Boriana Valentinova

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The complete guide to transform operations

Any business’s strategic agenda includes a plan to eventually transform and improve operations. Streamlining operations or eliminating waste in processes to improve efficiency and competitiveness is part of the business life cycle. However, there is the market wisdom that starting a company is more manageable than transforming an existing one. And it is a fact that many transformations fail. Management gets stuck, employees become demotivated, and customers slowly drift away. 

Why is this happening? There are many reasons, but all the market studies narrow them down to four main groupings:

  • Poorly defined scope of transformation
  • Failure to understand market trends
  • Internal bottlenecks
  • Poor project management
  • Poor resistance to change management

This article aims to provide a holistic 10-step strategy to successfully implement business transformation and tackle resistance to change. Hence avoid falling into the statistics of failed businesses.

Let’s begin with setting clear transformational goals and understanding your customer.

1. Define your goals

What do you want to achieve and why? Translate a vision, mission or even an emergency into a SMART goal. If it is too ambitious in scope, break the overall goal into specific objectives. Set clear timeframes. It is 80% probable that you will not fulfil these timeframes, but they will help you shape the transformation as a project initiative with a beginning, an end and a goal. Once you are done with the overall goal setting, assign a team or a project manager who will lead this transformation with a direct reporting line to whoever is on the top level, the CEO, the company owner, and the start-up founder. 

smart goals
Set Smart Transformational Goals

2. Collect customer feedback

Be customer-centred. Collect and analyse market data to transform operations. You might think you know what you have to do, but asking the customer and working with the feedback provided, will give you additional insights into specific pain points. And the way to receive that feedback is to make it as easy as possible for the customers to communicate with you. Install KPIs such as CSAT or NPS, have a hotline for complaints and have a suggestion box for improvements or F&A on your website. Perform customer journey frequently. 

With all that feedback you collect, brainstorm ideas on how to change your company to improve products and services, whether to speed product development or work on decreasing defects, even looking for ways to reduce cost structures and offer more competitive pricing. Then, visualise improvements so you can deliver the value customers expect. 

customer journey map
Customer journey map example for brainstorming

3. Ask for employee feedback to transform operations

Nobody knows better the bread and butter of your company operations than your employees. They deal with the tasks daily and know how much rework, overprocessing, inventory, movements and delays happen. They also understand your customer because they get the returns, complaints, and unsold stock. They also have social circles in which they read or exchange information about what they do, their jobs and, in general, the market. 

Incorporate a suggestion box with improvement ideas, but especially put in place a process for implementing those ideas. When transforming operations and making changes, involve your employees. Use Kaizen or Agile Teams for idea generation, process improvement and brainstorming. 

With all this input, your transformational goal, customers’ and employees’ feedbacks turn to analyse your processes.

4. Identify the bottlenecks that slow you down

A bottleneck in business is any stopper that handicaps smooth process flow. It could be a broken down machine on the shop floor, a decision maker being absent, a supplier delivering with delays, the cloud storage capacity… Bottlenecks are crucial to be discovered as they are the root cause of many inefficiencies, but they can be challenging to spot. One way to find them when you want to transform operations, is by looking at your inventories; anywhere you see high inventory levels (physical or electronic), delays in decision-making, product development or customer service, you will find bottlenecks. 

Optimising efficiency and productivity without discovering the bottlenecks is a wasted effort (and money). You can go only as fast as the slowest bottleneck in your value chain, no matter how digital, lean or agile you are in the rest of your business processes.

5. Look for value-adding and non-value-adding activities

In workflows and process steps, we generate two types of activities. 

First, the value-adding activities are the ones that add value to the product, and the customer is prepared to pay for them. These activities transform the raw material or data into a final product or service—for example, the process of updating information on stock prices in the bank app.

Second, other activities do not add any value to the final outcome (they do not transform the product or service). However, they are necessary because of the shortcomings of your processes, assets, IT, or facilities—for example, additional transportation costs of goods between warehouses. Such activities force you to increase prices, but your customers faced with higher prices will shift to the competition. And you don’t want that to happen.

