Value or Non-Value: That is the Question?

There are many dimensions to running a business VANVAthat influence profitability, growth, culture and organization development to name a few. The primary responsibility is to make sure that the business achieves a reasonable return on investment (ROI) in all of the activities and operations that it engages in.

As soon as ROI is mentioned, people may think of a piece of capital equipment but it also refers to any and all investments that the business commits to. This includes not only production equipment but also other investments such as marketing programs, business systems, growing the organization, off-site meetings and customer visits.

Personal Experience
I was often challenge by members of my executive group to invest (spend money). When I asked the question, “How is the benefit of spending money on this project, person or process measured and will it add value or result in non-value?” Often the question killed further interest. Emotional decisions can result in making investments that may be ill advised. Both small and large companies are capable of doing this.

Value Test
Each investment (new and recurring) should pass the test of whether it adds value or not. High performing organizations have effective methods and business disciplines to regularly review cash consuming activities of the business to determine if they add value and are valuable or have slipped to non-value add and are now wasteful.

Example: Industry was a Sleep
One of the biggest faults that a business owner can make is to assume that if an activity is a generally accepted way to conduct business then it must be adding value. A glaring example of this is the way in which many companies “managed” quality for many years. The standard was to have a separate organization that “inspected” the production process at critical stages to make sure that samples met or exceeded standards. The flaw in this process was that the responsibility for the quality of the product was not on the organization or people producing it. This regularly resulted in conflict between quality and production as to what “quality” was. Despite enormous investments committed to policing-in quality, quality problems still reached the customer.

Industry Changed
As a result, international companies emerged. These businesses used a different approach to manage quality in the 70’s and 80’s. Operations management and direct people on the manufacturing line took primary responsibility for the quality of the product. A separate quality organization did not exist. The incidence of poor quality reaching the customer was significantly reduced, the cost of scrapped product was reduced, if not eliminated, and operating margins increased dramatically which resulted in very competitive pricing and high levels of customer satisfaction.

Industry Correction
Companies facing this competition re-evaluated there approach to quality and concluded that the historical and generally accepted approach was not adding value. The result in many cases was the elimination of quality inspectors on the production floor; training employees to manage quality at the operation level, identification and improvement of processes and equipment that produced unsatisfactory variation.

Example: Boeing Attacks Quality
In the late 80’s Boeing instituted new quality procedures for their internal operations and suppliers. Over the ensuing years suppliers to Boeing that adopted the new quality management systems and could demonstrate that their production processes were under control could, in many cases, be authorized to deliver their product right to the assembly point where the parts are put on the plane. Incoming inspection and inventory management were all but eliminated for these parts, which significantly reduces the cost of managing them once they arrive at the assembly plant.

I am not a manufacturing business.
All businesses are capable of harboring non-value added activities that certainly affect profitability; results in poor productivity or employee efficiency and can compromise the customer experience. Bottom line, non-value add produces waste.

Here are 12 questions that you need to ask to identify non-value added activities?

  1. How many steps in the process are not completed correctly the first time?
  2. How many support calls do you get on the same product?
  3. How long does it take to enter an order – ecommerce or inside sales?
  4. How many rejects do you have from your suppliers?
  5. What is the time to ship once the order has been accepted?
  6. How many stock outs do you have that prevent orders from shipping?
  7. Do changes to your product or service result in additional business?
  8. What is your Return On Investment for marketing programs – internet, direct mail, collateral, etc.?
  9. Do you have processes that you regard as “necessary evil” that you don’t understand but you have to have them?
  10. What operations do you not consider as strategic to accomplish your business objectives?
  11. Do your meetings start/end on time and have agendas, publish and distribute assignments, and progress and completion of actions?
  12. If you have a strategic planning process does it produce actions, assign responsibilities and are results and progress measured regularly (quarterly)?

Know Your Business Process
One essential to limiting the impact of non-value add activities is to have your complete business process documented and reviewed at regular intervals by the responsible management of each department and again by your executive team (and you) on an annual basis. The objective is to make sure your actual business activities are in compliance with your process, have changes in your market or competition made some activities obsolete or less effective, or identify activities that can be improved.

If you feel challenged on how to investigate the value-add of your business activities there are several options available to you.

  1. Engage a qualified and recommended consultant with familiarity with your industry.
  2. Join a trade association, which can offer education and training on how to run your business more effectively.
  3. Network with peer CEO’s, owners or senior managers that operate similar businesses, which will provide you insight on what others, are doing to eliminate wasteful activities from their businesses.

You see yourself as a business manager, when in reality you are a value add manager and are called to lead your organization to eradicate non-value add or wasteful activities. This provides a consistent message to your organization, as it is not something that everyone will see as his or her job to do. You will need to overcome human nature that will cause many to assume that it is the other guy or department that needs to change.

Make it known within your business that you always ask the question, “Is it value add or non-value add?”

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