systems management

I bought my first personal computer in the early 1980s. I don’t really remember how much it weighed, but my memories would indicate well over 100 pounds. The crazy thing took up nearly the entire surface of my old oak desk. There was no such thing as ‘computer class’ when I went to high school, though I did take computer science in college and studied programming in Basic. I’m part of that generation that didn’t have computers . . . and then we did.

The computer was always fun for me. During a time (college) when my friends were starting to play video games (which were finally worth playing) I turned my attention to playing with the computer. There was really nothing you could do with the computer except make it do things. You couldn’t just run to any Best Buy (did they exist then?) or Target and buy an interior design software to plan your new house (my latest fun project). You could buy a basic spreadsheet program (Lotus 1-2-3), a basic word processor (WordPerfect) and a basic calendar/planner (Lotus Notes). Or, you could write your own programs.

The personal computer enabled me to work from home for three years in the mid-80s when I had my first child – something that very few people did at that time. I was so determined to have financial freedom that I investigated everything that machine could possibly do, learning a lot of programming tricks along the way. But what I really learned – what gave me a professional advantage that continues to this day – was what it takes to make a computer work. Not what it takes to run an application – our six-year-old can do that. But what it takes to make the applications themselves. I gained respect for the types of functions it was easy to make a computer do, and the types of functions that you could spin your wheels for years trying to automate but which ultimately were better done by just buckling down and knocking them out.

Over the years I have developed great respect for this wonderful invention. There is no doubt that computers have been programmed to do more flexible types of tasks than my imagination at the beginning or my skills even now would be able to conceive of. But mostly, computer improvements have been related to their ability to do things faster. And faster.

In my career I have encountered countless professionals who do not know how to make a computer do anything. They can make an application do something (with varying degrees of success), but that’s different than making a computer do something. So the computer has become a god, and not to its benefit. Think about it. We rail at G-d when things go wrong while simultaneously being in awe of G-d for all of that power we can’t understand. We expect G-d to do the impossible, to work magic, to be able to hand us solutions that we can not come up with for ourselves. Sounds like a computer, right?

I’m certainly not going to get into whether or not we have reasonable expectations of G-d – that’s a topic for a different blog. I am, however, going to point out that our expectations of computers are highly unrealistic. And unlike G-d, whose mysteries are genuinely beyond our understanding, the computer’s mysteries are not beyond our understanding. They’re not even mysteries.

I suspect that most businesspeople who do not understand computers simply do not want to understand computers. I’m not being entirely insensitive here - there are definitely some aspects of computers that are hard to wrap one’s mind around at first (and sometimes at second and third). And sometimes we have to shop around for a teacher that can lay it out for us in terms that make sense. Going from flat-file thinking to relational thinking can be a big challenge. But it is possible. It is necessary.

It has been a fairly regular experience of my professional career to encounter professionals who are terrified of the computers that run their business (or the programmers – or both), and as a result are terribly resentful of them. These are the same people who will come up with one cockamamie idea after another about what the computer should be able to do.  Ideas that are not based on logic (which is different than saying that the ideas are illogical, though this subtlety is apparently lost on a lot of folks).  Woe to the person who has to explain that what the unrealistic professaionl is demanding can’t be done, or can’t be done easily, or can’t be done economically. And the only possible route to understanding - the rational conversation that needs to take place – is impossible to have for the simple reason that the angry, thwarted professional does not understand how computers work.

This is not just a problem for the computer programmers, IT directors, and project managers of the world (though this group of professionals would certainly be happier if this problem could be solved). This is a problem for business. All business.

Imagine if the only people who could understand a financial statement were the financial people. OK, bad analogy – we have a lot of work to do there still. Um, imagine if the only people who could understand the concepts and dynamics of customer service were sales people. Imagine if customer service concepts were outside the scope of understanding of the people making the products, packing the boxes, and purchasing the inventory. Business simply could not function if the basic assumptions of customer service could not transfer across all departments, to be successfully interpreted within the scope of their particular work. Imagine if entire organizations simply turned to their sales people and said, “you’re the ones who understand the customer service magic thing – so please get this working for the rest of us so we don’t have to hate you.”

Ludicrous, right? Apparently not, because that’s what organizations have done and continue to do when it comes to effective use of computer technology.

I’m not sure what the corrective action should be (hey, this is a rant, and rants aren’t generally solution oriented). But we need to do something. As long as people don’t really understand how computers work, they will continue to underestimate the value and potential of computers while at the same time expecting things that are unrealistic. Sort of like we do with G-d? Right.

(c) 2008. Andrea M. Hill

What is the Internet of Things?

I've been holding on to the front page of the Milwaukee Journal for a month now, returning over and over to an article written by John Schmid about the Internet of Things.  Mr. Schmid didn't invent the term, referred to in technology circles as IoT. I can find references to it going back to the Consumer Electronics Show in 1994, when remote-controlled thermostats were introduced. In March of 2010 McKinsey & Company referred to the Internet of Things as "sensors and actuators embedded in physical objects—from roadways to pacemakers—linked through wired and wireless networks, often using the same Internet Protocol (IP) that connects the Internet."

Until now, the concept has been one explored primarily by big data - Cisco, Rockwell, General Electric, and other massive enterprises that will make their next wave of fortunes by connecting all these things to the internet. But in the Journal Article, Mr. Schmid quoted Keith Nosbusch, CEO of Rockwell Automation Inc. saying, "We are past the inflection point, where there are now more things connected to the Internet than people." 

In the article Mr. Schmid states, "The Internet of Things will be defined by the exponential growth of web-enabled "things" that measure, monitor, and control the physical world, talking with each other more than they talk with humans. Among the many examples: thermostats, car keys, public toilets, lake levels, parking meters and parking spaces, refrigerators and televisions, subways and airports, automated teller machines, soil conditions for crops, and garbage cans that can say when they're full." Cisco Systems CEO John Chambers refers to this as the "fourth wave of the internet," but that under-represents the enormity of IoT. This is the next industrial revolution, and we are already in it.

How Does This Apply to Your Business?

It's easy to picture how big companies involved in making microchips and writing code to connect and monitor the things housing those microchips can benefit from (or get left behind by) this trend. But it may be more difficult to see how it applies to you and your business. 

First, some of the larger aspects of IoT must be carefully considered:

1. Privacy (what does Google do with the data about your home or store heating and electricity usage?)
2. Security (the intersection of hackers and home/business invaders)
3. Safety

These are already being debated in the tech world, and to a very small extent by Government, and we need join these conversations and move them forward quickly, because once again technology is getting way ahead of our ability to anticipate how it will affect us.

And what about the social implications? Most of my readers are small business owners - we live and breathe in the small microcosms of our communities and our niche industries. What does the IoT mean for us? There must be myriad social implications about this next phase of the world we live in. I think this is why I've been holding on to the newspaper for a month. I can intuit that we need to be very aware of and responsive to this next phase, but I can't quite articulate why. I don't like it when I know something without knowing. Here are a few things that occur to me, and now that I'm considering IoT and its affect on my world, I'm sure that I'll come up with more.

The Internet Made Small Business More Competitive. IoT May Reverse That Trend.

Big business has been trying since WWII to satisfy American consumers' demand for ever cheaper goods. Moving factories from country to country, chasing cheap wages, is only a temporary solution. But the next wave of automation could put each of these large businesses on a brand new track of cost-cutting. Oh sure, we've had automation for years now. But this is a new phase of automation, a world of truly "smart" factories, factories that can sense and correct for quality deficiencies before the products have moved to the next phase. We're talking about factories that can modify and manage production schedules on-the-fly to accommodate changing customer needs and escalations. 

If you are a small manufacturer, and you haven't even automated your data yet, this could be bad news for you. We're past the point where knowing your true costs and having visibility to your purchasing needs and production plans is sufficient. Now, those are the minimum standard necessary to compete. How will you take advantage of the next phase of manufacturing technology if you don't have strong technology protocols in place already? And don't just assume that all these automation elements will be too expensive. There is a good chance that much of the technology required to run the Internet of Things will be affordable very early on.

Retailers are on the verge of being able to quickly analyze what's hot and what's not, move inventory around to be more conducive to traffic patterns, make offers more exciting and relevant on-the-fly, and be more proactive to their customers' needs, wants, and timetables. If you're only analyzing your inventory a few times a year, not replacing important items as they are sold, and failing to correct for the unsold walk-outs, your store will feel boring and static.

Some of the Impact will be Perception

When cars were first introduced, horse-and-buggy was still the predominant means of transportation. Eventually cars were dominant, but horse-and-buggy was still an acceptable mode. Then, suddenly, it wasn't. One day the tipping point occurred, and those driving horse-and-buggy were considered quaint at best or hopelessly out-of-touch at worst. 

When stores first offered personal check-out computers, they were a novelty, but cool (even though they almost never worked). Younger people were drawn to them, and older people tended to avoid them. So imagine how I cringed last week when I was in a specialty retail store and a consumer complained to the salesperson, "I could check myself out faster at Target." True, the consumer couldn't buy the item she desired at Target, but could she  find something else she wanted with that same money? Of course she could. And I'm sure she left that store with an impression of its backwardness, not a perception that it is a relevant business that can meet her needs.

