Optimizing Your Business: Part 0 - Baselining.

By Marjorie Green & Mischa Dick.

Would you let your doctor prescribe medication without first diagnosing your illness? Would you let him perform surgery without determining the potential impact and understanding the recovery process? Most of us would not, yet when it comes to prescribing business solutions we often fail to diagnose and understand problems adequately before launching 'solutions'. Even worse, we often do not fully understand what these solutions will and will not do for us.

There are many ways to improve a business. Popular improvement vehicles found in industry today are Information System Implementations, Process Improvement Programs and Reengineering. Within each of those categories a plethora of methodologies can be found, some conflicting some complementary.

The challenge for today's business leaders is to pick the most appropriate vehicles to achieve business results given available resources and timing constraints. The dilemma often encountered is: How does one select the appropriate vehicle and path for implementation? While it is easy to find product and service providers within each category, their main interest in any conversation will be to sell their respective product as the appropriate solution. There is a vested interest on part of the vendor to bias the solution selection in his or her favor. One potential avenue out of the dilemma is to conduct a thorough business physical prior to discussing detailed solutions.

So what does a good baseline look like? Like your yearly physical a business baseline evaluates all critical elements of a business and assesses them in the scheme of an overall system, the business itself. While looking at the information system of a business in isolation, it may be justifiable to purchase a new ERP system. Once this option is evaluated in the scheme of the overall business given the opportunities across the entire business and the overall budgetary constraints, the resources may be better allocated in a process improvement program. On the other hand, the implementation of a new information system may also be the best method for the business to capture efficiency. Following the approach of a structured and disciplined baseline, business leaders are assured that the correct leverage points of the business are addressed in adequate order. In contrast, relying on an existing departmental structure to bring the critical path for the entire business to the top, may, given the self-interest and visibility of each department leader, be sub-optimal.

Some key areas and associated questions that should be addressed as a part of a good baseline are:

Core purpose:

What does the organization exist to do? What are basic customer demands? What is important to customers and what is not? What is the customer willing to pay for? What is the customer unwilling to pay for?

Operations:

What are the processes that the operation uses to deliver products or services to the customers? What problems exist with the processes? Where are the processes inefficient? Where are the processes broken? Where are defects generated? Where are they detected? Are the processes designed to deliver products and services at minimum cost? How are the processes aligned?

People systems:

How are people measured? What are the goals of the organization and how do they pertain to what is important to customers? How is the organization aligned? How are goals communicated and reinforced? What is the level of understanding of goals throughout the organization? What motivates people?

Finance:

How are results to resource ratios tracking? Where is money being lost and why? Where are the biggest financial opportunities? How much inventory is there? Is it there the right amount of inventory in the right place at the right time to optimize profit?

Information flow:

How does information flow in the process? How are repetitive problems identified, communicated and addressed? What kind of data is collected? Is it useful in running a business? Is the information available in the right place, at the right time?

A baseline takes a comprehensive look at the system and the symptoms of the operation before addressing the parts. By doing this kind of analysis business leaders are guaranteed to gain the information required to choose the most appropriate path for improving business performance along the critical path. Most importantly a baseline outlines leverage points in the organization. The baseline enables building an integrated plan that will move the organization from where it is today towards it's goals.

In addition to the benefits mentioned above a business baseline can be conducted by internal resources with external expert support. This path is far more economical than traditional consulting arrangements.

Consider the case of a customer service center that entered orders, billed and collected for a major corporation. The proposed solution, prior to a baseline, was a multi-million dollar information system and an increase in existing capacity by adding extra personnel. The baseline made the following observations:

• High turnover rate of existing employees.
• Large sums of money tied up in accounts receivable due to bad credit & billing errors.
• Poor goal alignment.
• Minimal communication of problems between departments.
• Deteriorating "results to resource ratios".
• Excessive metrics.

While it was determined that information system improvements would help resolve some of the problems, the implementation of the information system solutions would have been costly, time consuming, and worse yet, would not have solved the majority of the issues. The baseline showed that an organizational change could be made to solve a number of the problems without requiring any additional resources or capital expenses. This change involved developing integrated teams that were aligned by customer with complete process ownership versus the existing departmentalization. The process for a customer is completely contained within each team. Five key metrics could be used to measure the entire teams performance. The change was implemented in a fraction of the time required for other solutions.

Another case is an organization that needed to make a major improvement in cycle time and cash conversion time of a repair and overhaul operation. The group started down the traditional task-team approach before conducting a baseline. The baseline quickly showed that the fundamental business process used to overhaul the product was not capable of providing the desired goals and could not be fixed through isolated task efforts. A new process was designed and implemented as a result of the baseline activity. The process cycle time dropped to a fraction of the original.

In both of the above mentioned cases internal resources were used to conduct the baseline as well as to implement the changes. All too often baselines are not conducted due to lack of internal experience and a lack of financial resources to have them conducted by external consultants. A better solution is to have external consultants lead, guide and mentor the baseline efforts while leveraging internal resources to conduct the majority of the required tasks. In a leveraged baseline, expenses are minimized. This is accomplished by utilizing consultants for those tasks where they truly add value and not for tasks that can be accomplished more efficiently and in a more comprehensive fashion by internal resources. Examples of such tasks are detailed data acquisition, documentation of process flows etc. In addition specific business knowledge is brought to the baseline through the active participation of internal resources. During a leveraged baseline, internal resources are trained, led, and supported by a very small number of consultants. The associated costs of a leveraged baseline are much less than in traditional, often less comprehensive, consulting approaches. Lastly the participation of internal resources ensures ownership of the baseline findings within the organization versus ownership of findings by a consulting group. This internal ownership enables a much faster and smoother implementation of recommendations generated from the baseline information.

If you are spending money on major capital expenditures, hiring new resources to increase capacity or to manage high turnover or implementing programs without a comprehensive physical of your company to understand leverage points you may want to reconsider. Within one week your team can be trained to conduct a baseline and begin assimilating the information needed to help you build comprehensive solutions. Later this team can help lead the implementation.

What businesses can benefit from this? Traditional brick and mortar businesses certainly can. Today's high tech and e-businesses are also prime candidates for this approach. Especially with profitability and growth balance concerns coming to the forefront. A comprehensive baseline will help assure venture capitalists that the money is being spent on the right efforts and prevent surprises down the road. Many of these companies have grown so quickly that they have not had time to address some of the organization pieces that can be critical to achieving operational excellence. They have rightfully put their focus into the startup of the business but to become profitable in the long haul they will need to address these issues. A baseline analysis of where they are is a good way to determine what the opportunities and leverage points are. 

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