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Operational efficiency. It’s the holy grail of business success. Chief Operating Officers are charged with creating operations management systems that root out inefficient processes, lower operating expenses, reduce lead times, and increase profit margins.
Two expert COOs, Steve Raack and Mike Bartikoski, are interim executives with repeated successes at mega-million-dollar corporations. They shared what they learned along the way during a wide-ranging webinar and Q&A moderated by InterimExecs CEO Robert Jordan:
Here’s a recap:
What is Operational Efficiency?
It’s always best to start a conversation with a shared definition. For our purposes here, we’ll use the definition of operational efficiency from Search Business Analytics: It’s the ability of an organization to reduce waste in time, effort, and materials while still producing a high-quality service or product. Companies achieve greater efficiency by cost-effectively streamlining base operations while eliminating redundant processes and waste.
It sounds simple, but as companies around the globe have learned, it’s not. Achieving operational efficiency requires the right business operations executive who can identify the right metrics and create effective workflows that streamline processes and eliminate bottlenecks.
Raack and Bartikoski have seen it all in their combined 30 years spent leading companies to continuous improvement strategies.
Their five recommendations for lowering operating costs, increasing customer satisfaction, and maintaining competitive advantage are:
1. Streamline Workflows
Business performance remains a numbers game, but not all key performance indicators are created equal. Operational efficiency depends on a clear recognition of the best ways to address the “leaky buckets,” says Steve Raack, a COO who has led consumer goods giants, including Beautycounter and Herbalife.
“Leaky buckets to me are typically process controls related to cash flow. Anything to do with paying out commissions to sellers of your products, to challenges with technology holes that we all know exist. You start to plug and improve those holes.”
He does that by breaking down processes into three fundamental groups: order, ship, and pay. As he says: “If you can’t place the order, you can’t ship, and if you can’t ship, then you can’t pay people, and your business starts to have problems.”
In making sure he knows how the cash flows and where the leaky buckets are, Bartikoski says he spends a lot of time on the conversion process.
Key performance indicators he often focuses on range from OEE (Overall Equipment Effectiveness) to throughput, productivity per person hour, supply chain rates like perfect order fill, and inventory turnover days.
“If you can shore those up, then you’re going to have a much better cash flow and much better ability to reinvest to fix your underlying issues,” he says.
2. Focus on Core Business Processes
Upgrading technology can feel like an easy way to lower costs, but people and other non-tech solutions should not be ignored. In short, businesses need to identify what is core in the portfolio and focus on those first, says Mike Bartikoski, a manufacturing and supply chain expert who has run operations for Hershey and Pepsico among others.
“Understanding the whys of the business from a sequential supply chain perspective is really important,” he says. “Then to say, ‘OK, here’s where I should focus some effort to ensure that I’m getting the best bang for the buck.’ Nine times out of ten, those core items tend to be the ones that make the most for your business and carry the reputation of your business.”
In focusing on conversion, Bartikoski often sees that businesses can generate a lot of cash to help drive growth and innovation. He does that by identifying those items that make up 60 to 80 percent of sales and getting more efficient at those.
“It’s really about understanding what’s core within the portfolio and are the resources and processes that support those core items as effective as they could be,” he says.
The key is to answer the question: “Are you as competitive in that space as you believe you are?”
Bartikoski does that by bringing in external benchmarking and “just checking with the market to assure that your core is relevant and well-defended and that your process is really aligned behind that in terms of how you execute and go to market each day.”
3. Process Automation Isn’t the Only Answer
While shiny new technology tends to steal the spotlight, Bartikoski argues that people are a firm’s greatest asset. Companies need to spend far less time looking for ways to reduce headcount and instead looking for ways to meet business goals through employee training and retention.
“We’ve come through this period of wanting to trim costs thinking that people are evil. If you can use automation to shield growth and retain your current employees but divert them to different challenges, you’re way ahead of the game,” he says.
“If you spend too much time trying to minimize the labor input, I think oftentimes you end up minimizing your opportunity for success. It’s falling over dollars to pick up pennies.”
4. Update Resource Utilization
Raack believes the key to operational excellence in the workforce lies in building a strong culture and bridging the generational divide between team members. As a COO, he knows that sustainability in operation improvement requires identifying and overcoming generational differences that could cause friction.