Small business is often quaint and colloquial and community-based, and those are wonderful attributes. But we have to find a way to remain those things while responding to the expectations of our consumers as their expectations evolve. When I was a child, growing up in Iowa, I was acutely aware of how different my clothing and mannerisms were whenever we would visit my cousins who lived just outside New York City.  These days I bring my granddaughter -who lives in a town of less than 1,900 people in Wisconsin - to New York, and you wouldn't be able to tell her from the other children. There are no more pockets - at least in the United States - that are immune from the changes taking place. It's probably OK to still take paper tickets at the open-three-months-a-year gift shop in the North Woods, but it's not OK to be perceived as backwards when you are a small business competing for daily traffic on Main Street.  For the past few decades we've been driving horse-and-buggy while big business bought cars. But the tipping point is here, and we must move on.

Where Do You Start?

Start by accepting that embracing technology is not optional. I'm not sure if it ever was, but considering the speed of change we are facing, that moment in time is gone. Start with you. Start by recognizing that it is no less possible for you to learn to work a computer or a software than it would be for you to learn to survive in the wild if you had to. Trust me, if you needed to kill a rabbit with your bare hands in order to eat dinner, you'd eventually get hungry enough to do so, and creative enough to figure out how. The reason most technology hold-outs haven't jumped in yet is because it's daunting, and they are busy, and they don't feel like learning something new.

Start by evaluating which aspects of your business are lagging behind the technology curve.

Most small business owners have sufficient bookkeeping software or support. But do you have enough information to analyze your business from product to price to timing to turns? Are you making management decisions based on support from data, and not just using your gut? You need both. And our gut instincts get continuously better as we feed our insights with real data. Data in real-time, not just data at the end of the year.

How easy is your Point of Sale? Is it quick, intuitive, and considerate of the customer's time? The customer wants to spend her time shopping and making decisions, and then she's done.  So you need systems that can balance your need for information, that can inform your thinking about which information is most valuable, and can do all that while being transparent to the customer.

How well are you managing your inventory? Do you know exactly what every piece cost to make or buy, how long you've had it, whether or not it's been returned, and what was wrong with it? And can you do all that with a snap of the fingers instead of by digging through old receipts and questioning your staff's memories?  Can one of your employees pick up with a customer where the another employee left off? Is your business capable of being the ultimate massage therapist, never taking a hand off the customer?

Most small businesses have become at least somewhat comfortable with social media and the internet of Google and Youtube. But the next phase of our business lives goes way beyond that, and to connect to that grid we need pieces in place that are connect-able.  That's not playing on social media - which is in some ways like the Model T. The connect-able pieces are the rest of the elements of your business that allow you to tap into and take advantage of the technology that's right around the corner. Sales and marketing automation, true CRM, enterprise systems that connect your business information from raw materials to finished goods and through the sales process. These things are not cheap, but neither are they out-of-reach for small business owners. What is lacking to date is not just cash. It's the will.

John Schmid ended his Internet of Things article in the journal with a quote from Cisco CEO John Chambers. "The speed of change will spare no one." Don't set your business up as something in need of sparing. You held on to your horse-and-buggy long enough. It's time to learn to drive a Tesla.

Focus on How Business Software Programs are Designed and Supported

Are you looking for the perfect business software program? Well, there is no such thing. Every software you evaluate will do some things you like, and others you do not like.

Every software will require some change on the part of your operations to use it efficiently/effectively. And every software company will have some deficiency in the area of support or training. This is the nature of buying complex systems, and the sooner you recognize it the better buying decision you will make.

There is one starting point that should be universal when investing in business software programs, and that is the evaluation of the what (what underlying code and technology) and how (how the software is designed, maintained, and improved) of the software development.  Answer these questions satisfactorily first, and you will most likely end up with a business software program investment that serves you for the long-term.

4 Things to Consider

These are the things you must focus on carefully as you evaluate your options:

1. The Underlying Technology. Do not invest in software that will be outdated in less than 10 years. Software written in older programming languages or databases designed for individual use and not network use (like Access or Filemaker) are inappropriate for most business applications. Likewise, technology owned and supported by private, very small (less than 10 employees), generally underfunded companies - no matter how good - will only be able to continue its investment and development if it's bought by a much larger company.  This doesn't mean you have to go with a solution like Microsoft, Sage, or Oracle - there are also fantastic niche and open source options for business systems. Just make sure that your solution is based on technology that is modern and which is supported by sufficient staff (or, in the case of open source, development community) to provide sufficient confidence in its survival.
   
   
2. Best Practices. Invest in software that is well-distributed enough that the software developers are constantly focused on improving the software for the entire industry/user group. Best practice development is about creating processes and procedures within the software that represent the most commonly accepted "correct" ways of doing activities such as inventory control, receiving, production management, cost management, etc..  Using software with best-practices built in gives you the advantage of industry improvements and innovations without having to come up with all of them yourself.
   
   
3. Ongoing Development. Along with the previous point, make sure that the software developer is actively engaged in meaningful updates and development. The business world and distribution methods are changing dramatically – if the software is not keeping pace it will be an unsatisfactory investment.
   
   
4. Underlying Database Structure and Logic. If a system is designed correctly, then you will always be able to get the reports, functions, and applications you need from it. If the system is not designed correctly, then even reasonable adaptations or developments may be very difficult or even impossible for the developer to produce. For example, in one industry system I have encountered, the underlying table structure is illogical and poorly structured in several key areas. So extracting desired information is nearly impossible without manipulating the data (which is both time consuming and still inaccurate).
   
   
5. Choose a system with a truly open API, which will enable you to integrate critical functions with other important programs in your technology stack. There is no such thing as a singular perfect software, but strategic integration of key software programs can get you pretty close. Open API is a necessity for achieving those integrations effeciently and cost-effectively.
   
   
6. Cloud-based. Small businesses should embrace cloud-based software for essential programs like ERP and CRM. Cloud solutions eliminate the need for extensive in-house IT resources, which will free up budget and personnel for more value-add business activities. Contrary to common misconceptions, cloud providers offer superior security measures compared to most small businesses' internal setups, including robust encryption, regular updates, and dedicated security teams. Additionally, cloud-based software seamlessly integrates with other systems, streamlining workflows and data exchange for improved efficiency and decision-making. By adopting cloud solutions, small businesses can enhance security, reduce IT overhead, and enjoy integrated systems.
   
   
7. Choose a business partner with the most appropriate skills, expertise, and experience to help you achieve the best possible implementation of a system for your business.

Most people - particularly non-technology people - pursue technology investment by providing a checklist to the software company asking "can the software do this and this and this . . ."  What the software can do is certainly part of your decision-making process. But how it is structured - the bones of the system - are also critical if you want your investment to last for the long-term.

This type of analysis is generally outside the skillset of most small business owners. Even if you can't afford the assistance to properly evaluate the full software solution you are considering, you may at least want to ask for some expert advice on the pros and cons of your options relative to these four concerns before you proceed.

this article was updated in 2022

Most entrepreneurs run a very tight business, keeping the administrative costs as low as possible and devoting all their funds to the marketing and product development side of their business. This is the right thing to do. But administrative tasks and task management can become overwhelming. You need the right organizational systems in place to keep all your responsibilities and priorities visible and manageable.

I'm often asked what I use personally for organizational systems. In fact, the system that I use is used by my whole organization and it's also used by many of our clients.  I'm sharing it to give you an idea of a tried-and-true system that you could implement as-is, or if you don't prefer these specific tools, a concept of how you can assemble a strong organizational system for yourself.

1. Google Apps for email, calendar, etc. Partly because it's such a good email system, partly because it's so fantastic for collaboration with other members of your organization, and partly because it integrates with so many 3rd party apps and can be used on any mobile device.  

2. A robust CRM system.  CRM today is dramatically different than it was just 15 years ago. Today's CRM systems function as customer marketing, sales, and operations systems that allow you to automate much of your business and tightly manage your sales pipelines. For a deeper dive on how CRM can help your business, check out this article from Werx.Marketing (a brand of Hill Management Group, owned by Andrea Hill): CRM Systems and Why You Need One

That's my set-up!

Back in 2013, when I first wrote this article, I used seven different systems to manage my day-to-day business. Today I depend on my CRM for nearly everything, and I spend less time managing my tech stack and more time managing my business. If I have a miscellaneous to-do pop into my head, I hit the task link at the top of the CRM dashboard. If I have a customer to-do, I assign it from within the email that brought it to my attention or click the task button in my CRM. Daily tasks show up right on my Google Apps calendar and in my CRM.  I spend my time doing the things that need to be done rather than managing an ever-changing to-do list.

Whatever you decide to use, make sure you have a system in place that requires a minimum of maintenance. You want to spend your time doing the things that make you money - not managing the task lists.

Large corporations have overwhelmingly made the transition to team organizations in the past 15 years. All of them approach teams in somewhat different ways, but the unifying concept is that they understand the need to reduce the number of layers in their hierarchy and increase the autonomy, creativity, and financial contribution of their workforce.

The trend was not ignored by mid-sized companies, but they have been slower to convert. That may be partly because mid-sized companies are frequently private, but it may also be because they have not experienced some of the strains on capital and capacity that larger companies experienced during our last two recessions.

Now more companies want to make this transition, and I am frequently asked how difficult the transition will be. There is an impression that we should  be able to go from soup to nuts in a year or less. That is extremely optimistic, and unless a company is unbelievably well primed for such a transition, probably impossible.

The system implications of going from hierarchical to flat are huge. The areas in which I have seen the biggest impact are in communications, motivation & compensation, project management, and of course, technology requirements. The umbrella over all of this is that the culture itself changes.

