“You don’t have to change but then don’t expect your bottom line to either”
By Tyrone Courtman, RSM UK Restructuring Advisory LLP
‘You don’t have to change but then don’t expect your bottom line to either’ is often cited by business schools to inspire management to bring about change to improve a business’s prospects and performance. But following the events of the last 18 months ‘Change’ for businesses in the UK is not going to be a discretionary option. For many it will be critical for their very survival.
Words cannot adequately describe the events of the last 18 months and the impact of the covid pandemic on the global economy. The UK governments response has been unprecedented, both medically and financially, and as many of the covid imposed restrictions are lifted, hopefully for the last time, and many sectors of the economy surge back into life, the resurgence is uncovering some critical bottlenecks in the supply chain and labour markets. Not unsurprisingly inflation is beginning to take route and the skill shortages are resulting in upward pay reviews not seen for a generation.
More fundamental however is the impact of successive lockdown and social distancing measures on society and business in the broadest sense. The way business models have had to change and adapt following the changes imposed upon them, that pre-pandemic would have been thought of as impossible, are likely to be far reaching.
For some businesses the pandemic has been a golden opportunity, while for others it has been an existential crisis. It is tempting to think that success has been the reward for flexibility, resilience, and hard work. Those businesses that were able to ‘pivot’; those that have not done so will continue to struggle, and in some cases are already going out of business.
However, for those businesses that did have the ability to pivot, the opportunities were there, if only they could take advantage of them. We cannot prevent unlucky things from happening, but we can learn to ride them out by changing our way of doing things and adapting to circumstances. That applies to all businesses, big and small, in every sector. As Charles Darwin pointed out in On the Origin of Species, it is not the strongest that survive, nor the swiftest or the smartest, but those best capable of adaptation to changes in their environment.
In most restructuring and business turnaround assignments there is one common theme. Management failed to recognise the need to change. And whilst the consequences for most are simply poor financial performance, in extreme cases it will result in the businesses failure. So how can you improve your bottom line and make sure your business doesn’t become history and another insolvency statistic?
Understanding the need for change
Firstly, management need to understand and appreciate the need to change. You can categorise the driving forces into the three ‘C’s, Customers, Competition and Change itself. Customers have become much more sophisticated and demanding; they have a much greater range of alternatives, are much more knowledgeable about their own needs, and are exerting ever greater pressure on their suppliers. Competition, which at one time was local and relatively gentle, has become global and cutthroat. Whether geopolitical realities, technology, or customer preferences, the pace of change is dizzying. What was unthinkable yesterday is routine today.
In a world of rapid flux, organisations must change their priorities from a traditional focus on planning, control and managed growth, to emphasise speed, innovation, flexibility, quality, service and cost. It is virtually impossible to retrofit organisations into this new reality. So what is the solution?
Management approaches to change
There are several management approaches that have made an impact on the way in which managers look at and implement change in their organisations. Such approaches include Total Quality Management (TQM), Time Based Competition, Customer Focus and Business Process Reengineering (BPR). It is Business Process Reengineering that we shall focus on here.
The term ‘re-engineering’ has often been overused, misused and simply abused over the years, so what is it? The official definition is ‘The fundamental rethinking and radical redesign of business processes to bring about dramatic improvements in performance’ so what do we mean? Well let’s consider each of the four key words in turn.
The concept of ‘dramatic improvement’ is not about making marginal improvements to your business. It is not about making things 5 to 10 percent better. It is about making quantum leaps in performance, achieving breakthroughs. Performance can be measured in a variety of ways – reduced costs, increased speed, and greater accuracy. The choice is yours depending upon what is important to your business. The hallmark of reengineering is always a dramatic breakthrough in performance.
The second key word is ‘radical’ Radical means going to the root of things. Reengineering is not about improving what already exists. Rather it is about throwing away and starting over; beginning with the proverbial clean slate and reinventing how you do your work.
The third key word in the definition is ‘process’. By a process we mean a group of related tasks that together create value for a customer. For example, order fulfilment is a process, comprising a series of tasks: receiving the order, entering it into a computer, checking the customer’s credit, allocating inventory from stock, picking the inventory out of a warehouse, packing it into a box, loading the box onto a lorry, and so on. Not one of these activities is of the slightest interest or value to the customer. The customer’s only concern is with the result – the delivered goods, created by the sum of all these related activities.
In most organisations, all these processes are orphans. Fragmented across many organisational units, they are effectively invisible and essentially unmanaged. Yet processes are at the very heart of every enterprise. They are how organisations create value for their customers.
If taking a customer’s order takes a long time, usually it is not because it takes a long time to perform the required tasks. Rather, it is the handoffs between the tasks that devour time and money. Reengineering says that such fragmentation lies at the heart of our performance problems and that the only what to achieve dramatic performance improvement is by holistically addressing our end-to-end processes.
The fourth key word in the definition is ‘redesign’. Reengineering is about the design of how work is done. We often think of design as applying only to products. Yet reengineering is based on the premise that the design of processes – how work is done – is of essential importance. Your employees may be smart and capable, well trained, highly motivated, and encouraged to perform by all manner of incentives. But if the work they are doing is poorly conceived and poorly designed, it will not be well executed. The starting point for organisation success is well-designed processes.
What reengineering is not?
There are many widespread misconceptions about the nature of reengineering. Reengineering is not downsizing. Downsizing means getting rid of people and jobs to improve short term financial results. Reengineering has nothing in common with that kind of superficial and reactive response to problems. Reengineering is about rethinking work from the ground up to eliminate work that is not necessary and to find better ways of doing work that is. Reengineering eliminates work, not jobs or people. It is true that in many cases, when you radically rethink your work, you may need fewer people to perform it however.
Reengineering is also not ‘restructuring’, usually a euphemism for moving boxes around an organisational chart or selling off some business units. Reengineering is centred on how work is done, not on how the organisation is structured. Reengineering is also not to be confused with automation. Even though technology plays an important role in reengineering, its role is to enable new process designs, not to provide new mechanisms for performing old ones.
Reengineering is also not a fad, not merely the latest in a long line of short-lived management panaceas, of ninety-day wonders, that promise the world but fail to deliver. Reengineering’s distinctiveness has been established by the fact that it works, by the huge improvements that organisations around the world have achieved by applying its principles. Finally, reengineering is not more of the same. It is, in fact, a revolution, the most important one in business since the advent of the industrial revolution 150 years ago. Reengineering posits a radical new principle: That the design of work must be based not on a hierarchical management and the specialisation of labour but on end-to-end processes and the creation of value for the customer.
Brave new world
The next few years will see an intense shakeout in the business world and some (more) old and famous names might soon disappear would seem an obvious thing to say.
The key question is, who will survive, and how? Business is undergoing seismic changes. Retailers who failed to embrace online are fighting for their very survival. Oil companies, once stubborn titans who clung to the past, are now moving towards clean energy; the end of the age of oil may soon be upon us. Conferencing software like Zoom and Teams are posing a serious threat to commercial offices and the business travel industry; why do the 9-5 in an office when you can work more effectively from home, why fly halfway around the world for a two-hour meeting when you can have it from your own office, or home, or the beach?
Self-preservation means we need to forget the old rules and learn to embrace the chaos which will, for the time being anyway, form part of the next ‘normal’. Resilience and the ability to pivot swiftly in the face of existential challenge will be essential to survival. Those who fail the test of evolution are likely to go the way of the dinosaurs and the dodo.
So you want to save your bottom line and survive? Sounds like you need to reengineer your business.
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