Business executives are demanding more than just operational improvement — they want to see profitability results as well.
“They want real, bottom-line improvements that increase earnings before interest, taxes, depreciation and amortization (EBITDA); they want to see initiatives that focus on the operational profitability of the business,” says John M. Hurlburt, principal with Crowe Horwath LLP. “What we find is that there are certain recurring levers that drive financial results.”
Smart Business spoke with Hurlburt about spotting operational inefficiencies and how to address them in ways that boost profits.
What are signs of operational inefficiencies?
There are some common themes among companies that are not reaching their maximum potential, including low productivity, pricing or margin challenges, unacceptable service levels, capacity management challenges, quality issues and lack of operational visibility. These inefficiencies occur in almost every type of industry from manufacturing to distribution to financial services, to name a few.
Businesses need to identify root causes of suboptimal performance and apply solutions to streamline processes, reduce waste, improve management and enhance revenue.
Where should you start in order to improve performance?
The most logical starting point is with business processes. You can change your people or implement additional software but not necessarily improve performance in the most optimal way — if at all. Focusing on the processes first makes certain that the fundamental drivers and infrastructure are in place to optimize your people and technology efforts. Improvements in processes produce the best results at a lower cost. Process-related initiatives should be measured in weeks rather than months. The focus is on speed.
Can you highlight areas to focus on?
Five levers of change that drive results can usually be found in the following areas:
1. Operational performance improvement. Lean and Six Sigma tools can drive results in weeks, not months, by focusing on efficiency, effectiveness and throughput of business processes.
2. Supply chain and inventory management. Typical issues are long lead times to customers, excessive inventory levels and inefficient operations scheduling. Levers include improving sales and operations planning processes, planning for capacity issues and implementing finite scheduling processes.
3. Estimating and pricing. Improving estimating accuracy and maximizing margins are typical key issues. Tools include initiating hurdle margins (aligning incentives on total sales before quota bonuses), customer segmentation and postmortem reviews.
4. Strategic sourcing. Maximizing volume purchases through a select number of vendors, improving delivery lead-time accuracy and improving product quality are some ways to improve purchasing practices across the organization. Typical tools in this area include implementing approved vendor lists, analyzing purchasing trends across different categories such as direct, indirect, freight, logistics and administrative purchases, and having consistent procurement processes across the entire organization. It’s not uncommon to find 10 to 15 percent savings in this area by improving a company’s purchasing strategy.
5. New product development. Innovation can provide necessary differentiation to capture market share and improve top-line revenues in a crowded market. Opportunities might exist for reducing hurdles and time to market to introduce new products and services.
What are some key ideas that will help make initiatives successful?
- Different challenges require different tools. First, look at the problem and then determine the tools needed to produce a solution. Don’t focus on implementing tools before you know the extent of the problem.
- Focus on initiatives that can be measured. The only way to know if a problem is real or perceived is to have a quantified ROI.
- Focus on impact and prioritize initiatives that produce the greatest results while requiring the least effort and resource strain.
- Make sure changes are sustainable and become part of the organization.
John M. Hurlburt is a principal at Crowe Horwath LLP. Reach him at (214) 777-5243 or firstname.lastname@example.org.
Website: For more information on operational improvement, visit www.crowehorwath.com/services/performance.
Insights Accounting is brought to you by Crowe Horwath LLP
To become a PPO (no, not that one — rather, a “peak performance organization”), it is a precondition to hire and retain A players. It is just that simple.
No matter the state of the economy, it is never easy to find A players who possess an insatiable appetite for curiosity and a “lifelong learning” mentality. You need to know, first and foremost, what to look for and how to attract them and then, how to inspire and motivate them as professionals. Here are a few steps your organization can take.
Step 1: Identify stretch goals.
PPO associates need to be inspired by their managers to continuously perform at the highest level. They want to be kept on their toes and be challenged. They must want to develop themselves, to achieve the best they can and, because of this, contribute to the success of the organization — again, lifelong learners.
PPO managers, therefore, should consciously inspire their associates by giving them interesting work, challenging tasks and increased responsibilities and stressing that they should be proud of their own achievements and those of the organization. They stimulate self-confidence, an entrepreneurial attitude, firmness, a can-do attitude and a winning mindset in associates.