Let's just talk about project management for a minute. In the old approach to project management, a management person (i.e., someone with role authority) would set up a project, assign resources, expectations and due-dates, and let everyone know what their job was. Employees would more or less successfully complete the tasks more or less on time. The projects were usually done within a functional silo, so if it was a product development effort, for instance, engineering would have one project plan for the invention or development of the object, marketing would have one project plan for the promotion, pricing and feedback on the item, and sales would have yet another project plan for the launch of the item.

That approach to project management is fraught with difficulty, largely because of the throw-it-over-the-wall effect of working in silos. Enter team-based project management.

Now a project manager is selected from any one of the disciplines identified above. They may or may not be of significant management role authority, and even if they are, they only have role authority within their divisional area - say, engineering in this instance. They need to set up a project plan, and the team will consist of people from marketing, sales, accounting, and possibly other groups (hopefully they're including customer input, but that activity is still lagging in most companies).

The project manager lacks role authority, so they have to use collaborative techniques to get the rest of the project team to contribute input regarding resources, tasks and due-dates. The team members need to accept the project manager's leadership. Does the project manager even have any leadership skills? Did they get any training or mentorship?

Assume the project has been defined well. Who has budgetary authority and responsibility? To whom do they go to make sure the project funding is adequate (or planning has been adequate)? Does the project have a project champion? And what is their role authority?

The project members all work in different areas of the organization, but they need to be in constant communication. Do they have the right communication technology for this type of work? Email isn't a great medium for project communication. Does IT have any responsibility to provide them with support? And in what time frame?

Say a team member doesn't maintain their part of the project in a responsible way. To whom does the team go? Their usual manager? The project manager? What if they're told to try to address conflict within the team? Do they have any conflict management training? And was the training any good, using a mediation or conflict management method that is known to work?

These are all different system dynamics that are indicated in the change from hierarchical to flat - and that's just in one part of the company! Such transitions are rewarding, both personally and financially, but their complexity should not be underestimated.

I don’t think companies can afford to continue to operate in the old hierarchical ways. Those structures will be the dinosaur bones in the dirt within this century. Flat, networked organizations are not the thing of the future – they are the organizational design of now. So companies thinking about making a transition are wise to do so. But the process needs to be approached with a deep respect for how much time and investment will be required to achieve the desired results. Companies who are just focused on today and tomorrow’s results won’t be able to muster the discipline and patience necessary to change. But ten to fifteen years from now (if it takes that long), they won’t be able to muster the profits they need to survive.

(c) 2007, Andrea M. Hill

We live in a world that tries to ignore the relationships of cause and effect. Ignore, because while we know that eating the wrong diet can damage our hearts, many do it anyway. Ignore, because while it’s only common sense that buying a house you can’t afford will lead to financial distress, many did it anyway. Ignore, because though it seems fairly obvious that failing to invest in education will ultimately damage our country, so many are willing to do it anyway.

We ignore connections, even when they are obvious.

But sometimes we don’t understand the connections in the first place. For instance, until recently the average medical doctor only received the equivalent of two hours of instruction in nutrition during his entire medical training, even though our bodies are chemical factories that are completely at the mercy of the chemicals (food) we put in them. Without deep knowledge of the basic chemistry and mechanics of food production and nutrition, most doctors do not understand the connections to health and prevention. Does this make them stupid? Of course not. Uninformed, leading to reduced ability to problem-solve, yes. But stupid? No.

This failure to make connections is not isolated to the medical community. Business owners regularly fail to make the connections necessary to ensure the health of their businesses. The problem is that most business education does a pretty decent job of teaching each of the elements – disciplines – of business, but does not do such a good job of teaching the connections.

Inputs and Outputs

But it’s quite simple really. And once you start thinking about business in the way I’m about to describe, you won’t be able to stop. How easy? Well, consider this.

We all know that the desired output of a lamp is light. If I asked you which element provided the actual light, you would say it was the light bulb. And then you could elaborate and say that the electronics inside the lamp provide energy to the light bulb, that the power cord is what delivers energy to the electronics, and that the power cord must be plugged into the power grid of the house through a power outlet.

The only output in that analogy is the light from the light bulb. Every other element is an input. Business is the same.

Outputs are the things your customers experience as a direct result of their awareness of, or relationship with, your company: The products and services you offer, the environments within which the products and services are delivered, the messages the company conveys, the discussions consumers have about the company either face-to-face or through social media, and the reactions they get – both good and bad – to the products and services they have purchased from you.

Inputs are all the things you do to deliver those products, services, messages, and post-sales support and to influence or respond to consumer-driven communication about your products and services.

Have you ever wondered which elements of your business you should prioritize for investment and development? I just gave you the answer. Well OK, maybe there’s a little more to it than that.

Imagine that you own a business that designs shoes. No, that’s too broad. Imagine that you have a business that designs orthotic shoes. Your desired output is a shoe that a podiatrist can recommend, and that a consumer is willing to wear, both because it performs as expected and because it looks like an attractive shoe and not a medical device. Your target consumer is a woman who works full time on her feet in an indoor, non-industrial profession – like a nurse, medical technician, or retail sales professional. Everything else you do must enhance and protect these outputs.

So what are your inputs? To figure that out, work backward from the ‘light bulbs’.

In this diagram, the outputs are the products, marketing, sales, service, and public discussion as perceived by the customer. Everything below the red line is an input. Each input necessary to achieve a desired output represents an important investment. You make your decisions from the top down.

• If you decide that your customer is female, that dictates which type of shoe designers you will hire.
• If you decide that your sales method will be through orthopedic and podiatric offices, that determines which type of sales people you will hire.
• If you decide that your sales effort will be using the internet, that dictates which types of technology you will invest in.

Failure to invest in your critical inputs will guarantee failure of your outputs.

So here’s where we return to the concept of cause and effect. Because if your business strategy is built on weak inputs, it’s just a house of cards, and the lowest layers must be built and strengthened before the upper layers can produce economic value.

Simple, right? Now if I could just get that stupid song out of my head.

The shin bone’s connected to the . . . knee bone. The knee bone’s connected to the . . .

© 2010. Andrea M. Hill

Who hasn’t experienced that moment of dread when we first realize a serious mistake has been made? The initial feeling is great insecurity: How did this happen? What will my boss think of me? How will my peers view me? Will this cause us to lose clients? Market share? Brand value? Could I get demoted? Lose my job? 

What happens next is driven by personality, character, and (hopefully) company culture. Do you immediately raise the alarm, own it, and figure out how to address it? Or do you take the opposite approach and bury or try to obfuscate? If the mistake is being reported to you, do you get angry and place blame? Pile on criticism even as someone tries to be accountable? Or do you go into problem-solving mode with them?

It’s in the what-happens-next that great businesses (and leaders) distinguish themselves from the average and the insufficient. Mistakes provide the ultimate training ground for one of life’s  greatest teachers … process.

The Difference Between Knowing and Understanding

I used to think that having an eidetic memory would be an incredible advantage — that the ability to remember everything I ever read, learned, or experienced would help me to excel. Then I encountered someone who had an eidetic memory, and she helped me change my mind.

First, she pointed out that the downside of remembering everything one ever experienced is at least as great as the upside. Fair. Second, she distinguished between knowing something and being good at something. And she was right. Before I mastered bread-baking I memorized the ingredients and instructions, but I had to experience the process multiple times before I could make a loaf worth eating. Before I had the opportunity to lead large numbers of people I studied leadership, motivation, and management. But I had to apply all that knowledge to real life and make real mistakes to develop leadership skill. 

The person with the eidetic memory was clear about the limitations of her gift. She was able to recall volumes of content with remarkable precision, but the knowledge ended there, because she lacked the experience to apply and connect much of it. In her words, she was “like a librarian, only faster, because I don’t need to consult the card catalog.”

Process Matters More than Results

It is through this lens that we can best understand that the purpose of business is not end results, but process. 

I can feel the feathers ruffling from here as everyone who has ever created a quarterly shareholder report, attended a management meeting or been the evalu-ee in an annual employee review shakes their heads, clenches their fists, and gasps aloud at how any serious business practitioner could fail to grasp the all-consuming requirement of RESULTS. 

I would like you to pat down those feathers, take a cool sip of water and consider how fixation on results over process ultimately leads to lack of innovation, the failure of employees to thrive, loss of competitiveness and even erosion of ethics.

Four Ways that Process Drives Excellence

Perhaps 90% of what happens in a business is repetitive process. From accounting to customer support to product development to marketing, each functional area of any business involves countless processes done by a sometimes stable, sometimes changing group of people. Admonishments to deliver “great customer service” will rarely yield the results you desire, but focus on improving the processes by which you deliver customer service can lead to greatness.

Process Documentation Improves Performance

One of my great frustrations as a business owner is how I often end up doing things myself because it’s faster than handing off the task. But peek behind the curtain of that frustration, and the problem is me. Many of the tasks I do are largely intuitive, based on decades of experience and muscle memory. But this doesn’t make the way I am doing them the most efficient nor even the most effective. 

When you stop and think through a process sufficiently to write it down so someone else can do it, you invariably improve the process. You will find gaps in the process that could lead to error. You will uncover assumptions that are no longer (or perhaps never were) relevant. You can visualize where you are taking three steps when one would be sufficient. When process documentation is done as a group, you discover how many different ways people are doing a process. As the group streamlines the process and learns from each other, the resulting process conformity decreases errors.  The act of documenting a process leads to greater efficiency and quality.

Process Uniformity Ensures that Improvements Reach Everyone in the Organization

When the organization achieves process uniformity, the first and obvious benefits are that errors go down, quality goes up, and efficiency improves. Those would be reason enough to embrace the value of processes. But there is still more benefit to be had.

