From Quote to Cash

Many small businesses suffer from the quote to cash cycle.  With many small business owners that I talk to, who work IN the business, delivering products and services, there is always a challenge to balance workload.

You work hard to get a sale, then work hard to deliver.  In many cases, these jobs are back to back, with a need to start working on the second, the minute the first is completed.

With a build to suit approach, which is where many small businesses start, a lot of time and effort is spent doing a quote or estimate.  Once the sale is made, all focus goes into delivery.  When the job is finished, you start to work on the next one.  Many times, you are too busy to create the invoice.

Most people might say "generating the invoice is the most important part!".  I always felt that, and was surprised at how many businesses don't do it immediately.  I found, surprisingly that many people are focused on delivering the next job.  They react to business critical items, such as paying their suppliers and their staff (or they can't do new jobs), but are very slow to pay themselves.  They often defer creating the invoice until they "have time".

In analyzing the situation with clients, I found the challenge.  Most of these owners hate paperwork and love doing the work.  They don't work at simplifying the paperwork, because it doesn't come easy to them.  They often create complex processes and tools that makes the job hard to do.  Yet they have done all of the real work, they just haven't made it easy to use.

A common example that I have seen is the generation of quotes or estimates in Excel or Word, the generation of the order form in a different product, purchase orders created manually, then invoicing again using a different tool.  Each of these often requires entry of customer information, product information, prices, etc.  Since there is no link between them, the data is entered multiple times.  In many cases, the same information in the quote is again used in the invoice.  Then the data is entered in the accounting program.  To save time, only the basic accounting entries are entered.

The result is that the business is able to do financial statements at the end of the year (often late), but has no understanding of the profitability of products or customers.

A simplified business process would capture the information once at the beginning, provide the ability to generate order confirmation, purchase orders and invoices simply, as well as save time, give you better information about your business, and get invoices to your customers faster.

Sounds like a winning proposition to me.  Why doesn't everybody do it?

Does your software provide the information that you need to run your business?

I read a study a few months ago that identified two key issues about managers in a business:

• 15% or more of a manager's time is spent looking for information.
• 42% make decisions based on bad information, once per week.

Since the role of a manager is to make decisions, and decisions are made based on the information that is available, this means that managers are extremely unproductive (wasting 40% of their time) and ineffective if they make decisions on bad information.

What's the reason for this?

Most of our information today comes from computer systems. They are capable of producing data at a much higher rate than any manager can absorb. What is the problem?

Most software that is installed in a business is installed to handle normal transaction workload, because this is the obvious area. The more transactions that can be handled by the fewest staff creates a more productive environment.

However, hidden in all of these transactions is the data about your business. Unless you can extract this data, it isn't being used to manage your business.

In many assignments that I have taken on, I look for data about the business. By analysing that data, I can find out a lot about the business. It may take a lot of analysis and structuring before I can understand the value. In most cases, what I come up with is not known by the business owners and managers. They have assumptions about what is happenning that conflicts with the data. They don't know, because they don't get this information normally.

Computer systems are a great source of data, but it is useless unless the data can be turned into something useful that can be used to make decisions.

CRM for your business or your sales force?

Customer Relationship Management (CRM) is a big issue for any successful business. The better you manage your relationship with your customers, the more successful you will be at keeping them as your customers. This is why many software companies are in the business of selling software to help you do this.

IF CRM is so important, why is there such a high failure rate in CRM projects. I speak to many people who attempt to implement CRM, and most have the wrong approach. They look to the software as the solution and ignore the people.

In a recent discussion with a sales person, I found a very frustrated individual. The company had decided to implement CRM. He hated it! It created more work and didn't help him do his job. That doesn't sound like it will be a successful project.

To address this problem, you have to understand what CRM is all about. The purpose of CRM is to collect data, so that you can understand your customer better. If you collect bad data, you will have bad information about your customer. If you have bad information, you have no chance of satisfying your customer. If your sales people are frustrated with the CRM software and don't see the value, they will not collect valuable information. There is an old saying that I learned in my early days working with computers: Garbage In, Garbage OUT (GIGO). It applies to the CRM project.

