Improving Your Business Using a Systems Approach

Every business is a system that forms part of a wider system, often simply called the operating environment. The current operating environment is extremely competitive and dynamic, and is characterised by increasing globalisation, increasingly sophisticated technology and improving access to information, knowledge, and many product and service alternatives. Businesses – especially small businesses with little capital to squander - therefore need to be flexible and responsive to rapidly changing circumstances just to survive. Understanding your business system can help you become aware of the forces at play, improve your bottom line, improve your products and services and control your costs.

The External Operating Environment

To successfully run a business, you need to understand the context in which your business operates. This consists of two main elements:

  • the industry you are in, and
  • the general operating environment.

Your industry "system" is composed of competitors, customers, suppliers, stockholders, creditors, trade associations/official bodies, employees (and perhaps labour unions), special interest groups and the community. In particular, you need to be aware of, understand and act upon the following key factors:

  • Customers – Who are they? (i.e. What is your market?) What do they want? What is their demographic? What trends may affect your customers? What are customer perceptions of value in relation to your industry’s products/services? How does your product/service contribute to your customers? What alternative or substitutes are available to them? Are there advantages to specialisation? To diversification? Do you have, or can you target, a niche market?
  • Competitors – What are their products and services? Are they specialised or diverse? What do they cost? How does this compare to the range/specialisation, type, quality and cost of your products and services? What is their target market? Is this the same as yours? Can you cut into this or an alternative market? Are your products and services complimentary? Are there any synergies or advantages to be gained by some sort of partnering or alliance arrangement? How do they market products/services? How do they differentiate their products/services? How do you? Are your products/services new or unique? In summary, why should customers buy what you have to offer ahead of any other products/services? Remember, the marketing campaigns and product launches of competitors may give you an insight into the findings of expensive market research you cannot afford.
  • Suppliers – What is the availability of the supplies you need? What is the number of important suppliers and the availability of substitutes for supplier products? What would it cost to switch suppliers? What contribution do suppliers make to the quality of products/services within the industry? What is the importance of the industry to suppliers’ total profits?

The broader operating environment is composed of general economic trends and forces that operate on all businesses, including social and cultural forces and perceptions, government(s)/political forces, economic forces, technological forces and regulatory forces. In particular, you need to understand the legal and regulatory requirements of your industry – the rules of the game. These include:

  • Business registration and trademark protection
  • Governing bodies and regulatory requirements
  • Licensing
  • Accreditation in your field
  • Intellectual property – patents, registered designs, copyright, trade secrets and even business information such as names of customers and suppliers
  • Liability, liability insurance and indemnity
  • Client and partnership contracts or business arrangements
  • Superannuation, taxation/Business Activity Statements etc.

A SWOT (Strengths, Weaknesses, Opportunities and Threats) Analysis is an effective and simple tool for capturing and collating this information and developing strategies based on the results to take advantages of strengths and opportunities and reduce or eliminate weaknesses and threats. Further information may be found in Paul Dillon’s accompanying article Opportunities to Succeed.

Your Own Business

Your own business, which forms a part of the wider operating environment, is its own internal system. By looking at your business as a system, you can better understand your capability, your costs, any variations and where you can really add value. This system is comprised of two main elements:

  • Primary or Business processes – activities or operations that transform "inputs" to create product and service "outputs" i.e. what your business does, makes and sells.
  • Support processes – activities that help you do business, but do not directly relate to generating business such as book keeping, using technology, procurement and supplier management, managing staff and partnerships, training, improving your expertise, business activity statements etc.

Small businesses, quite rightly, focus most of their attention and energy on primary processes – working out what your customer wants or finding new customers for your products, creating your products and services, sales, marketing and distribution. After all, this is what pays the bills.

However, it is also important to have a good grasp of your support processes and management system and how these impact on your business – or, more simply, how you organise and use your resources to become productive; the stuff that you do to stay in business.

Business processes and support processes are two sides of the same coin. Good business processes turn your vision into something tangible you can sell, which makes a difference to your customers, and thus generates income or the results you desire. Good support systems promote business efficiency in terms of time, expense and less complexity, thereby lowering costs.

