Blog: Dan E. Linstedt

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Profitability in all business cycles - part 1

Business should understand how decreasing cycle time, improving quality, straightening out business processes all lead to increased profitability. Business should also understand that profitability is directly tied to traceability and accountability both in Business and in the data that business deals with. In these entries we explore the connected notions of cycle time, quality (data and business process), business accountability, and success.

In math, What is the shortest distance between two points?
A straight line.

Can anyone tell me what the shortest distance between Customer Contact and Delivery of goods or services is?
Again, a straight line - through the business that is.

What does the straight line represent?
Profitability - basic formula: costs and overhead increase, customer satisfaction decreases as business processes internally become more complex, or require more than necessary manual intervention.

Machines do a wonderful job of tracking data, massive amounts of it - humans do a wonderful job of turning that data into information and making it useful for organizations. However somewhere in the mix, the real "business" that earns profit is lost in translation when the machines are given complex tasks, and dirty data. Information quality and location, along with business accountability/complexity are two key factors to profitability measurement.

The straight line in business should run from first point of customer contact through all the business processes to delivery of the final goods or services. But I'm sure you already know this.

For instance, most extremely large manufacturing businesses have a cycle as follows:
Sales->Contracts->Finance->Planning->Manufacturing->Quality->Delivery.

Each cycle is represented by business units. Each business unit typically owns it's own "data" and operational systems, each business unit typically uses it's own "customer key" to represent a customer throughout the life-cycle. Furthermore there are many major and minor processes in each of these business units that alter and change the customer data. Finally, as the hand-off of the customer account occurs (from one business unit to the next), the customer account numbers frequently change.

What I'm saying is:
1. most businesses do not have a straight line through their business processes, causing confusion, increase in overhead costs, delays in delivery down stream.
2. Most businesses change the data within their business units - creating "kingdoms, fiefdoms" of data ownership when in fact, all that does is hurt and hinder the overall business effort.
3. Most business units in this situation don't talk to one another, believing their "version of the truth" is absolute and correct, even if the other units financials are "off" by a little bit.

Bottom line for this series (the theme) is to answer: how does this affect my profitability? You may have heard of this approach in the 80's, called Lean Initiatives, or Cycle Time Reduction - these days they call it BAM (business activity management) or BPM - business process management. However, these particular concepts roll up into something bigger: TBM (Total Business Management - which includes activities, processes, data, quality of data, accountability, profitability, overhead costs, and so on).

As this series progresses, we will discuss examples of problems, and possible solutions. For now, if you care to sound off about what you see in your organization, that would be wonderful. In the mean-time, I've been asked to talk about the data modeling and architecture sides of this house at the IQ conference in Houston, TX (september). Hope to see you there.

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