PPO managers raise the performance of their people and themselves by simply setting high standards and stretch goals. It’s easier said than done, but it works.
Step 2: Start inspiring associates.
There are two main ways to inspire your associates: by changing your own behavior to be more inspirational, and by creating conditions for your associates that increase their motivation. Below are some ideas for both techniques.
Five proven tips on how to begin the process:
1. Be passionate about the goals of the organization, show emotion and generate enthusiasm for these traits in your associates.
2. Be connected with your associates by showing real interest in them and finding out what motivates and inspires them and actively looking for their ideas and opinions.
3. Be (somewhat) unconventional and take personal risks by doing things differently and operating outside “normal” organizational boundaries and outside your comfort zone and letting your associates do the same.
4. Be a good listener with your associates. They have more insight than you give them credit for.
5. Be a great storyteller who is able to package messages in a more appealing format that captivates associates.
Now that you have “inspired,” how do you move on to “motivating” your associates?
That is step three. Below are five proven tips to motivate your people — who are your most valuable unlisted assets.
Step 3: Motivate your associates.
1. Paint your associates an attractive picture of the future of the organization and their place in it. Put another way, explain the “whats” and the “whys” of how their hard work is benefitting the company.
2. Create an environment of trust and openness with management. Be willing to share with them the good, the bad and the ugly of your organization.
3. Give your associates work that challenges and recharges them. Allow them to take risks and learn from the experiences.
4. Provide your associates with the opportunity to get into contact with the beneficiaries of their work (such as the customers). The dividends will be immense.
5. Recognition, recognition, recognition. We never say thank you enough. Recognize your associates’ many achievements in public. Let everyone know of his or her achievements and advancements. Do it, and it will motivate that individual but also others around him or her to do better.
Put these 10 tips to work in your organization and watch your performance and profitability skyrocket.
G. A. Taylor Fernley is president and CEO of Fernley & Fernley, an association management company providing professional management services to nonprofit organizations since 1886. He can be reached at email@example.com, or for more information, visit www.fernley.com.
When Andrew Dorn, Industry Leader, Information Intensive Business, Acxiom Corporation, was recently researching the top manufacturers in the United States, one topic kept coming up — the strong growth expectations focused on the world's emerging markets. With the economies of the U.S. and Europe in flux, Dorn felt that, now more than ever, manufacturers need to be attentive to those emerging markets.
"The world is now flat," says Dorn. "Competition comes from everywhere, so manufacturers need to be everywhere."
Because of that, Acxiom has partnered with Smart Business to present a special one-hour webinar: "Driving Global Sales for Manufacturers: Why global growth for manufacturers is more important than ever."
During the webinar — on Wednesday, September 19 at 1:00pm EST — we will discuss why global sales for manufacturers is critical, what factors should be considered in developing or refining the international strategy, and, finally, present a roadmap that can be employed to optimize chances for success.
Featured panelists will be Zia Daniell Wigder, Vice President and Research Director, Forrester Research; Jennifer Barrett Glasgow, Global Privacy and Public Policy Executive, Acxiom; and Michael Biwer, Managing Director, Acxiom.
"As you enter the global market, it is imperative you understand the privacy laws in each country as they are quite complex and some are very stringent, for example, having criminal penalties for some violations," says Barrett Glasgow.
Other topics to be discussed include:
- How to determine which countries to enter and what data to gather to understand regional customer requirements
- Recommended approaches to building country-specific strategies that can help facilitate smooth transitions, lowest possible cost-of-entry, and consistent performance
- Considerations for navigating the complex web of country-specific data protection and privacy laws companies must adhere to in their efforts to connect with customers and prospects
- Best practices used by leading companies that have successfully entered new markets
"The U.S. and European economies are still recovering and the balance of growth is constantly shifting," says Dorn. "For example, China and Brazil have been experiencing strong growth. They are encountering a maturity curve, but that doesn't lessen the importance of the issue — manufacturers need to be diversified and have a presence in all major world markets."
The webinar, "Driving Global Sales for Manufacturers: Why global growth for manufacturers is more important than ever" will be held at 1:00 pm EST on Wednesday, September 19.
Businesses often need to evaluate where they are in order to decide where they want to go, and sometimes the best way to do that is by comparing themselves to a standard.
