Every business operates on knowledge and yet many companies never organize and document that knowledge into useable P&P.
As a result of this failure to organize and document the knowledge it takes to operate a business, many companies operate on a word of mouth basis.
“The new guy learns from the old guy who learned from the dead guy.”
Scott Stratman
Business Friction/Costs
Ronald Coase, of “Coase’s Law”, says that there is friction involved with being in business. The original friction or cost is that that goes with finding customers for a company’s products/services, and of finding vendors/suppliers who can take care of the company’s needs.
Beyond “acquisition” costs there’s the ongoing friction of doing business; transactional costs.
The most expensive cost/friction is that of failure. Regardless of the “industry”, the most expensive work done in a business is the “re-do”.
As Right as Possible, the First Time
Some companies just don’t seem to understand or care that when something goes wrong it drives up their cost of doing business, and it also drives up “cost of doing business” for their customers and vendors. Its like they really think that they don’t have time to do things right the first time. Baloney.
A major source of errors, omissions, miscommunications and screw ups is the lack of written P&P, of operating on a “word of mouth basis”. The cost? A $30 mistake can take $300 in time and effort to correct, and if that company is doing a 5% PTP (pre tax profit) it takes ( 20X$300) $6000 in sales to cover the cost of failure. And if a customer is involved there’s no way of knowing the impact/cost of the mistake on/to that customer. And there’s no way of knowing who that customer might have told about the failure. What’s the cost in lost business from “negative word of mouth advertising”?
” The true cost of errors is unknown and unknowable.” Edwards Deming
The 5 Organizational Ps
Every company needs a plan, a strategy that drives it’s actions. The plan may be to increase market share, to reduce costs, retain existing customers, provide new products/services to old customers or it may be to have the “lowest price, always”. Wait a minute that plan is already taken.
Based on the “plan”, every business function must have a “Purpose” that compliments the “plan” and which answers the question, “Why incur the costs that go with this business function?”. For example, distributors incur the costs of having a warehouse so that they can meet or exceed customer expectations, so that they have an acceptable “fill rate”. A distributor doesn’t have to have 100% of what customers want 100% of the time, but if they don’t have an acceptable “fill rate” the customers will go elsewhere. Purpose is the first of the 5 Ps.
Once the “Purpose” is established`, every business function can be broken down into it’s major components. In our warehouse example those major components might be “receiving”, “shipping”, “truck maintenance ” and “inventory control”. The goal for each major component is the basis for “policies’, for goal driven guidelines. Policies are the second of the 5Ps.
There are 6B people on the world and there are 6B versions of reality. The third of the 5Ps is “Procedures”, and one size does not fit all. Purpose and Policies are determined by managers who, if they’re smart, let the experts (the guys doing the job) tell them how the goals established will be accomplished.
The fourth of the 5 Ps is “People”. Based on the steps needed to achieve established goals hire the right people for the job.
The fifth and most important of the 5Ps is “Process Monitoring/Performance Measurements”. The key steps in the “procedures” need to be monitored to ensure things aren’t falling through cracks, that the process is on track.
In life and in business things will happen for which we haven’t planned. In 1969 I was living in Denver and I was going to drive out to S.F.. My plan was simple enough, I’d drive north to Cheyenne, Wyo. and turn left. Outside of Boulder, Colorado there was a “hippie” and his girlfriend holding up a sign saying “SF”, I picked them up. They had a large bag of soy nuts and of this other stuff which they shared; we missed our turn. Montana was nice and we eventually got to S.F.. It was a trip.
Performance must be measured against goals. If the goals are well thought out and achievable but are not being met its one of two things; either the procedures are wrong or you have the wrong people for the job.
“Employees respect what managers inspect , not what they expect.” Don Rice Tex A&M
It doesn’t matter what you ask for, its what you monitor and measure for that tells employees what you really want from them.
BestBizWays; Powerful in Effect with Little Waste of Effort
Document the knowledge needed to run a business and you’ll do a better job of hiring the right people, you’ll reduce training time with new employees, errors will be minimized, customer service levels will rise and the bottom line will go up.
Organize and document the knowledge needed to operate a company and you increase it’s value by having a “cookbook”.
In Closing
Harvest new knowledge by asking new employees to tell you how things can be done better. Do this in the first two weeks on the job, before a new employee starts thinking like everyone else. P&P are never done, things are always changing. P&P should have a cover sheet that says “Under Construction”. The best information in the world is worthless until you put it to work. Its up to you.
The 5 Organizational Ps
Purpose: Every business function must have a clearly stated purpose which compliments the “Plan” and answers the question, “Why incur the cost ?”.
Policies: Goal driven guidelines for each of the major components within the function.
Procedures: The steps needed to be taken in order to accomplish established goals.
People Requirements: Based on the procedures hire the right people for the job.
Process Monitoring/Performance Measurements: Track key steps in the process and measure against the goals.
Abe WalkingBear Sanchez is an International Speaker / Trainer / Consultant on the subject of cash flow / sales enhancement and business knowledge organization and use. Founder and President of www.armg-usa.com, WalkingBear has authored hundreds of business articles, has worked with numerous companies in a wide range of industries since 1982 and has spoken at many venues including the Shakespeare Globe Theater in London.