There are two things that you need to do:
1) Define a very clear goal. Show how what you are doing will help you achieve your goal.
2) Ensure that what you are doing with the software will make it easy to capture the information to help reach the goal. The more difficult it is to capture, the less chance you have of reaching your goal.

This means that your sales people and your sales support people need to clearly understand and support the activities. If you don't, you will fail.

You may be able to get your support people to "follow the rules". You will have more difficulty with your sales people. They rend to be independent and are measured differently. Do your assessments of performance measure them on the "new Rules".

When Should you Focus on Process Improvement?

Somebody asked me that recently and I had difficulty answering that question. My view is that you should continually focus on improvement. If you do, then you will minimize the amount of waste in your business.

However, that doesn't help someone who wants to start. There are good times and bad times to start. I'll focus here on good times to start. Once you have it working, it is much easier to maintain.

The good times are when there are major changes in your business. The timing is the same whether you are in a service business or manufacturing.

Typically, when you start a business, you develop solutions to meet your customers needs. The product or service varies depending on what the customer asks for. In your search for customers, you try to be flexible and provide it. This type of business is classified as a custom business. You deliver custom solutions based on your customer's needs. Your business processes are often customized as well.

As your business grows, you find that most of your customers are asking for very similar solutions, so you recognize that you can be much more efficient, perhaps more effective and deliver a better quality service or product, if you standardize. You look at ways to standardize the solutions that you provide. If you standardize your services or products, you also need to standardize your business processes to support it. If not, your business will become more complex and you will waste resources. This business is delivering standard products to a niche market.

The next stage is the mass market. Here there is not only a standard product, but also a very large market. In order to produce in these volumes you need not only standized business processes, but efficient ones as well. Mass market products are usually much cheaper. The business processes that support them must also be much more efficient.

When products are widely available, there is seldom enough market to justify a large number of players. onsolidation is the result. With consolidation, comes mergers. When two or more companies merge, there is significant upheaval. The business processes are different, the software used by the companies is different and often the company culture is very different. Attempts to merge without a review of business processes can be fatal.

To answer the question of when should you focus on your business processes, we look at the changes in the business model. There are three critical situations:

• When you move from custom to standard products.
• When you move from standard to mass market.
• When you enter a merger or joint venture.

Each of these is a critical stage. In general, I have found that growth beyond about 15 people makes it difficult for any manager to keep everything in his head. He needs good business processes which provide him with the information that he needs to manage his business. Good processes require software that support the process.

When you need Information, Think Process

Every business neds information to operate effectively. Much of the information that we use to make decisions is subjective, based on what we think is happenning, or what has happenned in the past. As your business grows and develops, this changes, but our thinking about it often doesn't.

A set of studies done by Kodak described the following:

• 20% of the data that we have in our business is structured.
• 80% of the data that we have is unstructured.
• Unstructured data is growing at a rate of 36%, which means that the problem will continue to grow.

What is unstructured data? Unstructured data is data that is disconnected from our business processes. It is produced by our business processes, but may not be captured automatically nor stored in a consistent form.

What does this mean? It means that when we need this data is required, time is wasted searching for it, or recreating it or finding it. This is time wasted or decisions being made based on outdated or incorrect information. A further element of the study, showed that:

• Most Managers spend 15% of their time searching for information.
• 42% use the wrong information once per week.

Before you suggest that this is a big business problem, I have found that small businesses have the same kinds of problems. When I start to work with an organziation, I ask them what data they have in electronic form and try to analyze what's happening. Invariably, I am able to tell them something that they were unaware of. The problem is that the data is typically not 100% accurate, because it was not captured by a process that was designed for that purpose.

I often see decisions being made due to a lack of information. Attempts to collect the information often fail (except in large businesses where there are resources to do it) because staff are too busy delivering service and they must take time away from this to collect information. This seldom works very well of for very long.

The solution is to make data collection a by product of the process that you design. Most software has an assumed process built in. When you use it the way it was designed, it captures all of the data that you need and allows you to provide the information that you need to make decisions. When you only use the parts that you think you need, you lose all of the information you need for decision making, because not all of this data is captured.