A good starting point for improving your internal business processes is to ask the questions in the above section on competitors, customers and suppliers about your own business. One of the simplest ways you can begin improving your support processes is to pick one and work out how to do it better. Everybody works within a system, but improvements are only made when people work on the system. It is an axiom of the business world that sustainability results from the right combination of consistent, continuous improvement and "revolutionary" innovations that result in paradigm shifts.

One place to start is to look at how and on what you spend your time. Time is often a small business’ greatest resource – spend it wisely. Look at what you do within your business. Ask yourself: do your activities directly relate to, or directly support, achieving your business goals? Can you group activities more effectively? Keep a record of what you spend your hours on, study it and consider whether this pattern supports you and your business. The results may surprise you.

For example, set aside one block of time each week to deal with administrative issues such as invoicing, banking, paying bills, doing the books etc. rather than doing it piecemeal. Likewise, divide your day into blocks to, for example, make cold calls or any business calls as a group. Schedule uninterrupted time for doing business and meeting clients, or for product development and creative brainstorming. Set times for working with partners, for personal or staff training and development that improves your expertise and so on. In this way you will make the most of your time and use it more effectively instead of stopping and starting. Make an overview plan of your month, a more detailed plan of your week, and plan your day. This helps you to both focus on achieving your goals and to be less vulnerable to sudden demands and knee jerk reactions.

Similarly, take a look at your procurement processes, supply requirements and distribution processes. Consider your selling patterns and work out what your needs are in terms of ready stock or other supplies to hand. Are there ways to minimise this? After all, supplies purchased and sitting around is "money" not working for you. Can you take orders differently, eg through the Internet, and then purchase supplies as they are required? This may reduce your own unnecessary expenditure as well as eliminate the need for a "show room" or "shop front." What are your supplier’s distribution times, your production times and your customer’s requirements? Can you use this lag and overlap? Are there economies of scale? What are your alternatives in terms of supplies? What can you substitute to achieve the same result?

Remember, this does not have to be complicated or time consuming. If you keep most of your products, designs, ideas, client, supplier and business records on computer, backing-up this information once a month is a very simple way of protecting your business from disaster.

Be consistent. Standardise your systems and processes. This may be a requirement of your industry, or a standard such as quality certification, or just doing things that support your business systematically, continuously and consistently. Most importantly, keep good "books" (financial records) and study your costs, including your outgoings and incomings. Identify your cost centres and use this as an indication of where to begin to work on your business. If you understand your costs, and how they vary, you may be able to limit them.

Identify your income centres and work on keeping these – this is the core of your business and keeps the doors open. Most business is repeat business or new customers coming to you. Only when these are satisfied spend time finding new customers and breaking into markets, as this usually does not generate as good a return.

Support Processes or Systems

Primary or Business

Business Outcomes &

Processes Success

Improved Efficiency & Cost Reduction

 

Useful Business Principles

Finally, I would like to leave you with a set of international best-practice business principles for you to consider that may be helpful:

  • Understand your industry and the wider operating environment.
  • Ensure that your work contributes to your business’ viability and adds value to the business or its customers.
  • Be clear about your values, direction and what you want to achieve. Set short and long term objectives and targets aimed at helping you achieve these goals.
  • Plan your business, but without letting this stifle your creativity or flexibility. Plans translate direction into action and help you focus the business. Plans are based on your knowledge and understanding of your products/services, the industry, and your internal system. This leaves you better able to make the most of opportunities as they arise.
  • Base decisions where possible on facts and data, checked against your values and personal drivers.
  • Standardise your processes and adopt a planned or structured approach to improvement and innovation, including establishing and meeting goals and objective to ensure positive action is taken.
  • Network within the industry, identify emerging trends and see what everyone’s up to. Seek out someone from outside the business for a fresh perspective. This may provide the input you need to turn around your business.
  • Find out what your competitors and customers think good product and service quality is all about and build upon this.
  • Set aside time to work on your systems and improve output and outcomes by understanding, managing and continuously reviewing your processes.
  • Lastly, have fun and create a supportive work environment. Involve people in every possible way. People make their most valuable contributions based on their creativity and knowledge. As improvement depends on learning – formally and through life experience – encourage everyone in the business to work together.

For more information or assistance in implementing any of these ideas you can email Andrew Whitehead at info@kaizencoaching.com.au. Andrew is a management consultant and business analyst with 9 years experience in the both private and public sectors. His primary focus is on the development of small business.

 

 

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