The way you maintain process uniformity is to insist that process change is always an option, but that process change itselfis a process. In every organization there are always a few people that perform head-and-shoulders above the others. Some of this will be due to innate talent and drive. But some of it will be that those people are improving the way they do their processes - improvements the rest of the company does not know about.

If your process change practice requires that anyone who has an idea for improving a process must bring that improvement to the group for discussion, testing, and agreement, then two things will happen: 1) genuine improvements will make it to the rest of the organization, and 2) ideas that are not actually improvements will not make it into the live environment.

Process Review Tied to Goals Leads to Success

When working with companies to set metrics for profit growth and quality improvement, one of the performance drivers is always related to process improvement. How does this look?  Here are a few examples:

Goal Example 1: Increase Overall Customer Satisfaction Score (CSAT)

• Metrics of success (RESULTS!) will generally be quantitative, like respond to emails 10% faster or reduce returns related to shipping errors by 15%. 
• Most teams, without proper guidance, will simply try to work harder and/or faster to achieve those goals.
• But the way to achieve quantitative goals is to engage in qualitative behavior, like understanding all the underlying causes of shipping errors or understanding the methods of distributing and responding to customer emails. In other words, process analysis and improvement.

Goal Example 2: Improve Return on Product Development Investment

• Metrics of success could include $XXXX sales or 16% sales growth from new products or 11% new customer acquisition through new products.
• The best way to achieve those results is through analyzing your new product decision-making processes, product development process, and communication processes and dynamics between product development, sales, and marketing.

If you start with the assumption that any process can be improved, and you proactively review the processes underlying every business goal, your ability to deliver the desired results will improve. After all, result metrics are simply the what. Process improvement is the how. 

Process Can Transform Problems Into Opportunities

But what about all the things that happen in a business that aren’t repetitive processes … the mistakes and the anomalies?

As I mentioned earlier, once the mistake has been discovered, what happens next could easily come down to differences in character and responsibility. But your business can’t afford that. You need problems to be effectively addressed as quickly as they are discovered. 

The first step is to have a process for addressing mistakes. 

Simply having a process for solving problems is an important nod to the reality that mistakes will happen. Companies that acknowledge that mistakes will happen and create methods for addressing them eliminate some of the defensive behavior that can make problems worse. More importantly, you can create a culture that responds with creativity rather than punitorily to mistakes, and this is where the magic happens.

Most mistakes are honest mistakes. In an environment where process is respected and processes are well-documented and trained, mistakes are generally the result of changing conditions in the market, new technologies, new business expectations, or evolution of the business model. It is impossible to anticipate all the ways that internal and external change might lead to mistakes (though it’s important to try). For those things we don’t anticipate, mistakes become our professor.

When a team engages in the problem-solving process, they go from knowing something to understanding something. Without the problem-solving process, they may only know the most superficial aspect of the problem, such as “Mark screwed up,” or they may even know that “Mark didn’t realize that Erin recorded the changes in inventory values incorrectly, and as a result we owe a lot of back taxes.”

Moving beyond knowing to understanding requires figuring out why Mark didn’t realize that Erin recorded the changes in inventory values incorrectly. A well-defined problem-solving process will help you define the problem, determine the cause of the problem, explore any other variables that could also lead to the problem, and create a solution that not only addresses the current problem but also prevents it from happening in the future. This will make your company more efficient and resilient. 

It can also lead to consistent, even transformative, innovation.

This aspect of process management is incredibly exciting. Ask a group of people in a room to come up with a new idea, and watch the human embodiment of writer’s block unfold before your eyes. After uncomfortable silence, the ideas will either be based on things other companies are doing already or so far out there that you need a rocket to reach them. 

Outside of silver bullets (which are widely published but rarely occur), most transformative innovation comes as a result of evaluating how something is done so observantly and so often that you are able to identify new opportunities that you couldn’t see or which were not possible before.

Commitment to continuously improving the processes of the business IS a commitment to results, but it brings with it the possibility of evolution and innovation. More importantly, you begin to see the truth of business results: Namely, that a result is simply a lagging indicator, but process is what drives the entire organization forward.

In a recent meeting with the president of a Chamber of Commerce serving a community of roughly 50,000 people, I learned something I can’t stop thinking about. He was speaking of the difficulty of attracting young professionals to the area. I asked if the reason was that young adults want to live in larger metropolitan areas. No, he didn’t think that was the reason – many people prefer small communities. Did he think the reason was lack of opportunity? Not at all – the region is doing quite well economically. He let me ask a few more questions – based on all the usual assumptions –then he said, “No, I don’t think it’s any of those things. I think it’s technology.”

“Technology?”

“Yes, technology. The business use of technology is low, though most businesses have set aside money for more automation. But they haven’t spent it.”

I asked, “And why is that?”

“Because they don’t believe their employees will accept it or even be able to use it once it is in place.”

Whether this is a genuine concern for business owners who are themselves technologically enlightened, or if this is a convenient excuse for the technologically impaired I’m not sure. I suspect the latter is more likely. Ultimately it doesn’t matter, because the result is the same. Organizations that fail to invest in technology – including investment in the technology skills of the owners and executives – will eventually cease to be competitive.

Not even a decade ago, business owners could get away with not knowing how to use eMail. Frightfully, some of them still refuse to use it. Their convenient excuse is that eMail is a time-waster, which happens to be true. But if an executive is proud of his ability to use Microsoft Word, Excel, and burn CDs; if he thinks he has mastered technology because he has figured out how to produce his own reports, he is sadly misinformed. It would almost be better to be the executive who refuses to use eMail – at least he knows he is not technologically adept.

Using software applications is essential for productivity, but it does not make one technologically savvy any more than being able to use a pencil and paper makes one a writer. So what is it that these folks who never wanted a job in the IT department in the first place need to know?

Today’s business executive has a responsibility to master IT in the same way business executives readily acknowledge they have a responsibility to master finance. No president worth her salt thinks she can ignore finances because she has an accounting department. The same should be true as it relates to IT. Managers must have enough familiarity with tools to imagine their use within a proper context. Executives who insist technology can do anything – simply because they have imagined it – are no less annoying (or damaging) than executives who fear and refuse technology at all.

So what does a technology-savvy executive know?

1. Basic knowledge about the infrastructure of IT – the differences between server systems and desktops (it’s not just price); the basics of scalability; the pros and cons of redundancy and general understanding of the various ways to achieve it; how the various communication systems of a company can (and cannot) work together. An entrepreneur tooling up a new manufacturing plant would participate meaningfully in equipment purchase decisions and would be concerned about how the building layout impacts quality and productivity. IT infrastructure is at least as important.
2. Every executive should be able to describe the difference between a relational database and a flat database environment and be able to draw on a white board the exponential complexity of relational environments as they scale. This knowledge is as essential as the ability to forecast various margin changes on the bottom line. Executives who cannot demonstrate this knowledge seriously risk underestimating the cost and complexity of programming changes.
3. Executives must understand the types of application environments available to business, and how to use them. They must know the difference between ERP, CRM, accounting systems, MRP, sales force automation, publishing environments, and office/productivity tools. They must understand the basics of integration and be competent to weigh the pros and cons. Hosted or resident? Linux or Microsoft? If you think these questions are just for large businesses, think again. Small business owners must do all the same things big business owners must do – just on a smaller scale. The cost and volume capabilities of the software available to them will be lower, but the concepts remain the same.
4. To buy or to write? A home-grown application environment is referred to as a legacy environment. Most legacy environments were built using the same planning logic as rural New Mexican adobes; have another child, add another room, mother-in-law moves in, add another room, etc. etc.. Nobody wins any architectural awards for these structures. Even worse, nobody can figure out how to get to the kitchen quickly. To answer the question of build or buy, business executives must understand the pros and cons of each approach, and must be able to comprehend the differences in costs and why those differences exist.
5. And finally, executives must understand how to manage their personal technology:In a world where the business cycle no longer stops for night-time or weekends (according to whose clock?), productivity is essential. In the time it takes to dictate a letter, write a bunch of numbers on paper, or ask someone to look for something, most tasks could be completed using basic office software.
6. The internet is a powerful tool, and people who are unable to use search engines effectively, discern the difference between reliable and unreliable databases, or remember their passwords are cooking over a fire with sticks while others are building commercial kitchens.
7. How to use wireless systems. The executive who cannot figure out how to navigate her own wireless card from one airport to the next is not only a nuisance to her IT staff, she is crippling herself professionally because she can’t stay on top of essential information. Alternatively, she is inflating the cost of her support staff by causing them to do work for her which she could easily be doing for herself.

This list may seem daunting to some. There was a time when printing more than one book at a time, farming more than 40 acres, or figuring out how to deliver products overnight was daunting too. But times changed and so did the business people of each era. Computer technology is our printing press, our International Harvester combine, our streamlined, jet-fed logistics network.

I can imagine some folks claiming that the list above is representative of what IT folks need to know. That would be entirely incorrect. Volumes of books have been written about each bullet in the list above, and each bullet represents specific areas of IT expertise. No, this list is the equivalent of expecting a high school student to know the difference between math, language arts, history, sociology, and science well enough to describe each discipline accurately and to know which discipline (or disciplines) to turn to for answers to specific problems. Most of us would be incredulous if a grown man insisted on using a math formula to answer who won the Battle of Saratoga. Yet executives do the equivalent in IT every day, with little awareness of the damage they are doing to their bottom lines.