The first thing you should do when you decide to buy new software, is to look at your business process (right after you define your goal and decide which process will help you deliver it). Identify how the software will help you meet your goal, including the information that you will need to make decisions or understand when you are having problems meeting your goal. Collecting the data should not be a major effort. It should be a byproduct of the process.

So when you want information about your business, think process. Design the process that will deliver not only the functionality that you are looking for, but also the information. Use the software as a tool to help you get there.

Bringing the world of Information Technology, Business and Health together

I attended a set of seminars at BITNET (Business and Information Technology Network) yesterday. The presentations were focused on Health Care and its use of technology, and the progress (or lack thereof) that was being made.

A lot of interesting presentations, especially if you are in the Health Care field. But what does it have to do with Small Business? Part of the presentation included the efforts of McMaster University in bringing together three part of the University to develop this area. They have created a structure that brings their Business School, the Health program and their Information Technology program to address the issues.

What a concept!

Much of my BLOG has talked about bringing business and technology together to provide business value and measure success, not by projects or successful technology implementations, but by successful business outcomes.

With McMaster's program, they have brought the needs (the Health Care industry) for information and decision support together with the tools (information Technology) and the Business Management into one group. They have the opportunity to bring business reality to the Health Care needs and Information Technology.

I have seen too many situations where needs are defined as all of the things that I'd like to have, and the solutions developed by an "I can do that" attitude. The results are often a complex technical solution that does little to solve the business problem at too high a cost.

Small Businesses don't need a large, complex organization to develop solutions. They do need technology. They do need to understand the business processes they are addressing and the business outcomes to be delivered. And, they need to keep control of costs. Too often software is installed and business results aren't delivered.

In the Health Care industry, MacMaster is trying to solve that, and I applaud them.

BITNET is expecting to post the presentations on their website. If you want to check them out, see BITNET. For McMaster's eHealth program see eHealth.

Business Analytics and Business Process

Business analytics is a fancy name for getting information about your business. Most small businesses (the size is dependent on who you talk to) will probably not want to talk about business analytics because these projects typically have a big price tag. But whether they are big projects or not isn't the issue. The issue is whether there is value in getting information about your business to allow you to better understand your customers, your costs, etc.

Most small business owners think they understand their business, and they do, to a point. What is surprising are the things that they don't see. As a business grows, things change and from the owner's standpoint, they still look the same. One of the first things that I do when I start an assignment, is to look at data that is already being captured in a company. I also interview staff to get the personal perspective. I invariably find things that surprise owners and managers. Through the interviews, I also find out why this is happenning and what may have caused the change. This helps me to provide advice to the owners and managers on how to address the issues that I found. This isn't even close to what business analytics is doing, but the concept is the same. There is no way that a small business could afford the cost associated with something of significant depth.

Why did I title the article business analytics and business process? Because I found an article that talks about the failure or success of business analytics is based on an understanding of business process. If you don't have a detailed understanding of your business process, you can't get good data and you can't get a good analysis of that data. Bad data means poor decisions.

If you develop good business processes, ensure that your software supports your business process to give you good data, you can analyze that data to help you make good decisions.

More on the Technology mindset

A few days ago, I wrote about "what's your technology mindset?" from two different perspectives: That of the person that was comfortable with technology and one that was not.

This has led me to start asking questions about how people feel about the technology that they use. What is their emotional mindset and is it having an impact on their business? I've come up with a few more reactions.

• "When I need to use technology that I'm not comfortable with, I get anxious and start to stress out. I am reminded of my incompetance."
• "The software that I bought doesn't format my quotes, invoices etc. the right way, so I did it in Excel, because I couldn't figure out how to do it myself and didn't have time to learn."
• "The way I set up my invoices causes my clients confusion and I get calls about it. I can't afford to get someone to fix it right now."

There are two issues at stake here:

1. A feeling of incompetence.
2. A business impact that is not being considered.

Why do some people feel incompetent when it comes to computers? Do you go to a doctor when you get sick? Do you feel that your lack of knowledge of medicine makes you incompetent? Is the general practitioner incompetent when she refers you to a specialist? What makes people think that computers are any different? Is it because you have a personal computer sitting on your desk and you use it every day? Your body is sitting in a chair at your desk every day too and you use it every day.

