Change Management ⇔ Good Management

Change management is a dreaded assignment in many companies. It is not leading edge and is normally associated with what a newbie would be asked to do when they joined the company. Those working on new products work hard to avoid any type of sustaining responsibility, which is viewed as a cleanup job to be handled by the less talented.

The company culture that lets this attitude prevail is one that will operate at a less than optimal or productive level, reduced profitability with substandard product quality and customers that question why they purchase their products. Employees at all levels recognize the problems producing products in this environment. What do they see?

• Engineering documentation that is red lined or out of date requiring knowledgeable individuals to recall how it was last built.
• Bills of material that are incomplete resulting in shortages of parts actually needed to build the product and the accumulations of obsolete material that is no longer needed. This material may ultimately be scrapped signaling to everyone that waste is acceptable.
• Products that do not perform as they used to due to variations in incoming material quality or vendor production processes.
• Delivery schedules that cannot be met on time due to material shortages and quality issues.
• Product cost that is above standard because of excessive material cost expediting material in small quantities and excessive labor cost in overtime assembling and testing products to expedite delivery
• Employee morale suffers because no one seems to care that the job is done right, or that things are done and ready when they are supposed to be, or that the product is not built in a quality environment.

A quality change management process is the foundation of an excellent company. Having products that have sizzle is certainly valuable but sizzle will not carry the day unless the product can be produced consistently at a high level of quality with predictable cost and delivery. What are the key steps to do this correctly?

• All parts of the organization devote and invest in change management for existing and aging products just as they would for the next best thing coming out of product development.
• Phase-out and phase-in of design changes are PLANNED and SCHEDULED reducing and possibly eliminating excess unwanted material, documentation is reviewed and walked through manufacturing and test as the new change takes over to make sure all stations in the process are communicated with and changes or exceptions are incorporated back into the engineering package.
• Discoveries of weak design points are addressed and dealt with to eliminate the risk of future failures.
• Purchasing and incoming inspection make sure that the quality and reliability of incoming material is high, changing vendors that cannot consistently deliver quality components on time that meet cost objectives.
• Employee morale is high due to the company wide attitude toward doing things right for all products – and not just for new products.

Examine the balance of commitment in your company. Is the “back office” just as committed (and resourced) as the “front office”? Don’t let your organization side slip toward the highly visible functions (product development, sales, etc.) and starve the fundamentals of your business model. Listen and look for the signals – cost, quality, schedule, customer complaints - that indicates that this is happening.

Good change management is good management!

Three Steps to Protect Customer Confidence?

There have been a number of tragic events lately in various industries - oil refining, mining, automotive, pharmaceuticals, commercial airlines - to name a few. In each of these instances severe injuries and/or fatalities of employees, customers and the general public occurred creating public outrage over what happened to those involved and how it might have affected others - even themselves. The public focus is immediately on the CEO or prominent company leader who will use a public relations firm to provide media coaching for damage control to deal with immediate events and public perception. Coaching to deal with the public image deals with the short term exposure and many CEO's are very effective at coming forward, expressing concern and, when necessary, publicly directing company resources to take immediate action to remove product, stop distribution and take other measures necessary to win over public confidence.

However, what can really undercut and compromise all of this upfront effort to put a good face on the reaction to the incident is what emerges as either the company or, in the case of a regulated industry such as airlines, an outside investigator discovers internal company practices that were not being followed and were the principle factor in causing the tragic event.

Here are three positive steps that can be taken to make sure that your company is doing all it can to avoid the unthinkable from happening?

1. Process control: Unfortunately too many businesses do not have adequate control of their business processes. Adherence and compliance with procedures and regulations take a back seat to expediency and cost control. Executive management does not reinforce the importance of critical process control points by their inattention to detail, which sends the wrong signals into the organization.
2. Listening: Too often indications of pending problems are well known to people in the organization but it is not popular to voice concern or become a squeaky wheel. "Whistle blowers" as they are often called are overlooked and dismissed as being uninformed or troublemakers. Executive management is responsible for the company culture that will either encourage open feedback and quick resolution or suppression and inaction.
3. Training: Adequate and consistent training of new or transferred employees that reflect current practices, procedures and business conditions is paramount. Updating training programs and timely refresh training can become a lower priority particularly during times of business economic stress puts all employees on deck to meet business needs.

