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Operational Excellence Through Competitive Analysis

By Bob Prosen    

 

A set of railroad tracks heading in opposite directionsWhether you’re already in the winner’s circle, on your way to profitability, or still struggling along the way, it is important to have an idea or plan for sustaining and accelerating high-performance results and profitability.

But as expected, at one time or another every company gets off track.

When this happens to successful companies, however, they recognize the problems and get back on track quickly.

Watch for these basic trouble signs when you’re working to achieve and sustain operational excellence:

  • Hazy understanding of your cost structure, including what drives expense in the business and who the owners are for each cost component on the P&L
  • No effective RCA/ICA process in place
  • No plan for automation to increase productivity and reduce costs by eliminating human error
  • Expenses and overhead that are out of control
  • Budget owners who can’t factually explain deviation from plan and who don’t proactively take action to realize the plan

What are the solutions for these operational trouble points that will help you accelerate profitability to new levels?

 Scrutinize Every Dollar Spent

First and foremost, hold finance accountable for providing information to show how all business costs are allocated, including direct costs and variable costs by product, by line of business, even by customer and location, if appropriate.

The formulas used to create these models need to be understood by all so that, when these costs hit the P&L, you don’t spend time arguing about the numbers.

A full understanding of your cost structure also requires knowledge of how costs vary relative to changes in revenue.

Costs in various areas of your business may or may not grow in proportion to revenue, so you have to look for economies of scale along the way.

Talk to cost-center owners.

Determine how much work can be absorbed without increasing the cost structure, and start from there to increase efficiency.

Before increasing personnel, for instance, ask cost-center owners to automate certain functions and to stop doing less important work.

If you’re not comfortable with the answers you’re getting, consider implementing a time-reporting system to determine where people are spending their efforts.

During budget reviews, scrutinize all costs.

Any requests for increases should go through a strict justification process to demonstrate how the cost increase will directly benefit the top or bottom line, improve customer service, or increase your competitive advantage. If they can’t be justified, don’t approve them.

Listen and Learn from Every Complaint

Take an RCA approach to every customer complaint or service problem.

When you eliminate the root cause, you also eliminate costs associated with these problems, and profitability goes up.

Study Your Competition

Especially when pricing becomes an issue, it’s imperative to understand your competition.

You either have to be a lower-cost producer or provide significant differentiation so that your customer is willing to pay a premium for your product or service.

Ultimately, though, the biggest winner is the company with the lowest cost structure.

If your cost structure is higher than your competitors’, devote resources to figuring out why.

A first and second place medal next to a medal with a star on it.

You want to obtain all of the competitive information you can in every legal way possible.

After all, the company with the most intelligence and the ability to translate and execute on that intelligence will win more business and enjoy higher profits.

There’s a reason they call it competition!

To gather competitive intelligence, leaders will want to assume some of the following actions themselves and delegate some to others in the company, including managers and people in sales, marketing, and customer service:

  • Ask questions of your customers to see if they will give you information about your competitors’ products, services, pricing, and support

Depending on your relationships, many times they’ll accommodate your request. The more dissatisfied a customer is with your competitor, the more willing they’ll be to share this information with you.

  • Attend your competitors’ seminars, product announcements, or programs. If they screen you out at the door, so be it. A lot of times they won’t, and you’ll be getting great information.
  • Become a competitor’s customer in a limited way to test products, services, and pricing firsthand
  • Call and ask questions of their sales and technical staffs. Technical people in particular love to talk about their company’s products and services.
  • Read about them. Find every piece of public information that’s written in newspapers, magazines, on the Internet, and on their Web sites.
  • Hire some of their best people, particularly those without a noncompete or where the noncompete has expired to ensure that the employee is not bound by certain restrictions to the other organization

But be careful. You want to avoid lawsuits and keep your competitors from raiding your team in retribution.

  • Visit their booths at trade shows and collect as much information as possible
  • Talk to your competitors’ customers’ procurement staff, and ask what they like best and least about their current products and services

Your competitors’ suppliers may also be a good source of information

The flip side of this, of course, is that your competition may be doing all of this to you.

Educate your people about how to screen out competitors’ attempts and keep proprietary information confidential.

Bottom Line

Every company is built on processes—people following certain procedures to get results.

Remember, don’t get caught up in process paralysis.

The goal is to consistently achieve results that count.

 

image of railroad tracks: 52weekprogram.com 
image of medals: macmillion dictionaries

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