The How and the Why of Operations Strategy

Many companies focus on the tactics of continuous improvement and are often disappointed with their lackluster results. They look at top line growth and see anemic improvement, and instead of bottom line profitability they see little or no growth. Because company value is often based on top line and bottom line growth as well as cash flow, a steep positive improvement curve helps rapidly increase your business’s value.

But isn’t it best to just move ahead with improvement efforts to get the quickest bang for your buck? Not if you really want exponential improvement. The problem with tactics is they focus on the how of improvement efforts without the context of why.

Why is powerful. Why:

  • Informs your employees of the purpose of their efforts and ultimately what’s in it for them.
  • Puts things in context so priorities are easy to set and decisions are easier.
  • Helps focus on what’s important to be sure your improvement efforts are targeted correctly.

Why is strategy, how is tactics. Putting tactics first is putting the cart before the horse. Do you have a strong operations strategy that aligns with your business model and vision? Are you achieving breakthrough results in your business?

© 2019 – Rick Pay – All Rights Reserved

Why Top Professionals Are So Successful

FreeImages.com/Ramzi Hashisho

As the days grow shorter and cooler, I find myself reflecting on a week I spent in sunny  Florida at an Alan Weiss thought leadership seminar with 30 of the top consultants in the world. Though they work in different fields, they all have the following traits in common. Here’s why they’re so successful…

Value

All of them clearly understand the value they provide their clients. Whether they’re executive coaches, merger and acquisition specialists or operations and supply chain consultants, they all know exactly how they help their clients accelerate profit, growth and personal performance.

Boldness

They take bold measures to market and deliver their value. They’re provocative, innovative, and they challenge their clients’ thinking to help move them to levels of performance they never thought possible.

Action

They’re action oriented. Not only did they know exactly what they’d do back at the office to move their practices forward, but they began taking action before they’d even left Florida. I know because when I ran into them at the airport, they were already writing and scheduling their next steps for the following week.

In every profession, we can always work on improving how we articulate our value, being bold in our communication and delivery, and taking action.

© 2018 – Rick Pay – All Rights Reserved

Operations Strategy – What Are Your Options?

At this time of year, many companies conduct their annual off-site planning retreat to develop strategic plans for the next year. Then it’s back to work and the plan sits on the shelf until next year’s retreat. Operations Strategy encompasses the means to achieve the vision, which sets your goals for the next two to three years. Strategic planning is actually an oxymoron, since strategy and planning are on different levels. Planning involves the tactics used to implement the strategy.

 

There are five different operations strategies, and you get to pick no more than two:

  • Low cost
  • High Quality
  • Speed/flexibility/responsiveness
  • Wide line/custom
  • Innovation

For example, part of what drove the offshoring trend in the 1980s and 1990s was the strategy of low cost. Then speed started the reshoring process. Tesla has a strategy of innovation, while Lexus is quality.

What is your company’s operations strategy? Do you have a clear vision that you want to support? Establishing a vision and then picking your strategy before you start the tactical activities allows you to prepare for the future and dramatically increase the value of your company.

 

© 2018 – Rick Pay – All Rights Reserved

New Book: Moving Into the Express Lane

I’m pleased to announced that my new book is available on Amazon.

Moving into the Express Lane: How to Rapidly Increase the Value of Your Business, will show readers how to exponentially increase their company’s value by aligning operations strategy with the business model. Increasing a business’s value and potential sale price is important for business transitions as well as for ongoing operations to accelerate revenue growth, increase profits and cash flow, and to allow the company to increase capacity and grow without capital expense. Many companies focus on implementing tactics, such as lean, without a strategic framework, which renders their efforts fruitless. By taking a holistic operations-based view of strategy and tactics, executives can exponentially improve their company’s value.

© 2018 Rick Pay, all rights reserved.

Don’t Be Average

FreeImages.com/Jason Antony

Many companies use benchmarking as a means to drive process and productivity improvement. Most industries publish benchmarking data including financial, productivity, asset, market growth, and other criteria for comparing your company to others of similar revenue or asset value in your industry. The most common measure is industry average.

The problem is, by comparing yourself to others and to industry averages, you’re accepting average as a goal. Shouldn’t we strive to be better than average?

Rather than emulating others, be innovative and adopt a strategy that moves you beyond what others are doing. And don’t just try to be better than average, be way above average. The Risk Management Association (RMA) book is a great source of comparative financial information, and provides not only averages, but also top quartile information. This way you can benchmark yourself against the top performers in your industry.