Total avoidance of the unthinkable happening is not possible. Things happen and people can still make mistakes, equipment can fail in unusual ways and it is always possible to experience the perfect storm of events. However, too many highly public industrial accidents are later determined to have been caused by fundamental operations that could have been controlled but basic practices broke down, people were not listening (or taking action) when told of bad conditions or people did not recognize what to do in circumstances where better training would have prepared them to handle the events successfully. Consequently the investment to look good in front of the media is short lived as the true story is later revealed and does real damage to company image, brand and more, importantly, customer confidence.

The Best Read: Reading Your Financials!

For many people the most boring aspect of running a business is reading their financials. For some it is so onerous they try to avoid the experience every month and only want to know the bottom number - profit or loss! However, your P/L, Balance Sheet and Cash Flow statements are the cardiogram of your business. To maintain our personal good health we get physicals on a regular basis and for many that means a cardiogram and even a stress test to make sure all pumps and valves are working properly. For good health and longevity we would not go without one.

Your financial statements, on a monthly basis (minimum), are the cardiogram of your company. Properly designed financial statements provide insight on how the key elements of your company are performing. While significant focus is put on how much profit (hopefully) you made. Profit will take care of itself if the key profit performance factors of your business are under control. Financial ratios help you quickly get the feel of where the pain might be if profit is less than expected. The value for each ratio may be measured against historical averages or market benchmarks. Obviously performance factors that have current values on the wrong side of the desired value deserve your first attention. There is always a story behind each number so it is necessary to uncover the facts that influenced the outcome in order to take effect give action. It is in this process that you can learn a lot about your company.

• Are unusual numbers the result of data collected incorrectly (wrong coding)?
• Is it a one-time anomaly which will correct itself in successive periods(3 versus 2 payroll periods)?
• Were all of the closing cutoffs made on time so that all revenue and all expenses for the period are included?
• Is your Cost of Goods sold - material, labor, contracted services - consistent for the revenue recorded?
• Are you absorbing too much labor that is nonproductive?
• Are you buying from the best price/quality/delivery source?
• Is there a mix shift in the products delivered that resulted in less margin than what was expected?
• Are your overhead expenses inline?
• Salaries are often fixed for the period but variable expenses such as marketing, expense accounts, travel, entertainment, etc. may get out of line.
• Are your commission payments consistent with revenue and discounts?
• Does your balance sheet show any surprises?
• Is your inventory level consistent with the production demand?
• Are customer deposits collected and in reserve for the product or service ordered and not consumed by other operations?
• Is debt service under control and do you have adequate operating reserves in the event of an unexpected change in business?
• How healthy is your cash-flow?
• Do you have sufficient cash to ride out the normal flow of high expenses and valleys of revenue?
• Do you have the cash to afford the capital improvements that you are planning?
• Using a conservative revenue forecast how strong is your cash position two to three months out?

These are just a few of the questions that need to be considered as you examine your financial feedback on your business. In too many cases I have observed owners/CEO's taking a complacent attitude toward their basic financial reports "since they were profitable." However, when an unprofitable period arrived they then had plenty of time to dive into the details only to find out that the "unprofitable" signals began several periods earlier. Timely action would have avoided the profit problem or reduced it significantly through proactive measures instead of reactively applying CPR to the business.

Experienced owners/CEO's take advantage of interim metrics that track key performance factors that influence their financials so that on a daily/weekly basis they get snapshots of what is going on without waiting until the next month to discover a problem. This serves as a pace maker to make sure that the pulse of the business is appropriate and if not - inject their attention and leadership to get things back on track.

Read your financials and develop a good feel for how your business operates so that you can enjoy good business health!