“I’ve been in organizations where the management team is one generation and they’re hiring a totally different generation as the worker bees,” he says. But they don’t take the next step to update the organizational practices that have been in place for 20 years and, therefore, don’t speak to the Gen Zers they are hiring.
Bartikoski agrees, saying that growth can contribute to that feeling too, especially in companies that started as a family business and then went through generational transition. “As a company grows, those thought leaders/owners get a little bit further away from the ground level talent, and eventually that has an impact on the culture in the sense of connectedness.”
To take the corporate culture discussion to another level, companies must tengage all of the stakeholders, he says.
“You can’t sit back and think, ‘Well, we’ve got a great culture.’ It’s a much more competitive market from a culture perspective,” Bartikoski says. “There are kinds of superficial efforts that can be made, and then there are real efforts in understanding what culture is. So, it’s about making sure that you’re not just doing the engagement survey to take a pulse, but you’re doing things about it. You have meaningful programs in place to build skills.”
5. Don’t Expect Technology to be a Silver Bullet
The COOs agree that embracing technology without sufficient strategic planning—or without the right human processes in place to support the technology—is not the path to process improvement. In the worst cases, it can actually cause setbacks on the road to operational efficiency. There cannot be one silo for people and another for technology.
As a case in point, Raack related a story about working at a company where the IT team made a real-time change to the inventory management dashboard without consulting the operations team in a spirit of shared decision-making. A couple of weeks later, “all hell broke loose” when customers reported having no inventory even though the computers showed they had plenty.
Not surprisingly, that simple human error put tremendous stress on the organization as people started playing the blame game.
“It was probably the biggest learning point in my career,” he says. “It taught me to not just look at data.” Instead, he says, it’s important for people to have conversations across departments and share benchmarking KPIs, performance goals, and business intelligence in ways that improve the customer experience.
He also discovered the need to “make sure that the data and the systems are also backed up by touch points with a human being early enough in the process. It’s a perfect example of people versus process. The process failed, so therefore, we started blaming people.”
Bartikoski adds: “It’s a familiar tendency to be reactive and point fingers, as opposed to understanding the issue and putting resources into fixing the process versus scapegoating.” And, he notes, errors can be the greatest source of invention if we learn how to take that energy and use it for efficient optimization of processes longer term.
6. Ditch the Vertical Processes
“I believe that companies are run with horizontal processes,” Raack says. “When those cross three or four different departments, I usually bring them up into what I term as enterprise processes that actually have handoffs. It’s the handoffs that cause a lot of the problems. That’s typically where a lot of communication falls apart.”
Bartkoski says that embracing horizontal methodologies helps get everyone on the same page, which makes the entire business model work more efficiently.
“A key differentiator between firms that are extremely successful, regardless of where they are on the maturity spectrum, is how well they’ve embraced a more collaborative model versus a more vertical command and control model. It adds a lot of speed to the organization as well as agility, because when questions come up, everybody hears the question at the same time, and the response is team-based as opposed to function-based.”
7. Understand the Strengths of an Interim COO
Both Raack and Bartkoski are members of InterimExecs’ RED Team , an elite group of top executives who are experts at growing and fixing companies. Between them, these two COOs have a combined 30 years of experience honed at consumer products and manufacturing companies including Land O’ Frost, the Hershey Company, PepsiCo to Beautycounter, Arbonne, and Herbalife.
They shared a common perspective on the interim COO as someone who is able to come in and assess a company with a fresh perspective, speak frankly, and focus efforts on initiatives that truly move the company’s needle and improve the bottom line.
“I will come in with a non-emotional, data-driven approach and do an audit of your company, kind of a health check where you go to a doctor every six months to a year,” Raack says.
“It’s great that some executives will be open to that and kind of move the ego to the side and say, ‘I do want to move to the next level.’ When you’re close to it every day, sometimes you make decisions that you probably shouldn’t be making. But an outside executive comes in, analyzes certain things without emotion, and shows different perspectives.”
Bartkoski adds: “You can have a leadership team, a board that’s talking about growth, but they’re really kind of focused elsewhere in terms of what their day-to-day actions are. As an interim, you’re able to hold up a light to that. There are always pockets you can point to and say, ‘Do the intentions in this area line up with the actions? Does the real strength of the business fit to what your vision is?’”
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Contact InterimExecs to learn more about how an interim COO from InterimExecs RED Team can help improve process and productivity at your company.