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Team Business Development
A unique approach to rapid business transformation
Successful profit-generating business development means creating not just one barnstorming idea, but instigating, developing and following through on many practical and realistic ideas simultaneously and throughout the company. Integrating and implementing such a diverse range of improvements all at the same time is the role of TBD's Hoshin Kanri rapid business transformation programme.
Typically, when we introduce Hoshin Kanri into a company, the planning team instigates thirty or forty methodically implemented, short-term improvement plans. These action plans all emerge as a response to a range of detailed feedback from staff and other stakeholders. The accumulative impact is to literally transform a company’s productivity and profitability in a matter of weeks.
How is this possible?
The reason is that, improvement projects are often closely interrelated and interdependent and this complex interconnection needs to be coordinated to avoid waste, delays, unintended consequences, duplication of effort and conflict. We accomplish this coordination and alignment with overall strategy in the forum of the Hoshin Kanri planning team workshops and progress reviews.
Thus the successful implementation of one idea has a positive knock on effect on the development and operation of other aspects of the company and other projects. With Hoshin Kanri, there is a ripple effect throughout the company, as all the integrated improvements tend to compound improvements elsewhere and vice versa.
One way of demonstrating this unique planning feature is to use the four profit drivers’ matrix as a model.
Arithmetically speaking there are only four fundamental ways to increase your profit. What that means is that, of all the possible strategies, tactics, devices, new technologies and products that you can devise to increase profits, they all fall into one of four drivers of profitability. In essence if you want to increase your profit you have to work on all four “profit drivers” AT THE SAME TIME, and this means your team has to plan to:
1. Increase your sales volume,
2. Increase your sales price,
3. Reduce your unit costs, and
4. Reduce your overheads per unit of sale.
Of course the key success factor here is that any changes you might make to any one of the above drivers has to be carried out without an adverse change being experienced in one of the others as a result. Let’s look at an example.
You might manage to lower your variable costs but then find that as a result you have damaged your quality. As a result of the quality problems you then find that this cost saving has had a detrimental impact on either price or sales volume or even worse - both of them. So in this case a lowered variable or direct costs might actually reduce your profits.
Or another example; you may have raised your sales volume but at the expense of increasing fixed costs with an extra sales salary and reduced sales prices due to discounting. So again your actual profit might go down.
Obviously then, you have to watch that the benefits are not cancelled out by the disadvantages, or that any extra costs are more than compensated by extra benefits. However, this model demonstrates that the larger the improvement of one driver, then the more this might create a strain on one or more of the other three drivers.
The first trick is to generate a large number of apparently small improvements within each profit driver that combine to improve that particular driver significantly without detrimentally impacting the other three.
The second trick is to aim to improve all four of the profit drivers at the same time. What happens then is that you achieve the multiplier effect where even small increases in each driver have an incremental effect and accumulate to become a huge increase in net profit.
…. % increase +
…. % increase +
40% of sales
….. % down +
…. % down
= IMPROVED PROFIT
The matrix helps to demonstrate the compound effect of each improvement
The challenge here, as you will see, is how can you possibly identify, plan, coordinate and implement all the large number of improvements needed to make a real overall difference. This is where TBD’s Hoshin Kanri team planning can help.
The outcome of the first TBD planning workshop is the instigation of a Management Action Plan (MAP). This MAP comprises a schedule of anything between twenty or fifty prioritized and delegated semi-autonomous “improvement projects” or “action plans”. Each of these projects improves the profitability of at least one or more of the four profit drivers.
A number of TBD’s key features enhance the ability of the MAP to have a real and sustainable impact. These features include:
A typical example could be a small manufacturing company with the following basic statistics:
Average sales price: £2,000
Average sales volume: 1,000 units
Unit costs: 40% of sales
Net profit: £100,000
Lets assume the TBD planning workshops create a MAP that introduces thirty or forty improvement projects. These projects then have an impact across the four profit drivers as follows:
Sales volume driver: Several projects increase sales volume by 10% yielding £200,000 extra turnover to create a new turnover of £2,200,000. Examples of low cost improvements to this particular driver might include:
Sales price driver: Numerous projects combine to create an additional 5% increase in price. This increases the new level of turnover by a further £110,000 to a turnover of £2,310,000. Examples of improvements here include:
Unit cost driver: Various improvement projects generate a 5% reduction in unit costs and this creates a new gross profit of £1,501,500. Low cost improvements achieved for this driver might involve:
Overhead rate driver: A range of different improvement projects might reduce overheads by 5% and this would produce overhead costs of £1,045,000. Improvements generated here typically involve:
The overall effect of these small improvements taking place in each profit driver is a new net profit of £456,500 or 4.5 times the current net profit of £100,000.
Generating such a steep rise in profitability creates a commensurate and dramatic increase in the capital value of the business. Assuming an average multiplier of five times the net profit, this business will see a rise in value from £500,000 to £2,282,500 providing an extra £1,782,500 of value to the owner.
“We’ve achieved more changes in six weeks with
these team planning workshops than I’ve seen in twenty years of my time here.” Dave Medhurst Projects Coordinator Steelfields Concrete Batching Plant Manufacturer.
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