Your Business Is a System…
Your business’ efforts to turn customer interest into profits is like a chain; it’s only as good as its weakest link. That’s why it’s a good idea to take a step back and think about your business as one whole thing rather than as the sum of its parts.
The idea of Systems Thinking is to imagine any enterprise (like your company) and think of its workings like it’s a machine… one big system where one process naturally follows another until the job gets done. We sometimes like to relate this to the idea of a “black box”, where you feed one thing in the front and another thing comes out the back.
Thinking about your business as a system is a powerful strategic tool that helps you identify what parts of your operations are holding you back from growth or greater profitability. Systems thinking helps clear away clutter and focus on how the whole operation is working. By pushing aside concerns about each activity, you can see how operations flow. And seeing this flow, you can identify the bottlenecks and weaknesses that are the real limitations of your business.
At its most-basic level, customer interest comes in the front of your business and cash comes out the back. Of course there are lots of processes and subsystems at work beneath the covers. These are all the things you do to qualify work, win jobs, coordinate, execute, complete, bill and collect revenue. It’s easy to get caught up in the day to day of managing and running the inner-workings of the business. But no matter what goes on inside or what you do to measure and optimize it, you should never forget this one important measure of your level of success: its output.
For most businesses, the final output is some measure of monetary value, and the primary goal of making the thing work is to maximize this output.
For smaller businesses, this is easily measured in cash. As your business becomes more complex, you might see is as equally desirable to build other liquid assets, grow inventory, cancel debt, or build equity. These are all good outputs too, but cash is best… so we’ll just call this output of value “Cash”.
And for the sake of simplicity, we can usually reduce our goals for this system to variations of just 3 things:
- Get the most cash possible out of the system (Profitability)
- Get this cash out of the system as fast as possible (Velocity)
- Get the best possible rate of cash output / customer interest input (Efficiency)
You may have other goals for your company that go beyond simple output, and that’s fine too. If being a great place to work is in your charter, or if you want to give back to the community or be a champion of sustainability, that’s great. But for the sake of thinking about the system, we call them requirements and don’t make them part of the output. So you’re still just trying to maximize your output, but now the system requires you to support these other goals too.
A Tool To Help You Improve
It’s really just a process to help you boil it down to a flow of how your business works and how to optimize this system to become a cash-producing machine.
An interesting thing happens when you start thinking about your business as a “System”. You start to separate the results of your company from the results of each job or the performance of each employee. After all, individual areas of excellence aren’t very important unless they help the entire system perform better and help your company be more effective and more profitable.
Over the next few weeks, we’re going to present a series on using Systems Thinking to evaluate and improve your business.
For now, try to imagine your business as one big machine and think if you can identify any bottlenecks that are preventing the machine from working at full capacity… address those shortcomings, and you’ll start building for more efficiency.