Usually, the ratio of value-adding activities to non-value-adding activities is 1:9. Yes! It is shocking, but it is a fact and a huge opportunity for improvement, transforming operations, achieving efficiencies, and increasing productivity. We group such activities into the 7 areas of waste:  

the 7 areas of waste in lean manufacturing
Transportation - Inventory - Movement - Waiting - Overproduction - Overprocessing - Defects

You have to look for such non-value activities in all your processes. They are present everywhere in any shape or form: sales and marketing, product development, manufacturing (if you have any), supply chain, your business IT systems, human resource structure, etc.

6. Draw your current state

If a picture is worth 1000 words, a process map is probably worth double. It is like looking at human tissue under a microscope. You see the whole picture. Those boxes, arrows, and joining points help understand how different parts interact, the dependencies and where the waste or the bottlenecks are in the workflow.

You can’t possibly represent an entire process on one map. So instead, you need to split it into levels. The first level is a high overview of the main steps in a process. The second level describes the sub-process for each of the main steps, and the third level can either be another level or directly the SOPs (standard operation procedures).

On the process maps, you should also represent decision-making points, data storage, and the suppliers’ or contractors’ relationships. 

Finally, you can mark the improvement points, which will make the list of actions you must implement to improve.

Alternatively, you can use VSM for detailed analysis to transform operations in specific areas.

value stream mapping
Example Value Stream Mapping with Improvement Areas

7. Calculate savings

All businesses count on limited resources (time, money, assets, and people) otherwise would be making a limitless profit—forever. But, unfortunately, that is not the case in our societies. So, you have to prioritise. Also, you have to get all the stakeholders to agree on priorities and actions. And that is a massive challenge, as not everyone has the exact expectations or agenda. Change brings discomfort, and you need the buy-in from everyone important on your team. One way to do that is by calculating the savings the transformation will get and leveraging this objective data to convince everyone. 

Here are a few examples of how to calculate savings when transforming operations:

  • Headcount Reduction = Number of Head Reduced * (Compensation Per Year + Benefits Per Year)
  • Scrap Savings = (Scrap Units Before Project – Scrap Units After Project) * $ Write-Off Per Unit = Scrap % Reduction * Annualised Scrap in Currency
  • Rework = Rework Units * Conversion Cost to Rework Per Unit
  • Operating expenses (e.g. Maintenance, Leased Contract Services, Utilities, Suppliers, Packaging, Freight) = Change in Cost Before and After the Improvements 
  • Plant efficiency from Increased capacity or efficiency = Salvage Value of Plant and Equipment
  • Reduced Accounts Receivables from Improved Collections = (Improved Collection Number of Days * Average Sales)/Days in Year
  • Reduced Inventory = (Inventory levels before improvements – Inventory levels after improvements)*Cost WIP
  • Savings from faster product development process = (Days to market before – Days to market after) * Cost Overhead
  • Productivity savings = FTE hours/transaction after improvements – FTE hours/transaction before improvements

Nevertheless, it is not all about savings.

Let’s suppose your goal is to install a healthier working environment. Your main concern is reducing employee rotation and increasing their engagement with the company. In that case, you will have to implement changes that will not necessarily improve your bottom line. An example is investing in training and learning for your employees rather than increasing productivity.

Such improvements can be measured by:

  • Reduced level of absenteeism
  • Increase of employee life cycle in the company
  • Idea generation from employees
  • Employees turnover (should be decreasing)
  • The company mentions and posts resharing on social media
  • Referrals for job openings
  • Reduced cost in recruitment and onboarding

8. Design your future processes

So far, you’ve drawn your processes, identified areas for improvement and quantified savings. As a result, you have a complete overview of your current situation and the potential for progress. You probably also know your action plan, or at least your high-level roadmap. 

But there are a few more steps to perform before setting up the teams to transform operations. One of them is drawing the future outlook process maps. For example, what will your business model look like, including workflows, teams, IT, and metrics? How will the materials and information flow? What will be the forthcoming dependencies between teams? At which process steps or decision-making points will they interact? 

The future process outlook should also include an IT map – the data and information flow, enrichment, storage, and analysis. 

Write the new SOP for each process without going into too much detail. The teams will develop them more in-depth as they implement the changes, as things frequently change during execution. 

9. Design your organisational chart, R&R

Depending on your improvement focus, you might need to change your organisational structure to transform operations. Especially if you are undergoing restructuring, choose functional, matrix or mixed design depending on the size of your business. Each model comes with associated Roles and Responsibilities for each position and span of control (the area of activity and number of functions, people, or things for which an individual or organisation is responsible).

