A Lean System’s Approach to Growth
The pressure to grow top line sales and bottom-line margins is incessant. This stress is necessary in a free-market economy because demand for improved products and lower cost services is equally insatiable. Consumers typically have options in who they buy from, and the process of natural selection is as unbiased in business as it is in nature. All too often business leaders sub-optimize growth initiatives without applying a system’s approach to solving market problems: like pairing a supercharged V-8 engine with a single speed transmission. This post will present a broader perspective on front-end growth processes that include dynamic, interrelated parts of the business.
Looking back over the past several decades, businesses have aggressively applied Lean manufacturing and Six Sigma methodologies to improve quality and reduce cost. If you have participated in these efforts, it was quickly evident that addressing immediate bottlenecks or high failure rate items is a best practice to begin the journey. It should also have been equally clear that optimizing a specific process or product design may not actually get the final goods delivered faster or with better quality. In a manufacturing setting it becomes painfully obvious that if you reduce the process time of the final assembly cell by 90% (sounds impressive) nothing ships if you don’t get quality parts from your supplier to build with. This would be akin to the big block V-8 shackled by a mono-gear transmission.
To address this in a physical plant, successful companies focus on lineback logistics, Sales and Operations Planning (S&OP), and supply chain management to connect demand with supply from mining the ore to delivering finished product. This is because most businesses are made up of numerous interdependent departments, functional processes, suppliers, distributors and consumers. Refining a single part in the system rarely moves the needle on company-wide metrics or customer satisfaction. This realization should be prevalent today in the manufacturing sector.
Reducing costs and improving quality by eliminating waste in all forms is an imperative for today’s global economy. Perhaps less obvious is the need for a similar systems approach to the pre-sales, revenue generating activities in a business. It is the experience of the author that delivering value to consumers requires much more than cutting costs. After all, calculating margin of any type involves both income and expenses. This article will focus on the processes that drive the first half of the equation.
There are four general categories of growth-creating processes: Market Research, Strategic Planning, Product Management/Marketing and Product Development. Depending on the business, one or more of the functions may be part of the same department. For example, market research may be a subset of the strategic planning group; or product management may report into product development. Irrespective of the organizational structure, the role of each process is unique. If we learn anything from Lean manufacturing, it is that optimizing a single element of the business will likely not produce the desired results. A definition for each area of expertise will be described in some detail to better appreciate how they interrelate.
Market research is both a science and an art. In the age of information, there is much more data available than ever before; however, armed with this same information, the competition in a global economy can be fierce. This important role is to gain better insights into what is happening outside the company: What are consumers willing to pay for, what products and services do they choose from, how many customers share the same need, is demand trending up or down and in what regions of the world is there growth or attrition, how are products/services delivered to the end-user, and what are the unresolved problems? Analytics are a large part of market research as it drives so many downstream processes; however, the value of intuition cannot be underestimated. Business is dynamic and what was true last week is no longer valid. Today’s solutions will likely not satisfy tomorrow’s requirements. Market research is only valuable when it provides insight into the future.
Before the next topic is discussed in sincerity, it must be said that “strategy” is one of the most inflated and overused terms in business. In fact, if career advancement is desired, just add the word “strategic” to any title: “Strategic” project manager, “Strategic” procurement engineer, or “Strategic” custodian and it sounds like the person is too smart to actually work. Possessors of such coveted positions are paid to sit in an office and …well…think stuff up, full time…while someone feeds them grapes and fans them with palm boughs to keep the flies off. Now back to the subject.
Strategic planning is primarily an internally focused process. It has three components in its simplest form: an idea, a plan and execution. The idea is a response to market intelligence and describes what the company will do to differentiate from the competition while addressing unmet needs. The planning phase is necessary to understand the investment, resource priorities and timing of development. It uses market data to estimate revenues and compares this to expected costs to complete a business case. An essential facet of strategic planning is to ensure the idea is aligned with the objectives of the company. It is also an opportunity to confirm that the company direction accounts for the available market research. Finally, execution (yes, doing work) is part of any successful strategic initiative. Hopefully the connection between market research and strategic planning is becoming evident.
Product management is the intersection of a Venn diagram comprised of three circles: technology, business and consumers. It is a challenging overlap of often conflicting needs that must somehow be satisfied simultaneously. The role is a bridge function between market requirements, internal business needs and development capabilities. Product management is part of the execution team discussed in strategic planning and must distill the output from market research into concise, actionable conclusions. It also has the responsibility to articulate the go-to-market strategy: How will consumers know the product exists, why they will prefer it over competing options, how much they will pay for it, and who they will get the product from?
Although some use the terms interchangeably, product development is actually the internal customer of product management. Product development’s function is to use internal resources and processes to design, integrate, test and transition product to production. Research and Development (R&D) is often on the leading edge of product development creating technologies that solve market problems identified by market research and thoroughly described by product management. Product development receives requirements and delivers validated product.
This all seems pretty strait forward, so why is the topic worth 1500 words on a blog? Unfortunately, there are readers of this article that can recall examples of an executive team that spent months refining the most incredible idea in their strategic planning process only to realize there is no market for it. Worse yet, some companies have already invested in product development without factoring in distribution costs, rep margins or total cost of production and when completely understood reverse the financial conclusion of the business case. How many companies have great ideas and plans, but take too long getting product to market never to reach payback on their investment? Are there businesses that are unable to finalize product requirements and meander perpetually in an otherwise efficient product development process guessing what the customer will pay for? The answer to both questions is, Yes! Situations like these happen every day in small and large organizations.
Reading these definitions may have felt like going back to third grade for a lesson in arithmetic (please stop yawing!). The fact is growth-creating processes are similar to manufacturing: Everyone understands Lean concepts, yet few implement them well. One fundamental reason companies struggle with creating growth is because they treat the system of highly interdependent functions as loosely connected, or altogether disconnected processes. Conducting the most insightful market research, or worse paying for it, just to have product development flounder in overruns is another V8/transmission mismatch. Likewise, when the “ideas” from strategic planning lack a prioritized resource plan to pull it off it probably explains overruns in the aforementioned product development. The processes are as inextricably interrelated as the valves and crank shaft in an internal combustion engine.
So what do you do about it? The first step is to recognize that the current process isn’t working as well as it should. The second step is to begin thinking of all pre-sales and pre-production processes as a single critical subsystem of the business. This subsystem must also be tightly coupled with sales and manufacturing to be successful. Like Lean manufacturing or Six Sigma, you start with the biggest bottlenecks and worst quality issues; however, process improvement must be made only after system constraints and interactions are well understood. Growth is a process, not an event. All roles of growth generation must be present and work together to be successful – even if all roles are fulfilled by the founder of a start-up. Help is available for companies that want to begin their journey to system-wide growth.