Developing A Standardized Business – Keys To Increased Profitability.

After decades of consultants promoting “best process practices” and “optimal profitability initiatives”, there seems to be an established consensus among corporations that process standardization has a lot to offer in terms of corporate value.  The trick is in determining what components of your business to standardize and what to remain flexible so that you can adapt to market changes swiftly.

Many examples exist in our local marketplace as well as regionally and internationally of businesses incorporating standardized procedures to effect the following:

1. Cost reduction
2. Optimal resource allocation
3. Enhanced time management

Standardization directly affects businesses - wouldn’t it be beneficial to consider creating and implementing policy and procedures manuals if the result included an increase in cash flow and more effective use of the resources you use in your business?

Wang Gang, principal of the Meizhou Dongpo Restaurant Group, an international conglomerate of restaurants and food service facilities that includes manufacturing and processing operations, began in 1995 with one restaurant beside a hospital in Beijing, China.  He worked hard to pay off loans his friends had given him to start his dream, and with business booming from the start, what would become known as the Meizhou Dongpo group has grown into an international empire with operations throughout Asia and North America.

With regard to the growth of his operations, Wang Gang notes that “All the benefits of expansion have been made possible by the implementation of the restaurant’s standardized processes”, and he believes that standardization is key to future expansion or his empire.

You don’t necessarily have to have expansion plans like Wang Gang, but standardization of your business becomes increasingly important in order to work more efficiently, increase cash flow, and be able to expand operations.

So what are the best areas of your business to standardize?  Essentially any component that can be distilled down to a set of processes.   We analyze 4 main areas in the next 4 posts, starting with the production cycle, that, when organized into a distinct and measurable series of tasks, can provide tangible increases to the performance of your business.

1. Standardized Production of Goods – Operating procedures

Whenever producing goods, or services, production departments should have in place a standardized framework to assemble the finished good or complete the service.   That framework should be segregated down to each individual task so that these tasks can be refined and measured for how much their completion contributes to the overall cost and value to the final product or service.

For example, at a popular restaurant, management needs to standardize production of the final product – here an entrée to the diner’s table – to ensure that product deliverables are consistent whenever people dine there.  In this example a consistent dining experience hopefully contributes to the value perceived by the diner and enhances the brand of the restaurant.

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Many tasks are involved in the process of delivering the final product to the diner, but to ensure that the production process includes only those tasks that provide value to the process and to the end experience of the diner, we need to define:

1. What the final product is
2. What defines it’s value

Answering these 2 questions is important because, in order for the end user to retain a perceived value in the product (ie: the entrée), what they perceive as valuable has to be consistent with the value propositions and drivers of the restaurant.

If a restaurant maintains a value proposition of delivering a hot plate of soup to the diner’s table, yet that diner is ambivalent to the temperature of his/her soup, there’s separation between perceived value (from the diner) and delivered value (from the restaurant).

The effectiveness of standardization is maximized when we can confidently combine perceived value by the end user (value drivers) with delivered value by the merchant (value propositions).  Propositions are measured by Value Benchmarks.

For purposes of this restaurant, we define value drivers, propositions and benchmarks as follows:

Table A

As can be seen, the Value Driver column represents that which the restaurant believes are drivers to value in the minds of it’s customers, and the Value Proposition column identifies what the restaurant does to deliver that value to the customer.  Value Benchmarks then measure the success of the Proposition implementation and the legitimacy of the Driver.

Values and Propositions are researched and identified via such means as customer surveys at the restaurant, statistical analysis of local and/or regional data, and customer comment cards with well-placed questions designed to extrapolate information gleaning customer value preferences

Note that a causal relationship exists between the propositions defined above and the value drivers because the propositions naturally evoke a disposition to the value driver.  For example, the very fact that I have a preference to have my food delivered to my table hot yet eatable when it’s delivered me discloses the value that I place on food temperature.  In preparation of assembling and implementing a standardized production cycle, merchants need to gain insight into diner’s value drivers and the propositions which create those drivers.  In other words,

“Here is what will create the value in our restaurant [driver] and this is how we will deliver it [proposition].

A similar causal relationship exists between benchmarks and propositions.

The benchmarks serve as monitoring procedures designed to ensure the attainment of proposition benchmarks, and are a vitally important component of a successful standardized production cycle.

The above table hopefully encapsulates all the important “macro level” Drivers of a successful restaurant production, and we can drill down into each Driver to create its own local production cycles.  Of course, all 4 Value Drivers become linked to collectively contribute to the customer’s overall dining experience

Cycle points in green represent decision points in the process.  A failure grade at this decision level means receding on the red lines back in the cycle to either re-build the order or re-assemble/replace the plate.  It’s also best to put benchmarks at each point in the process and monitor each point to make sure that standards are being maintained.

Benefits to having a standardized procedure for operational areas include being able to continuously monitor performance against a pre-established set of benchmarks, such as those in Table A.  Creating a standardized process just by itself won’t help in maximizing operational effectiveness and profit; there has to be comparison between actual results and standards that, when met, will provide the intended results in the business.

All tasks performed during the production cycle are aimed at facilitating value propositions, which themselves lead to the momentum of value drivers and corporate goals.  Thus provides the main benefit to standardized processes and procedures – a logical and audited / monitored map that takes the business from even the smallest task to the realization of short and long-term strategic goals.

Nicholas Kilpatrick is a partner at the accounting firm of Burgess Kilpatrick. He leads the firm’s consulting and strategy practice and works with companies to enhance their Analytics, Forecasting , and Data Optimization functions. The practice’s focus includes quantitative forecasting, corporate and unit strategy and planning. Please visit our website at www.burgesskilpatrick.com or on Facebook at www.facebook.com/BurgessKilpatrick for more information on our firm.