Any business, from a “mom and pop” shop to a mammoth multinational corporation, follows basic business fundamentals, chief among them process. A process provides a road map for the day-to-day tasks that keep a business running smoothly. Failure to do things in an orderly fashion and in the same tried and trusted way is a recipe for disaster. Yet, as companies grow at exponential rates and excitement builds, process is sacrificed.
This is understandable. The business focus is on growth, all assets primed to enter a new market and/or geography. But when the defined tasks to complete a business activity bend or break, businesses suffer. Product quality, customer satisfaction, employee engagement, sales forecast accuracy and regulatory compliance become less assured and likely to deteriorate.
“Processes go awry because people lose sight of what they’re trying to accomplish, what really matters,”
says Robert Ployhart, a professor of business administration at the University of South Carolina.
“When a company is small and growing, everyone knows why they are there and what they are trying to accomplish. But when the firm is successful and growing, it’s like waking up and being on a different planet. The goals change, the strategy changes, and the vision loses focus.”
When the organization takes its eye off the ball, it falters. An October 2015 survey by PricewaterhouseCoopers noted the consequences of process failure. Between Jan. 1, 2011 and Sept. 30, 2015, the percentage of companies in the initial public offering process disclosing that the material weakness of their internal controls increased year over year, from 23 percent in 2011, to 31 percent in 2015, PwC found.
This is serious stuff. An internal control is basically the process by which a company conducts its business in an orderly and efficient manner to ensure accounting data accuracy and integrity. A material weakness is a deficiency in an internal control, giving rise to a reasonable possibility of a huge error in the entity’s financial statements.
Somehow, in their zeal to become a public company, these organizations took their eyes off the ball – the processes that had helped them become viable businesses in the first place.
“New opportunities start to pull people and the firm in different directions, and new people are hired to help solve these new challenges,” Ployhart notes. “Now the new hires want to achieve what they were hired to do, which may not be consistent with what the founding employees want to do.”
When this occurs, consistent processes veer wildly, resulting in a potential material weakness that tarnishes the organization’s reputation for management efficiency, possibly causing investors to think twice before plunking down their money.
The power of process
In business, process is everything. Sloppiness is no excuse. This does not mean processes should not evolve. New technologies constantly come to the forefront offering greater efficiency and cost-savings. Continuous process improvement and re-engineering are critical. The challenge is effecting new processes and deploying new technology without first studying their impact on actual work.
Too many processes can be just as bad as broken ones. A study by Boston Consulting Group indicates the volume of processes and other procedures like decision approvals has increased as much as 350 percent overt the past 15 years. Burdened by processes, inertia reigns.
Small wonder many forward-thinking software firms are undertaking ethnographic studies of how employees will use their technology in their established processes (using a beta version) before building the actual thing.
Keep a business score card
To preserve well-working processes, businesses should maintain a balanced scorecard, a management system for setting, tracking and achieving key business objectives. Many large corporations have adopted balanced scorecards and utilize them in their strategic planning. Smaller organizations can use the tool to develop a simple management framework, transforming their plans into “marching orders for the business on a daily basis,” according to the Balanced Scorecard Institute.
A scorecard “provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results,” according to the Institute.
“When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise.”
Measure it to manage it
Like everything else in business, you can’t manage what you can’t measure. This rings true with business processes, which must be managed to achieve process optimization – maximized efficiency at minimized cost. To achieve this state of grace requires elevating its importance, having someone or a team (in larger organizations) continually review business processes to determine which ones are below par, why this is the case and what can be done to alter the status quo.
At the same time, carefully review the automated solutions designed to ease the burden of manual processes and decrease the risk of human errors that may result in a material weakness. Firms such as Ultimate Software in the human capital management system space and BlackLine in the account reconciliation space have predicated their tools on business process improvement with users fully front and center.
Marching toward an IPO with broken processes assures one thing – tripping at the finish line.