Are you and your company striving to be average, or to be industry leaders?

© 2018 – Rick Pay – All Rights Reserved

Driving Robust Value From a Supply Chain

I was recently interviewed for an article in CFO Magazine on the radical changes we’re seeing in supply chain. Interestingly, the author discusses some of the same concepts I investigated in my last Growth Accelerator newsletter. I hope you’ll check out the article, and read how these techniques can “can drive robust value from a supply chain, value that enables no less than a reinvention of a company.”

© 2017 Rick Pay, all rights reserved.

It’s Hard To Manage What You Can’t See

I’m currently working with a client on a profit improvement project. I asked the following questions:

  • How much overtime is worked in production?
  • How much scrap is created due to mistakes?
  • What is the value of inventory adjustments due to cycle counts and physical inventory?
  • How is payment of the operations bonus determined?

In every case, they didn’t know. It seems the financial statements and key performance indicators don’t track these basic issues. As I spoke with the accountants, it was clear the numbers are in the financials somewhere, you just can’t see them.

One of the best book titles I know is “Learning To See” by Mike Rother and John Shook. It helps teach the reader about value stream mapping. There are other ways to learn to see as well, such as making key numbers jump out of your financial reporting system. Failure work, inventory adjustments, overtime and other information are all clues to improvement opportunities. But you have to be able to see the issues before you can address them. Learn to see!

 

© 2017 – Rick Pay – All Rights Reserved.

 

Is Your Operations Strategy Aligned?

In my forthcoming book, Moving Into The Express Lane: How to Rapidly Increase The Value of Your Company, I explore how to align your operations strategy with the business vision. To prepare for writing, I interviewed CEOs, CFOs and COOs of middle market companies.

 

Some of the questions included:

  • What drives value in your business?
  • What is the 2 – 3 year vision for your company?
  • Is your operations geared to the various customer types/channels you sell to?
  • What operations capabilities do you need to strengthen to achieve that vision?
  • Who decides that?
  • How will your workforce need to change to support growth?
  • Do you plan capacity?
  • What metrics do you track to tell you that operations is ready to support growth?

Ask the questions to your own team about your company. You’ll discover if you’re in alignment. If you aren’t, the ride becomes very uncomfortable.

© 2017 – Rick Pay – All Rights Reserved

Where to Invest Your Cash

Recent economic data shows that cash positions on corporate balance sheets have been growing steadily since at least 2014. Some economists suggest that part of the reason for this is that companies are “not seeing good investment opportunities.”

One of the best investments you can make is in you! Companies should take some of that cash and:

  1. Train employees
  2. Update capital equipment as needed
  3. Invest in capacity or in processes that will help increase capacity without capital investment
  4. Provide executives and managers with coaching and mentoring to help develop them to support future growth opportunities
  5. Pay employees market wages

Investments don’t always have to be in outside opportunities. Sometimes, investments in yourself yield the highest returns and help you accelerate the value of your company.

 

© 2017 – Rick Pay – All Rights Reserved

Rapidly Increasing the Value of Your Company

Many business owners consider succession planning as they age, change life objectives, or decide to move on from their business to something else in their life. Many baby-boomers are considering the sale or transfer of the company they’ve spent their lives building and they want to maximize the value they receive in the transfer. These transfers can include an outright sale to either a financial buyer or a strategic buyer, or transfers to the management team, family members, a trust, an ESOP, or other “buyers.” Regardless, the objective is to maximize value so the owner’s wealth is also maximized.

A rule of thumb for establishing a company’s value is a multiplier times EBITDA (earnings before interest, taxes, depreciation and amortization). For manufacturers and distributors, that multiplier is usually between 5 and 7, but that can vary with industry and buyer. Sometimes the value is significantly different due to the buyer’s strategic objectives. An example is when Krave sold their jerky operations to Hershey for almost 10 times revenue, a number that greatly disrupted industry valuations in the snack meat industry.

If you want to quickly boost the value of your company there are five elements you should consider. The first three are often used by private equity firms and others to help determine value:

  • Profit growth
  • Revenue growth
  • Free cash flow

The next two are used by both private equity and strategic buyers:

  • Strength of the management team
  • Innovation

Take a look at these factors in your company to see how you can quickly improve the value of your company and its attractiveness to potential buyers. It could really move the needle in a positive way for your personal wealth.

© 2016 – Rick Pay – All Rights Reserved