The Ultimate Sin in Business

...is to be unprofitable.

Sure, you'd say, that's your CFO "pedigree" talking, there must be larger sins than this.

So hear me out.

A bottom line (the profit) is easily dismissed as an accounting convention. Cash is king - they say. And it's true! But this accounting convention was not invented for the purpose of distracting cash-minded managers from what really matters. Profit is a long-term indication of a business's ability to turn out positive cash flow. Fail to deliver that and your cash-rich days will be over - sooner than you think.

So, beyond Finance 101, a red bottom line signals a dysfunctional business model. Persisting losses in a business lead to an accumulation of damages to the organization that become increasingly difficult to course-correct:

- the mindset of the organization moves from "who's building what" to "who's avoiding the next layoff round", which leads to high amount of unproductive political actions (lies, deceit, backstabbing) and to a very clear negative selection of personnel - only the weak ones (or whose only skill is organizational survival) are left, since the good ones are more likely to be hunted out of the organization;
- the increasing negative pressure for immediate results, coupled with a weakening control environment and a rationalization of what's acceptable to do in a chronically ill organization will lead to corruption, red tape and other forms of non-compliant behavior;
- beyond people, the asset base (tangible and intangible) will be eroded from lack of proper care and will continue to lose its capacity to accrue economic benefits to the business;
- there is an erosion of creditworthiness as well, which leads initially to higher costs from the supplier base (as everyone prices in the business's inability to pay on time), up to the breaking point of credit default and insolvency.

Some people may push some valid counter-examples, like start-ups - they are not yet profitable. But this may be not because of a dysfunctional business model:
1/ a start-up is a vehicle in search of a valid business model so they may not have found it yet;
2/ or its business model only gets validated at a certain scale

And of course, there's the unicorns, which are heavily-funded start-ups that are expected to prove their business model (and win big) at huge scales. But these are not yet businesses, they are just more sophisticated bets. Extremely few of them pay off big, some of them earn some money back, most of them nothing at all - isn't that the definition of a bet?

Throughout my career as a CFO, I have long been an enemy of waste - not surprisingly, my start-up actively works with visionary entrepreneurs and business leaders in fixing their most important waste baskets (inefficient and manual business processes, ossified enterprise landscapes). The results and the initial take off are amazing.

So isn't an unprofitable business model, just simply, the biggest form of waste? All the money thrown away, all the human talent drain, all the assets blown to pieces?

I believe so, but then how do we repent from this sinful behavior? :-)

There is no universal recipe, but the biggest building blocks are
1/ gain visibility over your waste baskets (how's your controlling, by the way?),
2/ fix the easiest/biggest waste baskets first (which may very well mean scaling back)

and then

3/ gradually heal your business model by putting in place the right people, processes and systems.

Sounds like standard economics textbook? You'd be surprised how few businesses go past step no 2/.

The secret to a sustainable, profitable business is execute 3/ every day so that you don't need to execute 1/ and 2/ every now and then.

Which could probably get translated as more righteous living leads to less repentance :-)

More to come...

Process Re-design, Challenge #02

Always an art, never a science?

Art and science have their meeting point in method.
~Robert Bulwer-Lytton

What makes BPM different than scientific management approaches (like project management, six sigma etc)?

1. There is no global optimum
There is no best way to execute a process, it all depends on availability of resources (time, money, talent) for execution. It is an illusion to think that one may ever reach a global optimum in any process.

2. BPM is a continuous deployment framework
There is no best time to improve / change / upgrade a process. Or rather, the best time to do that is "as soon as possible". A business process must be agile, i.e. must be able to adapt to new conditions (shift in strategy, legislative changes etc). Therefore on-the-go tweaking should be part of the process design philosophy.

Hey, this sounds a lot like the lean start-up philosophy!
1/ start small with a minimum viable process and with a few process metrics that matter,
2/ continuously test your model's falsifiable hypotheses along the way until you get it right and avoid local optima,
3/ tweak it on-the-go based on the learnings above.

Actually, there are at least two major differences:

1. Approach on customer problem
A lean start-up defines how a new product solves an existing / emerging customer problem.
A business process redefines how an existing organization addresses entire classes of existing problems (effectiveness, efficiency, segregation of duties, activity cost, information distribution, asset / function redundancy etc).

2. Build-Measure-Learn cycle
A lean start-up iterates the product. One product iteration may be deployed almost instantaneously. Customer reaction can measured reliably in direct relation with that specific iteration.
A business process iteration manages the change to the process (employee education, transition, organizational feedback, integration into an existing business model). Therefore, a business process iteration needs a significant soak period before it starts to perform as intended.

So... how do we reconcile this?...

More to come :-)

Process Re-design, Challenge #01

Re-design From a Blank Slate

A relentless barrage of "why’s" is the best way to prepare your mind to pierce the clouded veil of thinking caused by the status quo.  Use it often.  
~Shigeo Shingo

When you hire BPM consultants to help you redesign your processes, they will usually start with a presentation of the implementation methodology, a recommendation of the software package to use for modelling and a timesheet estimate for the blueprint project (AS-IS, TO-BE and gap analysis)

As a result, many organizations start a process re-design by having a look at their current process, the AS-IS situation.

My challenge: this AS-IS approach is a waste!

When starting from the current situation, you are basically throwing resources back at yourself, ending up either:
1/ being convinced that you were right to start a re-design project or
2/ getting comfortable with the current status quo.

So, get over your legacy mindset and take a completely fresh view of what you do - you might be surprised about how many bright ideas are lurking in your -apparently dormant- organizational layers.

I would even argue whether a proper methodology is needed! Of course you need clear steps on how you execute the re-design (as in: how do you manage transition?), but business process design does not work best with a methodical approach.

More on this next week :-)