The Buried Treasure In Every Midsized Business: Digital Data
by The One Page Business Plan Company, October 12, 2020
Having data that you can trust is a key to consistently making better business decisions.
Shipments that don’t arrive on time to customers (especially big ones). Defective products whose defects don’t get fixed in the next manufacturing run. Manufacturing process glitches that reduce output at times of big demand – neither of which (the glitches or the pending product shortage) are known by the manufacturer’s top management at the time they are happening and the time they are booking big orders.
These are just a few of the operational nightmares of executives who run midsized companies, like the South Dakota manufacturer that I’m going to talk about in a bit. Such nightmares weren’t frequent when such companies were small –when the executive team and supply chain managers talked every day, and the factory was down the hall or in next building. But when a small company grows bigger, the plant is no longer in the backlot (and there are now multiple factories around the country), and top management can no longer observe what’s happening every day in production and distribution, such operational disconnects must be expected.
The fix is neither easy nor inexpensive. But it is necessary. Without sophisticated information systems through which top management can monitor their plant and distribution operations every day from afar – even by the hour – they are putting their business at risk. They are flying without instruments. They need software that will deliver the data they need to understand what’s happening all the time in the supply end of the business – the data to make good, fast decisions. Otherwise, they are operating on hope and delegation.
Consider this South Dakota manufacturer who kept missing delivery targets. Surprise shortages of parts plagued efficiency and never matched the inventory system. Work in process wasn’t tracked in real time so problems with quality and bottlenecks wreaked havoc, and root cause analysis was impossible. Everyone pointed the finger at someone else. The CEO was fed up.
Some firms try being more directive, counting on top leadership to give the right detailed instructions to all the lower level managers, or they decide to wait a year or two to complete installation of a big IT system. The hope is that an outpouring of massive amounts of data will push the management team to optimize everything at once. But these approaches don’t work and won’t scale up the business.
Instead, be strategic. Study your corporate strategies and pick one that, with great data and analytics, will deliver the most performance in the near-to mid-term. Implement technology (probably in the cloud) as needed, then train all levels of the management team to look at just a few key metrics that will change behaviors.
Direction Before Data
Piles of data do not equate to knowledge or action. What we want and need is our entire team taking the right actions at the right time. We must be crystal clear about what we need more (or less) of within the organization. We can’t fix or optimize everything. Typically, if we know what strategic lever(s) create more differentiation between our offering and our competitors, that’s where we should focus.
But midsized businesses are too big to stop setting clear direction at the corporate level. We have to take corporate strategies and break them down into supporting functional area strategies (and probably departmental strategies as well). For example, if “hot new products” is our strategy for increased differentiation, how can operations, accounting, production, and engineering each help in their own way? We must be specific about who needs to step up where to generate improved corporate performance.
What Data Do We Need?
Once we know our direction, we can start collecting data. That might mean installing a new, more powerful ERP. It might also mean more diligently using tools you already have. Or it might mean making tick marks on a yellow notepad and tabulating at month end. Most companies can step up their data collection immediately with a little bit of effort no matter what system they have. Do that now. But if you’ve outgrown your tech systems, also start doing your homework and planning an upgrade. It might take you a quarter (or a year or more), but the sooner you start, the sooner you’ll finish. Don’t bite off more of an IT upgrade than your company can execute well.
Establish Targets and Leading Indicators
Harnessing data means using it to help us hit targets in the future. We must set those targets thoughtfully. They should have buy-in from the team responsible for execution and should be just-possible. They should be balanced between financial targets, customer targets, organizational capacity targets and efficiency targets. They should also include activity-based targets which tend to be leading indicators of results-based targets. As we work our way down the organizational chart, having activity-based targets articulated will feel more controllable than results-based targets, and will gain more compliance and acceptance.
Don’t Forget External (Environmental) Data
An important, but often underemphasized aspect of data collections comes from outside your business. Benchmarking data is crucial. Even regular, but periodic tabulations of competitor observations is important. Tracking the market for human talent in today’s environment can be powerful. Surveying employees and customers is a must. Midsized businesses must keep such measures simple to keep it affordable (and to maintain the data collection process). Don’t forget to look for cloud platforms that provide benchmarking data.
The CEO of the South Dakota manufacturer decided that on-time shipments was the number one priority. She deployed a planning tool with cascading KPIs and projects to focus the team on the problem. Their new ERP was in the middle of implementation, so they used whatever measures they had at the time. On time shipping improved significantly. Nine months later, the ERP and its reporting systems were humming, and more data was available at all levels. The team carefully selected a small number of new KPIs based on new system data but used many of the other new live data feeds to diagnose what was working and what was not. Throughput rose again, and the dream of keeping some products in stock for immediate shipment was largely achieved. (One great place to track all of these KPIs is the One Page Planning and Performance System.)
Data that top leaders and managers at all levels can trust is a fundamental piece of leading an organization that consistently makes more intelligent and competitive decisions. Set a direction and emphasis for stepped up metrics, then focus your team on the right KPIs. The growth will come!