Getting a business in order
Companies of any size and in any sector can discover initiatives tomake them more efficient and effective – and that canmeansurvival in the current climate, writes OLIVE KEOGH
AS NEWS ABOUT the economy gets worse rather than better, businesses are facing another tough year. Surviving means cutting waste, sweating resources, redefining priorities and ensuring that systems and processes are supporting your business as effectively as possible. The end of the year is an appropriate time to look at just how well your business is addressing these issues?
For example, how would your business stand up to a cashflow health check? Cash has always been the king of commerce, but in the current environment it is the difference between survival and failure.
“Companies need to be very pro-active about managing working capital and cashflow,” says Teresa Morahan, a director in the audit department at BDO Simpson Xavier.
“In the good times, there was no real pressure. People paid. This has changed. Companies need to be much more focused on the management of their customer accounts. It is critical to assign a specific individual to that task.
“Where problems arise, get in there early and come to an agreement about payment by, for example, arranging a payment plan if that’s what it takes. Companies need to work with their customers at one end of the chain but also with their suppliers at the other to strike more advantageous terms.”
Technology companies in particular need to keep an eye on their cash as they are often committed to heavy spending on research and development (RD), she adds. “Our advice would be to look at the RD requirement versus the funding available and perhaps defer some of the expenditure if possible.”
During the boom years, few companies had time to make changes to systems and processes. Even if there were shortcomings they were left alone. These could be an overly time-consuming process or a production glitch that creates a high rate of defects in the end product. Weaknesses cost money, however, so there is much to be gained by overcoming them.
Dr Peter McNamara at the Michael Smurfit Graduate Business School says the end of the year is a good time to ask: what do my customers need from us and how well are we doing it?
“It is also useful to look at what additional value I can extract from my customers as the focus is often on what I’m delivering to them. Identifying what your company does really well is a stepping stone to building new markets,” he says.
“In a recession, firms often go for the ‘big bang,’ by which I mean making a major change to their business or taking on a major project they think will fix everything. This is a very high-risk strategy. Far more likely to be successful are small changes that do not put the core capital of the company at risk if one of them goes wrong. Ironically the companies that succeed in a recession are the ones that have failed and learnt from it. Blame is part of recession culture and this can pervade companies as well as the wider environment. Companies that deal positively with failure, weather the difficulties of recession much better.”
Enterprise Ireland now offers a Lean Business initiative, designed to help improve systems and processes within firms. The programme is suitable for companies of all sizes and is pitched at three levels to suit the intensity with which a company wants to pursue the lean agenda.
“It is possible to introduce lean initiatives in all companies regardless of size or sector,” says Richard Keegan, manager of Enterprise Ireland’s Lean Business department.
“It is about being efficient and effective, knowing how to do the right things for your business and doing them as well as possible. It starts from the point of knowing what a customer wants, values and needs and works to find the best way to deliver that to them. What is required to make it happen is a serious commitment to constant improvement. Companies need to be AFR – absolutely focused and relentless. “
The key to adopting lean principles is to look at how time, money and effort are used, says Keegan, the author of Becoming Lean. “Where is the time within the organisation being spent? Where is the money being made or lost and how easy is it for employees to do what is asked of them? Answering these questions forms the basis of adopting a lean approach,” says Keegan.
How to stay healthy
Liam Fennelly, business consultant and present of the MBA Assocation of Ireland, has some tips on how to scrutinise your business systems and make lasting improvements
“I would advise companies to start their health check by reviewing all current information available. Look at market forecasts for one to three years, management information, sales channels, including which ones are the most profitable. Is the level of financial detail good enough to make decisions? If not, get some management accounts together fast.
“Review each profit centre on a standalone basis and draw up a short- to medium-term plan to safeguard profitability. Review each cost centre with regard to efficiency and necessity and communicate the situation (honestly) to management and then staff.
“Outline broadly where and when adjustments need to be made and draw up implementation plans in conjunction with the heads of the profit and cost centres. Then implement them.
“At a practical level, I would advise companies to do the following:
– minimise stock holding and debtor days
– maximise creditor terms
– communicate with your bank manager
– audit your energy consumption
– cut unnecessary travel and use facilities such as Skype
CASE STUDY DATA DISPLAY
Prices are down but business is holding steady at Data Display in Ennistymon, Co Clare, which designs and makes electronic signage
It is responsible for the arrivals and departure boards at Dublin airport and for electronic signage used by the Dart, Dublin Bus and Irish Rail. However, about 85 per cent of its output is used overseas and signage for the London, Paris and New York underground systems are supplied by the company. About 70 of its 195 employees are overseas.
Paul Neville, the managing director, puts Data Display’s success internationally down to flexibility and the willingness to customise products. “We design and make everything ourselves,” he says.
“I would consider us to be novices at it but we are committed to the process of continual improvement,” Neville says.
One of the things we do is to measure everything – faults, productivity, test procedures, documentation – and this is analysed to see where we can cut time and money.
In 2007 the firm took part in Enterprise Ireland’s Lean Business programme. “We visited Toyota to see how it implements continuous improvement and found its approach very enlightening.
Being in manufacturing in Ireland is difficult. You have to be smart and clever to survive so anything that helps to achieve that is worth considering.
“It is not always easy to keep the momentum going when you are busy but you have to try. We are not talking big changes. Its much more an evolutionary process and about continually improving small things. For example, one of the people in our paint shop reorganised the way he did his job and greatly improved his productivity. In the current recession, we have had to reduce prices by 20 per cent. You have to offset that with savings elsewhere.
It takes a while for the lean message to filter down through the organisation but continual improvement is a team-based endeavour and everyone has a part to play in taking waste out of the system. The people closest to the problems are often the people who come up with the most innovative solutions, Neville says.
No aspect of a business is too big or too small to consider, says Neville. You have to look at everything you do and see where there is room for improvement. Its really about small things done by everybody every day and, if it gets you savings of 10 or 15 per cent, in todays climate that’s worth having.
“Being committed to the process makes you less complacent. You recognise there is always a better way.
Being committed to continuous improvement has helped Data Display to grow into an international business with customers in New York, Paris and London, says managing director Paul Neville