On the other hand, leaders who are comfortable with technology can initiate intelligent conversations about how to use technology for greater profitability, can understand the problems their IT, finance, and operational staff are struggling to solve, can imagine the potential benefits of expensive investments, and can even influence an environment to go through difficult change. And when young professionals find a business with a leader like that at the helm, they frequently jump on board - even if the business is small, even if it's located in a small town.

© 2009. Andrea M. Hill

[00:00:02.100]
If you are thinking about selecting a new POS inventory control system, this is important information for you to have. This video is not about any particular software. It applies to implementing any POS inventory control system. At this time, the success rate for implementing business software is somewhere between 60 and 70 percent. And that's just pitiful. The truth is, what people do or do not understand about implementing the software has as much to do with the success rate as the systems themselves.

[00:00:34.770]
As long as the system is a reasonably constructed best practice system, then your implementation is likely to work. If you understand how to do such an implementation and it is likely to flounder or fail if you do not. I'll just briefly introduce myself. My name is Andrea Hill and I own a company called Hill Management Group. We have several brands serving small businesses, including StrategyWerx, SupportWerx (renamed WerxMarketing in 2016), MentorWerx and JewelryWerx. I've spent most of my career running midsized corporations and learning my own lessons about how to run a business and grow it.

[00:01:08.630]
Then in 2007, I launched my own consulting company so I could apply those skills to helping small business owners. I'm a business strategy expert and in the course of helping businesses improve their strategy, we often have to improve or upgrade business software. I've managed implementations of everything from Great Plains, Oracle and SAP to POS systems for retailers and production inventory systems for manufacturers. In the process, I've developed a methodology for improving the success rate of the implementation process, and I'm sharing the structure of this methodology with you.

[00:01:44.360]
This is not the first methodology for implementing software, but most of the methodologies are written for engineers and software developers and they are very difficult for small business owners without an engineering or technology background to decipher. This methodology is very simple, very straightforward, and it gets the job done. The specifics must be adapted to each business and software, but the framework is the same. And if you understand it, you'll have a much better understanding of what you're getting into and you'll experience much greater likelihood of success.

[00:02:19.440]
Here are a few things that I'm not. I'm not a software developer, nor does my company sell software. We have no software company affiliations and we are not a value added added reseller sometimes called a VAR. I put this video together simply to give small business owners a better shot at successfully planning for and implementing software. Why? Because it's critical to small business success. This is the way we think about running our businesses. It's a very common sense and organic thought process.

[00:02:54.230]
We have the customer at the center of everything and then we do a bunch of stuff for the customers. We take orders, we make things for them. We give them service. And everything gravitates around this customer and the customers experience.

[00:03:10.290]
And then we go to implement an inventory control the sale system, and suddenly it seems like everything we are doing in our business is wrong. It's as if the software was developed for a company in an alternate universe, and it's hard for us to understand why. The problem is that inventory systems think about running a business very differently than that organic customer centric approach that you and I are accustomed to. The approach to managing business from a software developer standpoint is very rigid and hierarchical.

[00:03:45.380]
This is primarily a limitation of code or at least what has been possible with code up until now. Things are changing and code is becoming far more organic and intuitive. But we are still, at the very least, several years away from anything significantly different from what's available today. All software available right now has the same limitation. Inventory control systems, even when they're attached to an accounting system or provide accounting within them, even when they provide modules through the point of sale or customer relationship management, they're all based on this idea that inventory is the foundation of the system and that customer management is at the very tip.

[00:04:27.280]
This is not just a reverse of the organic system that you're accustomed to. It's an entirely different structure. And this throws most non developers for a loop. Inventory information is the heart of an inventory control system, if the inventory information isn't in the system and if it isn't correct, then nothing else works properly. This is the main problem for companies implementing POS and inventory control systems. The POS aspects of the system are relatively intuitive, but the inventory systems are not.

[00:05:02.970]
Add to this that most people are interested in focusing on the customer aspects, so they try to skip and avoid and ignore the inventory parts and we end up with very imbalanced implementations. So remember, without the inventory information, the rest of the system will always fall short. These systems are concerned with combining raw materials and labor and everything that it takes to make finished goods. And if those parts of the system aren't set up properly, the system simply won't work.

[00:05:34.590]
One of the reasons these systems seem so complex is that they're designed to meet the needs of a lot of companies, the core part of the system will be used by nearly all the users. But then there's always a lot of functionality that will only be used infrequently or by very few users. And this makes a lot of noise. It's tempting to get caught up in feeling overwhelmed by all the options. Instead, focus on your core needs to figure out which elements are essential to proper business function and ignore the rest.

[00:06:08.280]
You will find uses for many of the elements, though certainly not all over time. But get the core down first and tune out all that noise. When you buy software from a software vendor, you pay a fraction of what it would cost you to develop it and keep upgrading it, so the trade offs are money and time. The pros are that the software company invests in the software they keep upgrading and they get ongoing input from all the other users, they're upgrading not only their code, but ideally if it's a good software company, their underlying technology.

[00:06:47.310]
You get a lot of benefit from their investment in the software and also from the exposure to all the other business processes and innovations resulting from the combined brainpower of the community using the software, the cons are that sometimes it forces you to learn more functions than you need and that this rigid hierarchical approach that the code has to do to achieve the result can complicate processes that might otherwise be very simple if you were just doing the processes outside the system. There are always trade offs.

[00:07:18.450]
The tradeoffs are different from software system to software system, but there are always tradeoffs. Most small businesses can't compete anymore without complex software. So the big leap is to accept the challenge and take your business to the next level. What we're going to talk about now is how to make this process work for you. As you can see, there is a flow chart here and we're going to talk about how to get from software selection to implementation. This particular flowchart is really starting after the software has been selected up until the point that you go live or turn the switch on.

[00:07:56.090]
So we're going to start with identifying a software champion or group of champions, learning to use it, charting your business processes, inputting the data that needs to be in the system all the way through training and being set up and ready to go. Now, whether you invest in a major ERP system like SAP or Oracle or Great Plains or when you do part of your purchase price, figure of fifty thousand dollars plus will include expert support from an implementation specialist.

[00:08:27.390]
That doesn't mean that you don't need the information in this video. In fact, you really, really need the information presented here just so you can have proper expectations and participate in an effective way. But the value added reseller or implementation representative from the software company would actually be leading you through it. But for most small businesses, the business software investment is much lower, say between five thousand and twenty five thousand dollars. And those systems don't come with extensive implementation services.

[00:09:00.390]
Instead, they come with some one on one, usually train the trainer, training, terrific documentation, training videos, and that's it. Small businesses often suffer when implementing software because they must accomplish all of the complex implementation steps required for success. But they don't have the expertise and the software doesn't come with the support network. Any successful software implementation begins with a software expert, if you have someone who really digs learning new software and they're good problem solvers and they can think logically, then you're halfway there.

[00:09:39.830]
The caveat is that this person also needs to understand the hows and whys of your business processes. And this is where a lot of companies fall flat. They try to hand the software implementation to an IT person or a bookkeeper. And in most cases, those people don't have all of the business process knowledge that they need to be successful. They may understand it from how we turn on software and make software works or how the accounting works in the background of the business perspective.

[00:10:11.060]
But they can't deliver on all the underlying reasons why we do some things within the business. So remember not to treat major software implementations as an I.T. process. They're not. It is there to support the software itself, but it's a business process and it needs to be run by a software champion in your organization who becomes the software expert. But one of the things I've learned over time is that shortcomings in organizational understanding of the whys and hows of business really undermine the implementation of any software system.

[00:10:47.290]
In other words, small businesses often don't have a single person who has a sophisticated understanding of the business processes. So when we implement complex software, it forces us to sophisticated the way we think about our business. Everything you do in your business right now, not just when you get into the new system, but everything you do in your business right now has implications for your accounting system, your profit and loss, your balance sheet, your operating costs.

[00:11:16.960]
Sometimes it's not the software that's the problem, but rather an organizational need to understand the business elements that's missing. Implementing software will teach you this in a very harsh way if you're not aware of and prepared for it. So you start with your software champion, someone who really gets software, they know your business processes, they're good thinkers, they like problem solving and they become the experts. And you may need to do it with a team of people who together provide all of those skill sets.

[00:11:47.510]
But don't just assign it to the bookkeeper or the IT guy. It can take years to fully learn a software system. And you're not going to spend years getting ready to implement, or at least I hope you're not, you only need to get fully trained in the most critical elements, but you really need to be trained in those inventory systems aren't like learning Microsoft Word or Excel. They're complex and they require us to treat specific buckets of information, which they call fields in very consistent ways, or they don't work and they break down.

[00:12:21.980]
So the logic that's in the code behind all those fields expects certain types of information to be entered in those fields in order to work the way it was designed. And if you don't understand what type of information the software is looking for, you'll put the wrong data in. This is not as simplistic as garbage in, garbage out. It's more an issue of fit for use. A good example would be a swimming suit is a perfectly acceptable wardrobe item to wear on the beach or at the pool.

[00:12:52.340]
But a swimming suit is absolutely not fit for use at a black tie event. So you will need to learn to use the system and its fields the way they were designed, or you'll be putting the wrong type of data in certain fields and then wondering why they don't work. Get your software vendor to provide you with two complete walkthroughs. The first walkthrough should be the practical user facing experience. For instance, walking through a customer order from beginning to end, including producing inventory for that order.

[00:13:23.120]
Another walk through would be the production manager creating a job bag all the way through to closing out the job bag and entering the finished item in the system and checking the cost calculations this walk through is so you understand how the user will use the system. The second walkthrough should be to go through the system set ups and learn how to put the correct information in the correct fields. You will probably have to pay for this training. There's a lot of good software and there are a lot of good people selling software, but software vendors don't like to tell you the following thing.