“In today’s world of sharing information, companies can now drill down to specific cost drivers within workers’ compensation, direct medical care, direct pharmacy source and litigation management, to name a few,” says Daniel Slezak, vice president at ECBM. “Benchmarking has proven to be a most valuable process for identifying performance improvement areas. Once the information is shared in scale, you can identify the best-performing companies, which leads to the identification and implementation of best practices.”
Smart Business spoke with Slezak about how to benchmark your risks and lower your costs as a result.
What are some risks that companies need to manage?
If you start with the premise that an organization needs the commitment of top management, other risks come into play when the doors of the business first open. Some risks to keep in mind are:
- Employee hiring and screening practices. Without proper personnel, you cannot grow your business.
- Safety education, orientation and training. Once you have a trusted employee base, you need to have a constantly evolving safety message.
- Worker involvement. When you allow employees to buy in to your message and take ownership, performance improves.
- Recognition and rewards.
- Accident and incident investigations. When a problem occurs, you need to determine why and then take corrective measures.
- Drug and alcohol testing can enhance your positions and mitigate ultimate cost.
Once a company has addressed these basic risks at its foundation, it can move on to more specific areas, depending on its operations. Some examples include personal protective equipment, IT backup and security, and having well-maintained vehicles.
What are the benefits to benchmarking risk management costs?
Every business faces the possibility of accidental loss of property, income, liability and injury to its employees. If you are committed to minimizing those losses, insurance brokers and risk managers have the resources to put in place a plan that will possibly engineer solutions or effectively educate employees on a strategy you can enforce. The ultimate benefits are safe, healthy employees who are more productive with their working activities.
What are some examples of best practices?
The concept of benchmarking in insurance is simple — provide guidance to a company that will be shared with management and show them that the terms of coverage and cost are reasonable relative to other similar organizations.
You also can dig into the elements that make a program successful. For example, in workers’ compensation, you need to know your medical versus indemnity split of claims. The more claims you keep as medical only, the more the total cost of claims drops. As you measure your company against others, determine what program you could have in place to achieve the best practice. Then ask if it is something that is manageable.
You also can look at the closure rate. How long are your claims staying open? Are you getting employee back to work? Best efforts are not acceptable; your company needs to strive for best practice as the goal.
By drilling down within your vendor costs, you can eliminate extra expenses by knowing best practices before implementing them. Medical bill repricing can vary greatly by vendor. As an example, a risk management consulting firm recently effected a simple change in a client’s program that is projected to save it millions of dollars, in a client’s program that is projected to save it millions of dollars, which we personally just achieved with a client.
What pitfalls do companies encounter when benchmarking?
The most critical concern is choosing the correct peer group. Your broker will align you with the same industry and company size, but the geographical footprint also needs to be considered. For example, if you have a retail operation with stores located in mostly urban areas, you can’t expect the same results as someone with a high concentration in suburban areas when it comes to general liability or workers’ compensation claims. Another pitfall is failing to engage top management. The team has to be on the same page throughout the process so that expectations are set, measured and supported in a timely fashion.
How can you compare risk management practices and costs to other similar companies?
Risk management consultants constantly use benchmarking to determine adequate limits and pricing models. The data available today allows you to determine if you are carrying adequate directors and officers limits and what terms and conditions are available. This type of measurement can be used on other lines of coverage as well. It starts with having credible information about your own company. Most actuaries want to look at 10 years if you are trying to establish your own triangle of losses for a workers’ compensation rate. However, if you have at least five years, the actuary can identify trends and cost drivers. Keep in mind that some benchmarking, such as policy terms conditions and pricing, is a snapshot view of one year comparing your company to the ‘pool’ at a point in time.
With your data in hand, contact an insurance broker. Most quality brokers have the ability to access databases, such as RIMS Benchmarking Survey, NCCI and Advisen, for comparisons. Tillinghast Towers Perrin D&O Survey is universally regarded as an excellent source of information on D&O. Then, by implementing best practices for managing risks, you can lower costs, increase productivity and make top management smile.
Daniel Slezak is a vice president for ECBM. Reach him at (610) 668-7100, ext. 1323, or firstname.lastname@example.org.
Insights Risk Management is brought to you by ECBM Insurance Brokers and Consultants