and practical. The sooner they gain experience in operational excellence the better off they are.
It Is Not What You Do That Matters, But How You Execute!
What matters in today’s business environment is not what you do, but how you execute. You can’t afford to waste time with inefficient processes that keep upsetting your customers. You will be out of business because your competition will do what you do, except a lot better. Or your investors will grow tired of you, and pull back their investment or abandon your stock.
You need to learn how to solve process problems and turn your unhappy customers into loyal brand advocates that tell everybody how wonderful you are.
Don’t waste time with lengthy customer surveys that generate so much data that overwhelms you. Keep it simple. I highly recommend using Net Promoter Score (NPS®)* as a way to gather feedback from customers. NPS translates feedback from customers into a single numeric score that is easy to understand and, more importantly, drives immediate improvement actions. With a survey of 10 questions or fewer you can identify a customer experience improvement strategy. Combining NPS with the root cause analysis methodology of Lean Six Sigma is an incredible and powerful way to improve customer experience by hundreds of percentage points. This makes a real and tangible impact for your customers. Your brand promoters will sky rocket!
*NPS Source: Fred Reichheld in “The One Number You Need to Grow” (Harvard Business Review) and The Ultimate Question 2.0 (Harvard Business School Press); Bain & Company
Achieve Improvement Goals of 70% or Better
With Lean Six Sigma you will achieve process improvement goals that at first seem unachievable. It isn’t uncommon to improve processes by 70% or more. Why? Because with Lean Six Sigma you will understand, quantify and prove the root cause of the problem. Understanding and quantifying root cause is the only path to achieve remarkable improvements that are sustainable and will stay fixed. Don’t you want your 20-30% error rate to be in the single digits? With Lean Six Sigma you can achieve it. Act Now and save millions of dollars, faster than you realize!
Cost of Poor Quality
Don’t be ignorant about the cost of poor quality. It is everywhere and in amounts higher than you think. Here are some examples to consider, all of which are a result of inefficiencies and inconsistencies in how processes operate:
Loss of customers and/or referrals, Product returns, Inspection costs, Scrap, Rework, Warranty costs, Delivery delays, invoice errors, Unqualified leads, Human errors/variation, Expediting costs, Excess inventory, Increased travel expenses, Variation in profit per retail store/business unit, Price erosion.
All of these costs waste millions of dollars. Executives need to recognize and acknowledge that the cost of poor quality also exists in their own companies.
A Boost to Operating Income and Stock Price
If small to midsize companies have processes running at a 20-30% error rate there are bound to be a few processes where there is significant cost savings to be gained, fast! Let’s say you are a $300M company and your operating income is 5% or $15M. Now imagine a process with a 20-30% error rate that costs the company $10M. Improving this by 70% will generate a cost savings of $7M, bringing the Operating Income up to $22M or 7.3%. This is a whopping 47% increase in your profits! Obviously for a publicly traded company with a significant price-earnings multiple, an improvement like this will have a significant positive impact on your stock price. It doesn’t matter if you are public, private, non-profit or government, you need this money to fund your growth initiatives. It is there for you to grab and in the beginning of a process improvement initiative there is a lot of low hanging fruit like this. You just have to find it and create your own examples of the Cost of Poor Quality.
Operational Process Metrics vs Financial Metrics
Developing operational process metrics is the absolute key to success in process improvement. Small to midsize companies often have decent financial performance metrics but lack metrics that tell them the health of their operational processes or the voice of the customer. One of the main reasons why processes run at a 20-30% error rate is that operational process metrics don’t exist or they are wrong. If you know you have a high error rate in one of your processes, you would have already taken action!
It is not unusual to lack operational metrics. You can create them from scratch. In most of the projects I executed, I developed new operational metrics. Doing this right is a crucial step: it can make or break your project. If you can’t measure your problem or if you are measuring problems inaccurately, you won’t be able to find and prove the root cause of the problem and ultimately fix it. You will spend a lot of time in analysis and not drive results, save money, or drive customer experience improvements.
Develop metrics that can be monitored weekly, not monthly or quarterly. You don’t have time to wait for data. You need to generate action fast and that only comes with the right operational metric and a weekly cadence. If you realize you are sitting on a $10M problem you don’t want to wait until the next quarter to make progress toward saving money. You want to see the impact in your Profit and Loss Account now. You need the money to invest in your growth programs. Slow, negative or stagnant growth means you are losing market share. And you can’t do that for very long.
By Edwin Boon
Edwin Boon is an expert advisor and innovative leader in Customer Experience & Process Improvement, as well as expertise in business process transformation and redesign, with a broad background in Finance, Operations, Lean Six Sigma and IT. Edwin has global experience as a CFO and CIO, in addition to leading Lean Six Sigma organizations with world class companies including Dun & Bradstreet, Hertz, GE and more recently Select Comfort. He also is the Founder & CEO of the Rendement Group, which is a premier global provider of Customer Experience and Problem Solving Solutions for all industries, processes and products. Edwin Boon is the Author of Process Improvement for Small to Midsize Companies: Don’t Wait, Act Now!