[00:13:58.090]
They don't like to tell you that you should plan to spend whatever you spend on the software itself, again, on set up and training. In other words, if you spend ten thousand dollars on software, figure another ten thousand dollars on set up and planning and training. This is the absolute truth. The bigger the software, the higher the user count, the bigger the investment is and getting ready to use it so that one hundred percent fee on training and setup scales.

[00:14:25.470]
In my opinion, this is the biggest mistake that software vendors make. They don't want to inflate the price any more than necessary, so they don't tell the truth about the training and implementation costs. And the result is users who are left trying to figure out systems that are not intuitive and they haven't budgeted the time or the dollars to properly implement them. And then they become rapidly disillusioned. So be prepared to pay for implementation and training and set up and any complex software is going to require that you do this so.

[00:15:00.450]
You do the calculation yourself, don't wait for the software vendor to tell you you're going to need to spend all this money on implementation and training. You do the budget for it. And if you do a better job of implementing it and it comes in under that 100 percent, you know, equal to the cost that you spent on the software, fantastic. At least you'll come in under budget and you'll be in good shape and your expectations will have been proper.

[00:15:22.710]
So learn to use the system. Your software expert or your little team of experts are going to play with the system and really get used to using it. They're going to have the vendor give them a full walkthrough of how to do the processes. They're going to have the vendor give them a full walkthrough of how to do the set ups. And I always advise that you set up a test system or a dummy system so you can play to your heart's content.

[00:15:46.530]
And then when you're ready to set up the live system, set it up nice and clean from the beginning. Now we're going to talk about business processes. I have a favorite saying when it comes to business processes and it's first you solve the process, then you solve the people. At the heart of any successful software implementation is sound business practice, you cannot put good software on bad process and expect it to work. You start by documenting your processes and I mean every single process, sales orders, returns, sales, look, UPS, customer history, look, ups sending a make order to the shop, managing the production schedule, assigning raw materials to seeing final pieces, et cetera, et cetera.

[00:16:34.490]
Is this a lot of work? Yes. Will it help you implement your new software? Yes. Is it essential and good for your business? Yes. I never feel bad expecting companies to go through this step. I just feel bad that they almost never realized they had to go through it and they didn't budget for it in time or dollars. Once you document your processes, compare it to how the system works, your software vendor should be able to provide you with user workflows to aid you in this process.

[00:17:07.940]
You shouldn't have to pay for these. They should be part of the vendors documentation. And what you're going to do is compare the things the software does to the processes you have and you're going to identify where the software won't help you and where you might be missing processes that the software will require that you do. What you end up with are both desirable changes, meaning changes that you want to make because you recognize they're going to be good for your business and required changes, meaning changes that you will need to make because they are required for you to use the software.

[00:17:43.650]
A required change is something you wish you didn't have to do, but it makes sense to do given the software that you've purchased. There are always required changes in any software you purchase. They'll be different from software to software, but they're always there. Don't imagine that there's some software out there that won't force you to change anything. However, what you don't ever want to make is an undesirable change. And an undesirable change is any change that will negatively affect the customer.

[00:18:14.370]
Learn how to distinguish between required changes, things you don't want to do, but it makes sense to do them and undesirable changes, things you don't want to do because they're going to be bad for the customer. You need to learn how to distinguish between them because customizations are very expensive and they should be done very sparingly. So here's an example of tracing the steps of a special order process. You don't need an expert to come in and do flow charts for you.

[00:18:42.480]
Anyone can do a flow chart. And there are a lot of free flow charting apps online. Or if you use Microsoft Office, the flowchart is built right in. You will also find that many, perhaps even most of your business processes can be flow charted in 10 to 20 minutes. These are a bonus against the ones that take hours or days and a lot of arguing back and forth among your team members. Those are also really good processes to have the discussion about because you will improve your business as you go through the process of analyzing your processes.

[00:19:14.220]
But you will find most of your processes are very straightforward. In this example, the black stars indicate steps that will be taken that have nothing to do with the software. And the question mark represents something that you're not sure whether or not the system can accommodate. Now, here's a bonus, if you don't already have an operations manual going through, this process will create one. Remember, you're not investing in the software, you are investing in your business.

[00:19:42.290]
And this is really valuable work. OK, this is the part that nobody ever wants to do, remember the pyramid I showed you earlier, the entire system rests on inventory. So if you don't put the inventory in and put it in properly, the system simply won't work. I remember being called in to help with a failing implementation. At one point I was called in as a third party business expert. The business had a lot of retail stores and a distribution center and they didn't want to go through the expensive effort of putting their inventory into the system.

[00:20:16.960]
They wanted their store staff to add the inventory each time they took an order. As you can imagine, that put a huge amount of stress on sales and it also damaged customer service. Instead of being responsible and telling the retailer, no way, you have to put the inventory in the system or the system won't work. The software vendor, afraid of upsetting the purchaser of the software, actually gave the business owner some ideas of how to work around the system and and avoid the hard work of putting in the inventory.

[00:20:47.800]
And you can probably imagine the result. It was a completely failed implementation. There was massive customer dissatisfaction, a deep dive in morale and a full year delay in finishing the implementation. So let this be a cautionary tale to you. Do the work of getting your inventory in the system. It's not just necessary for whatever software you buy. It's vital for the success and management of your business. Once again, getting all your inventory in the system is hard work.

[00:21:16.510]
But you're not doing it for the software. You're doing it for your business. One training element you really must master in this section of getting your inventory in the system is units of measure and understanding the units of measure options in the system you purchase. The units of measure can be anything from inches and feet to ounces and pounds to each is three ounces. Grams could be carrot's with a C and Karatz with a K.

[00:21:45.710]
Not all systems use the same units of measure. Get your software provider to carefully and clearly explain everything to do with the units of measure in your new system. I've seen some implementations terribly disrupted because of poor understanding and setup of this element. What you're thinking about is when I put a piece of raw material in the system, what unit of measure am I using to identify the element? For instance, is it tubing or chain that I'm measuring by the end, or is it something that I measure by the pack or by weight or by volume?

[00:22:22.580]
And how will that raw material or component be converted into the finished goods so that the cost is correct? This is something you really need to dig in and understand. Ask questions of the software vendor until this is really clear to you. It's something you can't get around understanding. And once it's clear to you, a lot of things that the system is doing will make sense. So you're going to put your raw materials in the system, every raw material, every subassembly, every purchased component and any back stock that you're likely to use in the next year.

[00:22:56.150]
If you have old crap sitting in cardboard boxes tucked at the back of your inventory room, your accountant may want you to put it into the system just so you've got a good inventory. It's not going to affect production if you don't put it in the system. Chances are if you haven't dug around in it for a year and a half, two years, you're not going to be digging around in it. So I tell people at least make sure everything that's current inventory that's going into current products gets in the system.

[00:23:22.490]
And if you need to enter the old and moldy stuff later, because suddenly you're using it in a part that you didn't anticipate, find, set that up in the system then. OK, labor costs, this can be another challenging aspect, it's required for the software to deliver intelligent results, but you don't do it for the software, you do it for your business. You need to understand the average amount of time it takes for you to make every piece of inventory.

[00:23:49.750]
Don't include your initial development time or the making of the first piece, because those are time consuming and you're never efficient on your first piece. The exception to this is if you're doing one on one custom work, then you should always include all the time. But I'm sort of digressing into inventory theory. OK, you will add on an appropriate load for overhead. Many industries use 30 percent, but get guidance from your accountant or CPA so that you can set the proper labor units.

[00:24:20.260]
Some systems will have you put labor in in minutes per piece. Others have you put the time in and dollars per piece. But the bottom line is you have to know what your labor per product costs you. If you don't already know these costs, then the big job is getting it done the first time. After that, you should be able to set a schedule so that you're reviewing the production costs of your inventory on a rolling, you know, semi-annual or annual basis.

[00:24:47.770]
Once you do all this work, don't let your costs ever get outdated again. And of course, one of the benefits of having an inventory system is that it makes this work easier to do and finding costing problems gets easier to do as well. If you're outsourcing any of your production, treat this in the same way that you treat your labor attribute, outsourced cost to each piece and analyze each vendor, well, first of all, attribute the outsourcing cost to each piece to set up the items in your system.

[00:25:21.620]
And then while you're at it, make sure you set a schedule to analyze each vendor two times annually to ensure that their costs are coming in. As expected, your business may demand that you do that more often, but two times annually is at least how often you should be looking at vendor costs. So the first part of this work is what you need to do to set up your software. But as long as you're at it, you want to set yourself up for good business process going forward.

[00:25:49.500]
And at this point, it starts to get easier, every legitimate inventory system has some functionality, I say it gets easier because the biggest part of this whole project is getting all your inventory in the system once all of your components and subcomponents and raw materials. Once everything's in the system, then the rest of the steps go a bit faster. So every legitimate inventory system has some functionality for linking raw materials or subcomponents to finished goods. They may call these routings or kits or jobs or assemblies.

[00:26:24.480]
The more sophisticated systems actually track the conversion and manage the conversion of raw materials to finished goods. And they deduct the raw materials from the raw material inventory and they actually create the finished goods with its associated costs. The simpler systems require you to do the manual step of conversion from raw materials and components to a finished good. But either way, you need this information. Every finished good needs to be attached to its raw materials and labor, or you won't be able to see your true costs.

