Putting Muscle Into Your Business Operations Part 1
Putting Muscle into Business Operations: Questions that Reveal Harmful Levels of Frailty in a Critical Corporate Function – Part 1
“One of the tests of leadership is the ability to recognize a problem before it becomes an emergency.”
The late businessman Arnold H. Glasow was also a humorist, but most CEOs would likely agree that there is nothing humorous about his statement. Of course, recognizing its inherent truth and honing that ability are two different things. Company leaders who possess that ability do so based on experience – and help. At Cerius Executives, we know that proactive assistance can go a long way to preventing costly emergencies. That’s why we asked our business operations warriors – interim Chief Operation Officers (COOs) – to lift the veil off some common scenarios that could be hiding or masking potential emergencies.
We know that COO job descriptions can be broad, or narrowly defined. Our interviewed executives addressed the broader aspect of a COO’s job description. They brought to light questions CEOs should ask to assess if their Business Operations function is strong or weak.
How does your company’s revenue and growth compare with your peer group? What about the ratio of revenue per employee?
Comparing your revenue per employee and revenue growth rate with peers will tell you if you are leading, treading water or slowly sinking. There are industry standards by which problems can be identified based on where you fall within that standard. Often, your second-line managers can get “hung up” on what they are paying employees, versus what those employees are contributing. Make sure your COO researches industry data on profitability to see where you fit vis-à-vis the competition, and then analyze your employee loads to see where you can improve productivity. Why it’s important and what it suggests: If your revenue per employee ratio is higher than the industry standard, you could have an enviable advantage in productivity, or you may be overloading your employees at an unsustainable level. A lower ratio suggests just the opposite.
How does Business Operations calculate overhead for all manufacturing processes?
One of our COOs says “guessing” how much time is spent on each product is unfortunately too common. So, too, is applying a flat overhead rate across the factory, without regard to differences in processes, such as welding, versus assembly. Why it’s important and what it suggests: Make sure your COO factors each process separately in order to have an accurate view of manufacturing costs by product or product line.
Is the company using market requirements to drive innovation?
“Too often,” says one COO, “manufacturing and engineering give the sales team a product to sell that does not fit the needs of the customer. The sales guys understand the customer and what the customer wants to buy.” Why? Because the sales people are talking to the customer. One of our COOs feels that CEOs should also make time to “get in the field” and talk to the customer. “It doesn’t need to be a formal survey,” he says. “Talk on the telephone once a quarter – you’ll get a wealth of information.” That feedback, as well as sales and marketing feedback, needs to go back into business operations to keep your pulse on what is and isn’t working, and be reflected in your product roadmap. Why it’s important and what it suggests: Don’t expect customers to keep buying a product simply because it’s one you make, or one you’ve always made. This type of thinking leaves you vulnerable to the competition. Your COO needs to be looking at whether you are meeting your customer needs. You also need to avoid the “but-we’ve-always-done-it-that-way” syndrome. If there’s a step, process, product, or feature that doesn’t matter to your customer, why are you spending your resources on it?
Do you understand your supply chain and how well it’s working for you?
Your COO should be providing you with information on how your inventory is managed. Do you know what your inventory turn rate is? Or whether customers who order an out-of-stock item are typically willing to wait for it – or will they turn to another supplier? “A four-week delivery time was acceptable 20 years ago,” one COO points out. “But it’s not now.” How efficiently do information and goods flow throughout your supply chain? Sharp COOs know that there is time and money at stake at every stage. Profitability and competitiveness can be gained by scrutinizing and optimizing the supply chain. Why it’s important and what it suggests: While good inventory management and supply chain management are most often seen as contributing to margin, one cannot overlook the impact on customer satisfaction and loyalty. Being able to deliver the product or service when expected is vital to keeping customers happy.
Additional Insight: Take action to assure you have right people doing the right job. “I ask CEOs to rate their staff and designate them as A, B, or C,” says one executive. “What they discover is that when they hired these people, they considered them to be all As and Bs. After a rating, they end up with a lot of Bs and Cs. The C people need to be removed, and you need to honestly assess whether your B people will ever be As – which should be the top 10 percent in your industry in the world.” Another of our executives notes that as a company grows, current employees often get promoted – and often the jobs get over their heads. “The top management team may not reach the company’s growth,” he notes. “The skill level is just not there, no matter how much training you give to them.” He points out Paul Russell’s of Google oft-quoted point on developing employees: “Development can help great people get even better – but if I had a dollar to spend, I’d spend 70 cents getting the right person in the door.”
If your frank answers to the questions in this paper have left you feeling uneasy, it means one of two things: Either you need more from your Operations function than what you’re currently receiving, or you’re overdue to create the role of a VP Operations or Chief Operations Officer. In both cases the solution need not necessitate the recruiting and hiring of a full-time executive. Smart CEOs and their Boards will seriously consider the advantages of an interim COO to close the performance gaps quickly.