Use the RACI matrix to describe new roles and responsibilities, especially if you’ve created end-to-end processes or complex interdepartmental workflows. 

organizational structure

10. KPIs to transform operations

Business model changes inevitably bring new ways to measure performance. From operational metrics, such as cycle time or # of complaints, to strategic KPIs, like market share growth and EBITDA, you must implement management by objectives.

Small companies that grow or transform operations find this change intimidating as they are more used to ‘guts feeling’ and perceptions due to a more relaxed, camaraderie-oriented working environment. Data brings transparency, and transparency brings accountability. Many welcome such a change because it clarifies what is expected from them and what they must achieve to transform operations. But a few will leave. And that should not be a problem, don’t take it personally. It is a normal reaction to change. Just make sure the people who stay are open to assuming responsibilities.

kpis and metrics dashboard
Example KPIs and Metrics Dashboard

11. Governance model

One of the most frequently seen inefficiencies in business (especially growing companies) is the time lost in non-productive meetings. It can account for many hours and hence money. So, with the new organisational structure in hand, define your future governance model: who and how will often meet for what purpose.

12. Gap analysis and action plan

With the present and future outlook, you can visualise the gap that needs to be filled to transform your operations. At this point, you have to start developing an action plan to fill that gap. All the improvement activities you have outlined fall into place here. However, sometimes it takes more than the improvements you’ve identified. For example, you might need to implement a new IT system, train your personnel, or get a new management team member to make it work together as a system. It would be best if you placed all these ‘complementary’ activities in your action plan. In any investment involved, calculate it as well as the expected return. 

A best practice is to start any transformation with actions that will bring some quick wins. This strategy will build up teams’ confidence, motivation, and a positive working environment. Quick wins are changes that require less effort and allow you to see results almost immediately.

When deciding on the action plan, consider the following: budget needed, assets, resources (especially teams and SMEs tend to be crucial) and time/holidays.

We can represent the detailed action plan in a Gantt chart. 

Gantt chart
Created with Smartsheet.com

A Gantt chart shows activities (tasks or events) displayed against time. It also includes a completion column, allowing it to represent the percentage of progress. One of the most advanced features of these charts is the critical path. It shows the dependency between activities and resource constraints. So, you can make changes and take decisions regarding the sequence or the timing of the implementation.

13. Launch a pilot involving your team

Finally, you have all the pieces of the puzzle. The overall picture looks good. Now you need to execute. In other words, you need to implement the changes. 

As I mentioned above, ideally, you’ve identified a few quick wins and will get a team to implement them. So, run it as a pilot project using either the Agile or Kaizen method. On the other hand, if you are implementing something completely new, expecting inevitable chaos and uncertainty, and need specific idea generation from your teams, use Agile sprints.

If, on the other hand, the upcoming changes are predictable because your processes are stable and the transactions repeatable, go for Kaizen teams. 

Communicate the initiative to the whole organisation and be prepared to record the lessons learned from his pilot, adjust your action plan (if need be) and then launch the following improvement projects.

14. Manage resistance to change when transforming operations

I’m describing this point here, in the end, not because it comes last or is less important, but because, by now, you have a good idea of the steps in a transformational journey. And along all those steps, resistance to change is present, and it comes from everywhere, especially your stakeholders. 

A stakeholder is any person who has a direct interest or is somehow affected by your transformation. In big organisations, the stakeholders are your bosses, team, managers, or colleagues from other departments. In smaller businesses, those can also be your partners. You must inform them about your actions even if you don’t directly report to them, even if you were the boss. And that is because you need their buy-in, assistance, knowledge, and help. 

Unfortunately, this relationship is what many business leaders fail to understand, play down its importance, and manage with an authoritarian style. Consequently, they face enormous resistance to change. When people don’t know what you’re doing, they consider any action against the status quo a threat to their comfort zone. As a result, they can make it difficult for you to move forward and achieve results. 

Two simple but effective strategies help manage resistance to change: communication and sharing success. So, when you plan to start a business or transform an existing one, identify your stakeholders, communicate your plans and bring everybody on the same page. Address their concerns. Share progress continuously, and involve them in the decision-making. Use negotiation techniques and apply the 20-60-20 golden rule in change management. Then, share success with everyone when you start seeing improvements and positive results. Make them feel they’ve been crucial to this essential business journey.