[00:26:56.160]
OK, just another important digression here. After all, I am a strategy consultant. Pricing should not be a direct calculation from costs. If you just calculate up from your costs, there's no accounting for art or differentiation or specialness. Raw materials. Plus labor is your base cost. You may be able to charge more for your products than just cost. Plus, you may not, but if you can do so, don't just set up your system to automatically calculate your process or your prices for you.

[00:27:27.960]
Do the work of analyzing your costs and do the work of understanding what the market will bear and set the prices that keep you and your business flowing along with nice profits. OK, so you're going to set up your routings or jobs or assemblies or kits, whatever your system calls them. And what you do is you document the build for every piece of finished goods and then you'll set up the build in your new system for every finished item. And this is a really good time to analyze your pricing and make sure your pricing is right, because you should have the costs right in front of you.

[00:28:01.990]
Once you've set up all your finished goods with their routings, you're ready to flesh out the rest of your finished goods inventory set, each finished item also needs to have a unique item number, a description and a wholesale and or retail price. And sometimes you'll have multiple price levels. Remember before when we talked about the unit of measure and how important it is to master your understanding of unit of measure? This same advice goes for item numbers, you need to invest in understanding the true value of item numbers and using them properly, setting up a unique item number for every item is critical.

[00:28:42.480]
That doesn't mean for every piece, it means for every item. So if you're selling a red t shirt and it's one size fits all, then you're not going to assign a new number for every piece you sell that's called Serializing. That red t shirt that you sell will have one item number. If you sell it in sizes small, medium and large, it's going to have three separate item numbers. It's red t shirt, small red t shirt, medium red t shirt, large.

[00:29:12.930]
If it is available in blue, then you're going to have three more item numbers for blue, small, blue, medium and blue large. The only time you need to set and a unique number for every single piece of an item that sells is if you have some reason to track the exact piece that came from the manufacturer and went to your customer. A good example of this would be a Rolex watch. Every Rolex watch has a serial number in addition to its item number.

[00:29:46.800]
So learn to understand item numbers, that unique item number is the system's sole identifier for any discrete item of inventory from its raw material to from raw materials to finished goods, raw materials. Also, get item numbers. Once you set an item number for an item, you should never, ever change it. Why? Because you have history attached to that item number. And if you change the number, you distort the history. Never just change an item number if you make changes to the item in the future.

[00:30:21.960]
For instance, well, let's see if if you're substituting an item or a raw material like a component or a raw material that has absolutely no effect on the buyer of the item, if they won't notice or they won't care, then you can just keep the same item number. But if you are changing the item in any way that is noticeable, don't just change the item number of the old item, actually create a new item number. Following this discipline will preserve your history.

[00:30:48.180]
You'll be able to see that point in time when the item changed. And if you create the new item, you'll also be able to compare and learn from a sales and profit differences of the new item in the original item. This is a really important principle and for some reason people have trouble embracing it. Another benefit of doing this correctly is that once you get your system set up and you're good at using it, say after the first year you can start to learn more sophisticated merchandising skills and you'll be really glad that you're using item numbers in the proper way.

[00:31:21.290]
Some systems offer one type of description and some offers several, it's not unusual to see a long description and a short description option. Make sure you learn which description will show on the invoice and how you want the customer to perceive that description. Ask your software vendor to tell you where each type of description appears or if you have the option to be select and be thoughtful in deciding how to set up your descriptions or which field to import your current descriptions into.

[00:31:50.760]
You're going to live with this decision for a long time. And finally, we get to the customers, ideally, the system you're using now will make it possible to do a data transfer of your customer files. But I have encountered situations where the data was so bad it was messy or outdated or impossible to export, et cetera, that it made more sense to have a few temporary workers come in and just knock it out manually. You have to make important decisions about customer history.

[00:32:22.370]
In most cases, we suggest that the new system start date is a line in the sand. You use old systems to look up history and you begin your new history with the new system. Data conversions for history are extremely hard to do cleanly, and much of what you have in history may not ever be relevant in the future if you can do it cleanly, simply and inexpensively. And that's a big one. If you can do it inexpensively and not import dirty data, then great.

[00:32:52.390]
But if you can don't stress over it, 90 percent of your customer lookups take place for things that happened within the past year. So once you've been in the new system for a year, 90 percent of what you need will be in the new system. Just use the old system as a look up environment. You'll use it a lot the first month and then quite a bit for the next two to three months and then less and less until you're barely going to it for reference at all.

[00:33:18.470]
One challenging thing, particularly if you're going from one system to the next, is to transfer information related to credits, so produce a really good list of credits, gift certificates, any outstanding obligations, and be prepared to enter those items manually. And this has to be done at the last minute before you take your system live. This is also a terrific time to push for closing out old receivables and get your accounting up to date. It's also a terrific opportunity to update your customer list.

[00:33:49.340]
You can send out a postcard to all your customers, telling them that you're updating your database and giving them a postage paid return post card and asking them to correct any information that needs correcting on that card. Also use this as an opportunity to push for email addresses. Email addresses are so key to successful marketing that you need to get the email addresses any way you can, even if you're not comfortable with email marketing at this point. Get the email addresses and I'll give you information and another video that will talk to you about how critical it is to automate your marketing and use email as part of that.

[00:34:25.880]
So this is your customer piece of the implementation process that you're going to update their contact information. You're going to make decisions about which whether or not you're going to keep your history or bring your history into the new system. You're going to create your big list of all the outstanding credits and use every opportunity you have in this to get your data nice and clean and updated and get those email addresses. The final step in setting up your system is to work, work, work, the system from a sales standpoint, brainstorm together a list of every single sales thing you do, from simple sales transactions to taking orders for custom items to taking returns, to giving discounts, to processing gift certificates, doing appraisals, create a list of all of it, and then rehearse how you're going to do every single one of those things in the new system.

[00:35:16.640]
Document your steps one process per page. This will give you a sales manual, which is a really powerful thing to have, once again, an advantage that has nothing to do with the software and everything to do with your business. And imagine how valuable that sales manual will be when you hire new sales staff in the future. Going through this process, we'll also show you where you still need training, where you're still missing some information in the system or even where you might be making your process is more complicated than they need to be.

[00:35:47.740]
Use this knowledge to fill in the blanks and get really ready to serve your customers. Make sure you practice on each other, not the customers. And at this point, you're set up and once you're set up, you're ready to go live. Now, some of the set up steps I just described to you may be able to be done concurrently, particularly if you have one team working on inventory setups and another team working on sales setups. But you'll definitely need to set up some test items with completed, you know, builds or kits or assemblies or whatever just to test the sales function if you split it into two groups.

[00:36:24.160]
Most companies go into this type of software without an understanding that they're going to spend this money and time on preparing, so they're frustrated and overwhelmed and disappointed by the difficulty and that gets in the way of a successful implementation. It's very important for you to view this process as a series of layers. It's not linear. The reality is that learning complex systems takes time and dedication. You'll be testing a process and you'll find out you're missing a piece, and then you'll have to go back and fill in the piece and test it again.

[00:36:59.170]
And some people get really frustrated by that. But think about it. The system is attempting to replicate what we do organically in our everyday actions. And that's really complex. A lot of the things you do, you don't even realize you're doing them. But the system needs to be told everything the system does not have and a human autonomic response. So be patient. Once you set it up properly, it will work for you and you will get faster and faster at using it.

[00:37:30.010]
And at that point, you'll begin to experience a bunch of business benefits that weren't even available to you before. You need to set that now, we've turned the switch, OK? You're you're live in your new system and you need to set expectations, proper expectations for the new normal. All the practice in the world won't guarantee absolute calm and peacefulness. When you launch, you'll be dealing with separation anxiety from the system you were accustomed to and transition anxiety from doing something new.

[00:38:03.840]
It's as if you lived in a perfectly proportioned and appointed little cabin and you'd lived in it for years and everything was just the way you liked it. You could find everything. It was cozy and you felt safe. Then you get married and there are two people in the cabin and then you have a baby and it's getting tight, but it still works. And then you have a second child and now things are getting a little more hectic and a little less convenient in your little cabin.

[00:38:28.500]
And now you're pregnant with a third child and it's just not going to work. So you really need to get into a new house. So you sell the cabin, which is heartbreaking, and you move into the new house and it is filled with potential and excitement. And you have to remember that your perfect little cabin wasn't perfect when you moved into it, it took years for you to perfect it and your new house, full of potential, will require time and attention to.

[00:38:56.760]
And at first, even though it's your same old furniture, you keep bumping into corners and turning in the wrong direction and reaching into the wrong cupboard and bashing your shin against unexpected boxes and end tables that aren't where you expect them to be.

[00:39:12.450]
But eventually you get some muscle memory and soon you're onto the work of making the house your own and falling in love with it. How you handle this change will determine your experience from the time you turn the switch figure that it takes three to four weeks to start feeling confident again and another three to four months to feel proficient.

[00:39:33.060]
And for the first six months, you're going to bump into processes at first very often, and then less so that you didn't think about in your planning stages.

[00:39:41.510]
I could recommend that companies try to get one hundred percent prepared for new software before they launch, but if I did that, nobody would ever launch new software. So my recommendation is to get 85 percent prepared and have a good sense of humor about the rest. You need to be resilient. I love this graphic because it tells you everything you need to adopt in terms of attitudes for the launch process.

[00:40:04.880]
You need to be prepared to solve problems. You need to accomplish your training well enough so you'll be able to punt in an emergency and don't look for perfection. Instead, look for a bit of improvement every day. And if you do these things, you will have a successful implementation.