The Information Technology industry is very broad and there is a need for specialists the same as in medicine. These specialists may see themselves as capable of working in any specialty, but they are not. When they try to be, they create problems for businesses.

If you suffer from this disease, then you need to change your technology mindset. This is the only way to solve the problem. Believe that you know your business, that you know what you need in your business. Find a good technology specialist or generalist that is willing to tell you that he doesn't have the solution to all of your problems, but he knows someone who can solve each one. Get yourslef a business solution to your business problem, not a technology solution to your business problem.

You don't need to be able to solve every problem yourself. You just need to be able to find someone who can............. on your terms.

Tomorrow, I'll talk about the impact of the statements made above on their respective businesses.

Stage 3 - Managing IT for the non-technical manager - Business Information

Many business owners are frustrated that their computers don't just run. Everybody tells them that they need to become more technical. Everybody that tells you that is wrong. You don't need to be more technical. You need to understand how to manage Information Technology so that it supports your business.

The third priority is to look for information that can help you manage your business more effectively. Once your technical infrastructure is stable, and you have all of your transactional activity being captured (This is the result of stage 2, if done properly), you have a large amount of data about your business.

I am always facinated by the amount of data that is available about a business that is not being used. Numerous times, I have gone in to help an organization and asked for electronic copies of data from their systems, that I can analyze. Even though the quality of the data is suspect, the data is incomplete, it gives me an understanding of the business, that often is different from people's assumptions. It allows me to question what's really happening. The problem is that the business managers are not getting this summarized information. They are getting too much detail. They can't see the forest for the trees..

Most systems that are implemented are focused on the transaction process. This is necessary, because if the transactions about the business are not captured, you can run the business effectively. However, this is only the starting point. Once this data is captured, you have an opportunity.

• What is really happening? What are your business volumes?
• Who are your best customers? Are they just large volumes? Are they really profitable?
• Is some part of your business costing you money, but getting hidden by revenues?

Once you have data, you can analyze it. If you are too busy keeping systems operational, you won't look at these opportunities (getting past stage 1). If you can get your business software to capture and process the transactions in your business (getting past stage 2), you won't have the data. If your technology mindset is that computers are something you have to survive, you won't be looking for these opportunities.

Technology mindsets are the limiting factors that prevent you from achieving the value that is available for you, if you are loking for it.

Three elements of IT for small business

Many small business owners that I talk to are frustrated with information technology. They don't understand it, aren't happy with what they are getting and aren't interested in becoming more "technology knowledgeable". The response from most technology people is that they need to be to run a business. They don't need to become technicians, but they do need to understand how to manage technology because their business depends on it. They need to manage it the same way that they manage all other aspects of their business. They need to make it work for them.

In many cases, technology is seen as a jumble, with no difference between the various aspects. If you don't understand it, can't fix it yourself, you lose.

There are three elements and how a small business owner deals with it and the skills that are required are very different. The three elements are:

1. Base infrastructure: the roads, the bridges and the technology that the software runs on.
2. Business software: the component that helps you run your business.
3. Information: What you need to manage your business.

Over the next fews days, I'll be describing each of these elements, their importance and the skills necessary for a business owner to get results from It, without becoming a technical expert.

Managing Your business

I was speaking to a small business owner last week, who is interested in running his business remotely, but was concerned that he wouldn't be able to stay on top of issues while he is away.

When I enquired about being able to track orders and identify problem areas, he mentioned that he doesn't enter orders until he is ready to bill. All orders are generated using WORD. QuickBooks is only used for billing. Therefore he can't tell when orders encounter problems. This seems to be a common problem with small businesses. They utilize the software to make printing and modifying documents easier, as well as tracking financial transactions, but don't use the real power, which is the management of their business.

In this example, if every order was entered in QuickBooks, as well as the supplier purchase order, the whole transaction process would be captured. With this, you know exactly what was ordered, when it was due and can check status and delivery dates. The software can help you to manage your business.

In addition, when you use the software to rack all activities in the business, you now have a wealth of information, about your customers, your sales, your performance. All of this information may not be standard reporting from the software, but all of it is available to help you understand your business.

Understanding your business and making better decisions is what bring value to your expenditures on Information Technology, instead of just being an operational expense.