6 Warning Signs That Your Business is Just Not Scalable.
Updated: Nov 27, 2022
Scalability is a business term often used in connection with start-ups, but it also applies to legacy businesses. For example, suppose you plan on marketing your business for sale in the future. In that case, this is a crucial area potential buyers will investigate.
This post looks at six common warning signs that your business is not scalable from the operational perspective. Business scalability means that as a business's workload expands through growth, efficiency improves, and minimal impact on your daily operations. For example, your business is scalable if your business volume increases 30%-50% year over year with little to no additional workforce. However, suppose you cannot accept further growth without adding additional non-value-added employees, i.e., paper-pushing. In this case, your business is not very scalable.
Our primary client base consists of family-owned & operated manufacturing businesses where these warning signs are commonplace. These are easily fixable through Business Process Improvement (BPI) initiatives and may include technology you already own. The below six warning signs are by no means a complete list but more or less some memory items you may encounter in your day-to-day operations. See if you can spot any of these warning signs in your organization.
1. Spreadsheet Mania (Excel Hell)
Spreadsheets have been in business use for some 30+ years now. In your organization, think about how much effort goes into entering data into spreadsheets and then emailing them around your organization. In addition, your data resides in disparate legacy systems cobbled together over the years by different employees and consultants. Do any of the following bullet points sound familiar?
Spreadsheets are being emailed throughout the organization all day with the latest updates.
The person who created the spreadsheet is no longer with the company, and no one knows how they work.
The spreadsheet used to work well, but over time, users have changed, overwritten, or deleted formulas.
Multiple spreadsheets created by users are stored in shared directories on your servers or, worse, on someone's local hard drive.
There is no "Single Version Of The Truth" (SVOT).
Since 2007, as business process improvement consultants, we have yet to engage with a client who does not have at least some spreadsheets used in the organization. For example, spreadsheets are used for inventory planning, production planning, product costing, human resources, production execution, finance, sales leads, quality control, company picnics, and almost every other imaginable area.
We have also found that companies may already own an expensive centralized Enterprise Resource Planning (ERP) business software package that is underutilized, or the implementation project was never completed. As a result, training fell by the wayside, and users reverted to using spreadsheets because that is what they know, and it is available. Take a good look at your current ERP system capabilities and consider upgrading or replacing if you have outgrown it.
2. Email Overload
Business email, another relic from many decades ago, continues to be one of the most over-used business tools today. For your customers and vendors, it is the primary method of communication over phone calls, letters, faxes, and other legacy forms of communication. However, internal communications with your team members is often overused, unneeded, and unproductive.
When emailing company personnel, one of the first things you need is to figure out who you are sending it to. If an employee is new in an organization, this is not always an easy task, So they email others to find out who to email to resolve an issue Once you have that, then you have to explain what you are trying to accomplish The CC: is the worst part because we are now wasting everyone else's time.
Efficient, scalable businesses only use email to communicate with those outside their organization, such as customers and suppliers, and it is often automated. However, internal communications are handled by Workflow Management Systems, tying together resources, products, customers, documents, and support cases. Workflow Management Systems are typically used as part of a more extensive Customer Relationship Management (CRM) system.
3. Tribal Knowledge
Tribal knowledge refers to any basic unwritten information or knowledge that an individual or department knows that is unknown to others in the same company or even in the same department. Such information normally resides in the mind of specific individuals. Tribal knowledge generally surfaces when the employees who hold it leave the company, take a vacation or are out sick.
For example, a customer receives the wrong item and contacts your sales or customer service department. Valuable time is wasted searching for paper documents in file cabinets, taking trips to the stockroom, speaking with staff, and concluding what happened. Perhaps the regular stockroom staff, with the tribal knowledge, were out sick when the customer's order was shipped. The order was picked & shipped by the replacement staff with what they thought was the correct item. If this sounds like your company's ordinary course of business, it is just not scalable. Root Cause Analysis (RCA) can determine the root cause. From there, you can take corrective action to prevent future occurrences.
In the scenario above, it may be that items and bin locations in your stockroom are not labeled adequately for easy identification. Perhaps the items are mixed in with other items. In any case, there should be a straightforward way to locate items. A stockroom layout diagram and a stockroom locating system eliminate the tribal knowledge of "where things are kept."
4. Paper-Based Processes
The physical printing of customer invoices, purchase orders, shipping documents, and even paper checks is not scalable. Although the buzzword Digital Transformation may sound intimidating initially, it simply boils down to managing your documents electronically. With new working environments of working from home or anywhere, digitizing your paper-based workflows is essential to survival, not just scaling up your business. Before the Covid-19 lockdowns in March 2020, we moved many clients to electronic documents for daily operations. When employees started working from home, all essential documents previously held in rooms of file cabinets were available to them.
Take a quick inventory of your order processing documents and identify which documents you can immediately digitize. For example, customer invoices are usually the best ones to start with. Being able to print to a *pdf and emailing them to customers is a good start. Are you still printing paper checks and mailing them to your vendors? Next, consider electronic payment methods such as ACH and online banking.
5. Process Variation
Process variation means that the same process is done differently by different people. Process variation is somewhat of an oxymoron because a process should not have any variation if done correctly by the steps outlined in the process document. Process variation usually appears when the process owner takes a leave of absence or goes on vacation. The replacement may find a faster or better way to do the process independently without knowing the downstream implications.
The solution to process variation is good documentation of the process. A workflow management system will not allow process variation if set up correctly. Your existing ERP business software system may already have a workflow management system. If it does not, you may want to take a deeper look at upgrading or replacing your current system.
6. Whiteboard Scheduling
Whiteboard scheduling is not scalable if your company uses those old-fashioned whiteboards to schedule customer orders, production orders, or even personal time off. As a result, some companies have eliminated the whiteboards with excessive spreadsheets ( see #1 above, spreadsheet mania). Unfortunately, whiteboards and spreadsheets are always out of date. It is common to see them abandoned to the point of not even being able to erase the last update.
A more effective method of replacing whiteboards is to show near real-time information on TV displays by installing a Digital Signage System. TV screens are located in your warehouses, shop floor, and customer service areas. These systems can be connected to your existing ERP business software and update themselves automatically every few minutes.
The above 6 warning signs are still widespread in many businesses today despite all the technological advances. The common phrase "That's the way we've always done it" is a dangerous mindset to any business. Instead, take a fresh look at your business processes with the help of someone outside of your organization.
Champion Business Solutions, LLC, offers ERP Software selection advice. In addition, we can perform a thorough Business Process Assessment for your software search. For more information don't hesitate to get in touch with us.
Roger Pujol is a business improvement consultant and founder of Champion Business Solutions, LLC. He speaks and writes about encounters helping small to medium-sized businesses (SMBs) improve their business operations.
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