[00:40:23.780]
I hope this video proved to be helpful for you and that you will have a tremendous amount of success selecting your software if you haven't done so already or implementing your software if you're ready to move forward. Take care. Thank you.

One topic that seems to create a lot of concern – with both customers requiring consulting and blog readers – is the topic of using systems to facilitate communication. There are three camps. Camp 1 is the group who is convinced that systems create bureaucracy, slow down the process, and undermine creativity. Camp 2 is the group who has no systems in place, is not innovating, and isn't finding their process moving along quickly at all – and therefore is willing to consider something better. Camp 3 is the group that has implemented effective systems and seen the benefit. Oh – in all fairness, there is also a Camp 4 – the folks who have implemented a system and turned it into a bureaucracy, at which point they turn back into Camp 1. Which is a shame.

The most commonly sought type of communication system is a project planning or project management system. Every company is engaged in some sort of project management and/or product development, and those projects are usually the basis of the primary value-added activities of the company. Value-add activities are the foundation of profitability, so it is no wonder that companies who do not do a good job of managing projects also do not do a good job of turning profits. The observations I will make in this column can be applied to other types of communication systems, such as knowledge-management applications and CRM, but for the sake of broadest reader application, we'll talk about project management.

In every company I have ever gone into and set up a project planning system, there has been significant initial resistance. The objection is always the same: "We have enough to do without an extra layer of reporting." So my first step is to help them analyze what has worked and not worked about previous project management efforts. Nine times out of 10 the failures are related to project communication, and when they can see that in graphic form, diagrammed on a white board, they give the system a chance.

It is probably no surprise to you that many project management efforts are doomed from the beginning. Why? Because project sponsors frequently do not agree with one another about project scope, desired outcome, or budget requirements. Sometimes this disagreement is opaque even to those in disagreement. This happens because people use the same words but mean different things by them, or because people assume knowledge or agreement on the part of others and do not explore their assumptions. Sometimes the disagreement is clear to the top managers, but they proceed anyway. The two primary reasons for this are: 1) They do not wish to engage in conflict and think that by avoiding it, the conflict will go away (sound crazy to you? Start observing and see how often intelligent people engage in patently crazy behavior), or 2) the participants are aware they disagree, but they figure they will fight it out on the details instead of at the beginning. Yes, these illustrations are examples of management dysfunction and failure, but they are also examples of the types of communication failure that prevent an otherwise worthy project from ever getting a chance.

Even if a project is launched with full agreement and clear communication, it can fail due to communication glitches throughout the life of the project. Creating open, accessible information systems is the goal of every project management effort. The most common complaint I hear about project management systems goes something like this: "Project management systems make all the employees do the work twice, once when they perform the action and once again when they fill in group members through software programs or required reporting."

In a well-constructed project plan there is as much reporting as is necessary for the team to function well together, no more and no less. If a group is engaged in product development of a complex nature, with lots of participants from engineering through marketing, there is much information to be shared. If a group is engaged in simple project planning, then less information sharing may be necessary. If you consider that failure to provide enough information (or the right information) keeps other team members from doing their jobs effectively, then fears regarding recording and reporting requirements can be looked at in a different way.

Ideally the construction of the project plan is such that the communication step only takes a moment or two to complete. But there are times when doing the work means providing complete documentation of a step just taken. If it is important for other team members to be able to access the information, it is not double work. It is a necessity. Even in projects that only include one or two people working in the same room, assuming that the participants hear one another's conversations or paid attention every time the others spoke is dangerous. That old saw about the meaning of the word assume is still correct. Furthermore, many times decisions have to be made by some team members when other team members are unavailable. The presence of effective documentation and status reporting can make the difference between a great decision and a disastrous one.

Finally, do you think that reporting of projects doesn't occur in environments without project management systems? Of course it does. But it is highly inefficient. Person X is waiting for technical information regarding a step taken by Person B, but Person B is unavailable. So Person X wastes three days on the project, because they can't proceed without the information. 

People get confused between order and chaos, creativity and noise. Maybe not all people, but a certain category of people suffers from this malady more than others (besides teenagers, I mean). That category is entrepreneurs who have grown their business past the up-and-coming stage and are now faced with the established-business phase.

I can understand how this happens. The entrepreneur is an idea guy or gal. They are turned on by a business concept, and they throw themselves happily and energetically at the task of turning the idea into cash. In the process, they take on any role that must be filled, they try out crazy ideas that happen to work, and they work insanely long hours. Because they don't have any money to begin with and they're constantly afraid of losing what they've gained, they take a long time to hire anyone and they do so sparingly.

As the business matures a few interesting things begin to happen. The first thing is determining the answer to the question exit or keep going? If an entrepreneur is very lucky, if they have built a firm foundation, and if they want out, they may be able to sell to someone else. At that point any self-respecting entrepreneur does it all over again with a new product or service.

If the entrepreneur does not want to exit, doesn't have something saleable, or can't find a buyer, they keep going. Changes begin to happen that are very small at first, but over the years they add up. The entrepreneur (or their spouse) gets tired of working so many hours. Customer demands begin to require better, faster attention. The requirements of some of the disciplinary areas of business – whether it be marketing, finance, operations, or IT – become too challenging for the entrepreneur (yes, anyone can learn how to do QuickBooks, but the accounting function of a business is generally beyond the scope of most non-accountants). So the entrepreneur begins to hire experts in specific areas in order to avoid messing up something they don't understand and more importantly, to advance the business beyond their personal abilities to do so.

Once you hire some people, they begin to hire more people. There are a number of good reasons for this. The first is that the people the entrepreneur has hired do not want to work 60, 70, or 80 hours per week. Many entrepreneurs struggle with this. They think "Well, I do it. What's wrong with everyone else's work ethic?" The problem with everyone else's work ethic is that they are not paid to work 60, 70 or 80 hours per week. And there are very few entrepreneurs who make the ultimate reward of working 60 - 80 hours per week worth the trade-offs. So, the people the entrepreneur hired, who are working 40-50 hours per week, hire other people who will also expect to work 40-50 hours per week. And as the business grows, more people are needed. Even with efforts designed to improve efficiency and assist the business in growing staff at a lower rate than the growth rate of sales, a growing business will hire more people.

Here's where the confusion between chaos and order, creativity and confusion begins to cost. The entrepreneur is generally a person who dislikes any restrictions on their freedom. They don't want a boss, they don't want to follow rules, and they don't want to be told what to do. Creation of systems is not their strong suit. Not only that, but they resent any system to which they are subjected. But the dynamics of communicating and planning with 3 people are significantly different than the dynamics of communicating and planning with 20 people. And the challenges expand exponentially with each doubling of the workforce. Systems, the very thing renounced by the entrepreneur, are necessary to grease the wheels of a group of people trying to work together effectively.

I don't believe bureaucracies are effective, so please don't assume that I am advocating for their perpetuation. Many management improvements have been introduced in the past 20 years that reduce bureaucracy, nearly all of them related to a matrixed organizational approach.

No, the tools I am advocating are the tools that systematize what can be systematized so workers have more energy and time left for creativity. Things like project management approaches, new product development systems, and content management disciplines solve for the most common causes of miscommunication and mistakes. What are those common causes? They are 1) assuming all of the people who need information have the information, 2) accidentally leaving out people who need information, 3) failing to pass on the relevant information to the next decision-maker, 4) failing to put disciplines in place that guide and monitor time spent on tasks, and the big one 5) failing to recognize early enough when the goals and objectives are not clearly understood or even shared.

When I consult for entrepreneurs I invariably encounter some version of this problem. The entrepreneurs who have hired me like the idea of enhanced planning and communication, but they always balk when they realize that they, too, must use the systems that are being put in place. What they resent is any restriction on their personal operating approach. What they complain about is that things are getting "more complicated," that "creativity will go out the window," and that "all these systems will cost us a fortune."

Despite much talk about Microsoft losing its entrepreneurial edge, they were awarded 1,687 patents in 2007, up from the mid 600s in 2004 and the mid 700s in 2005. That's one patent for every 46 people on their international payroll that year. IBM received 3,148 patents (one patent for every 113 employees), Samsung 2,725 (one patent for every 93 employees), and Intel 1,865 (one patent for every 55 employees). There is no doubt that a small organization can react more quickly than a large organization. But how are these entrepreneurial firms measuring their current creativity? One measure – patents per year per employee – would suggest that anything less than one patent per year per 46 employees would be unacceptable, if your goal is to compare the relative creativity of a small process-free organization with the relative creativity of a process-encumbered organization such as Microsoft.

If current creativity isn't up to snuff, there is a strong possibility that lack of procedure to enhance communication and planning is getting in the way. Yes, when an organization commits to following a project management discipline, there are steps that must be taken that did not exist before. But what people fail to consider is all of the steps that will disappear – the steps of correcting communication mistakes that have gone unnoticed until the project is well underway, correcting information sharing mistakes that have led to product development errors, correcting interpretation errors that have led to creating features that customers do not want or do not need, and the list goes on and on. Each failure in communication and planning must be accounted for at some point in the process. Implementing processes such as project management and product development disciplines simply account for required communication and planning steps up front, leaving the organization with more time and resource to do the creative work.

Anyone who has ever raised a teenager knows that it's not difficult to confuse simple communication requirements (call if you won't be home by 10:00, let me know where you are going) with unreasonable restrictions on personal freedom. But our goal as human beings is to get past the hormone-laden years of adolescence and into a mature adult frame of mind. We should have the same goal for our businesses.

(c) 2008. Andrea M. Hill