Tag Archives: multi-system

The Hidden System Defect

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“So, you all agree on a path forward,” Sam continued. “This is your problem to solve. We have everyone in the room. Marketing, sales, customer service, production and accounting.”

Marketing began. “We are very proud of our pay-per-click ad campaign. We are delivering more leads at a lower cost than last year and total marketing costs are under budget.”

Sales stepped up. “We have more leads, but our closing ratio is down, way down.”

Production was next. “We know that sales are sluggish. We had finished goods back up on the production floor, so we had to find room to store the excess inventory. Lucky, we found on old warehouse that the real estate group was trying, unsuccessfully, to sell. They were happy we took it off their hands, so that’s where we put the inventory.”

Accounting, always cheery, gave the next report. “Yes, putting that warehouse back in service helped our balance sheet, eliminated a non-performing asset. We saw our holding costs on the inventory were going up, but, that is to be expected if sales are sluggish.”

“There is still a problem,” Sam declared. “Individually, you all, each of you is doing a good job in your respective departments, and I am glad that I didn’t see any finger-pointing. And, we still have a problem. Sales are still sluggish.”

Customer service, Mary, who had been quiet the whole time, finally spoke up. “I was looking over our customer satisfaction surveys yesterday, in preparation for this meeting. We have been getting EXCELLENT responses, especially in our return department. The problem is, we have triple the responses, meaning we have triple the returns. So, in addition to sluggish sales, our product returns are up.”

Sam probed, “And? Why do people say they are returning?”

Mary nodded. “I know this sounds silly, but our customers are saying they found a substitute product with higher quality from another company. And, its a company I never heard of before. We have always had a problem with one of our catch levers, it’s been our biggest customer complaint. This new product doesn’t have any catch levers. It’s designed differently.”

It was Sam’s turn to nod. “So, our sluggish sales and inventory problem looks like it may be a design problem. Why isn’t anyone in here from engineering?”

Want to Scale?

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From the Ask Tom mailbag –

Question:
We want to scale. We know scaling starts with sales, but every time we push our sales volume, things get wobbly. We spend time on the things that are wobbly and realize our sales have dropped. How do we get to the next level?

Response:
While we can be descriptive about the stages a company goes through, understand that in real life, those stages have blurred edges. Transitioning from one stage to the next often happens in fits and starts as you described.

No Man’s Land
Too big to be small and too small to be big. As your sales volume increases, it strains all the other systems in the company. Each system has an output capacity, limits based on its constraints for throughput. And, while each individual system has throughput constraints, so does the entire enterprise.

Except in rare technology business models, most companies that move to the next level also see an increase in headcount. It simply takes more heads to manage all the systems and sub-systems required to satisfy the increase in sales volume.

The complexity of one project sets a pattern. Two simultaneous projects can often be managed the same way as the single project. Three simultaneous projects requires more resources, but it is not much more complex than two simultaneous projects. But, 50 simultaneous projects is another level of work. A project manager cannot punch through 50 simultaneous projects the same way as three.

As sales volume increases, production struggles. As production struggles, some sales promises get delayed, substituted or broken. Sales volume silently recedes until somebody notices.

There is no magic bullet short of understanding what is different. When the organization is small, we keep track of things in our heads. When the organization grows, we have to create a system. And a single serial system is critical to profitability, but still, does NOT mean you have all the ingredients to scale. One system begets another system and soon we have multiple systems and sub-systems. Many companies stay stuck here, some fix it.