Business Systems and Processes^.

The Systems Thinker Blog

The Root Cause of Our Failing Economy

20 May 2009

Our economy, our culture, and our way of life are tanking. Why? The smart people in Washington do not understand one fundamental and critical principle.

As a Systems Thinker, I see the root cause of our national problems as a failure of leaders to define and employ effective systems of government. Self-interest, unprincipled ideologies, and political maneuverings have replaced constitutionally-based and common-sense solutions. How can so many smart people be so dumb? We need good government “systems” to replace bureaucracy!”

Let systems replace bureaucracy

System Failure

With regard to the economy, Arian Forrest Nevin, J.D., author of National Economy: The Way to Abundance, said:

“The economy continues to decline solely because the money and economic system are not properly understood and structured. If we had the proper systems and a correct understanding of the relationship between money and physical wealth, the economy would immediately begin to improve. Physically we are capable of improving the economy right now.”

Every problem in our economy can be traced to a system that is operating contrary to the laws, principles, or best practices that govern economic outcomes. The people running our country do not seem to understand Cause and Effect!

For example, government leaders think they can fix the economic crisis by cheating—by simply printing more money. They think they can add government jobs (what you and I call overhead) to make up for the loss of private-sector jobs that produce real wealth. They think the best way to get out of debt is to run up more debt at an accelerated pace. They don’t seem to learn from ineffective government and economic systems in the world today, nor from our own country’s tried and failed systems of the past.

You and I, however, do not have that luxury of breaking economic laws. We must pay for any personal violations; and because of our government’s misguided kindness, we also get to share in the cost of others who break financial laws, including our government!

Mr. Nevin went on to say:

“Economists like to pretend that the economy is like the weather, sometimes good and sometimes bad. There are bad spots we just have to endure. Why? There is no physical reason. Our ability to work and produce has not changed at all. The dishonest money system causes economic instability resulting in cycles of boom and bust. The simple solution to the problems caused by the dishonest money system is an honest money system.” (Emphasis added).

Put Systems Thinkers in Government

Laws and proven principles should dictate the actions of government systems to “promote the general welfare” of the people of this nation. If we had Systems Thinkers in government, we would:

Define the problems of our nation and the desired outcome we seek.
Apply laws, principles, and best practices to create effective systems and processes.
Measure the results of the systems against desired outcomes.
Get rid of systems that do not produce expected results.
Refine and improve the effective systems to continually reduce waste and increase performance.

Pretty simple! I should run for office.

If we had politicians who applied Systems Thinking to our national problems—the economy, education, healthcare, and so forth—and who are honest and loyal to the Constitution, our country would be back on top in no time.

You can help by becoming a Systems Thinker yourself. Start improving your business and your life, one system at a time.

Try the 5-Whys Problem-Solving Tool!

Ron Carroll

13 May 2009

We all experience daily frustrations and problems in the operation of our business. However, the underlying causes are not always apparent. The Toyota Motor Company encourages managers to go to the faulty business process and watch it in action. Mistakes, errors, and waste are often uncovered using simple observation and logic. The Toyota Production System also applies another technique called the “5-Whys Analysis” to quickly drill-down to the root cause of operational problems.

5-Whys Analysis

Although a simple method, the 5-Whys Analysis can be very effective, especially when your problems involve human factors and interaction. By repeatedly asking the question, “Why—what caused this problem,” your thinking quickly peels away layers of symptoms and guides you to the true source of your trouble.

The origin of your problem will often be surprising and unexpected. You may uncover it in some other process or department. It may even be out of your control to fix. By the time you drill-down to the fourth or fifth “why,” you will likely be looking squarely at your management practices.

How to Perform a 5-Whys Analysis

To complete a 5-Whys Analysis, follow the three easy steps below:

Write down your specific business problem clearly and completely. A good statement of the problem often points to its own solution.
Ask “why” the problem happens and write your answer.
Continue asking “why” to the previous answer until you or others agree that the problem’s root cause has been identified. (You may ask “why” fewer or more than five times.)

Let’s look at this real example from a photo-frame manufacturer to see how the 5-Whys Analysis revealed an unexpected root cause.

Problem: Too many photo-frames are returned by customers for a refund.

Question 1: Why are the photo-frames returned?
Answer: Because the paint finish on the frame is sometimes scratched.

Question 2: Why are so many frames scratched?
Answer: Because some painted frames, after drying, are stored on pallets without any protection between layers.

Question 3: Why are frames stored without protective layers?
Answer: Because the paint department sometimes runs out of the protective cardboard sheets.

Question 4: Why does the paint department run out of cardboard sheets?
Answer: Because the cardboard stock isn’t always ordered on time.

Question 5: Why isn’t the cardboard ordered on time?
Answer: Because the purchasing person is overloaded, and the cardboard is not a high priority.

You have just discovered that there are too many photo-frames returned (defective) because of a letdown in the purchasing system. Should you increase inventory on cardboard layers? Would paying the purchasing person overtime to get the cardboard ordered cost less than the returned merchandise and lost customers? Should you hire another purchasing agent? Can you make the purchasing system more efficient? Once the problem is correctly identified, several solutions become evident.

Ask Good Questions

If you know how to ask good, successive “why” questions, and are able to ask them of the right people, you will find at least one root cause for a given problem. This approach takes very little time to perform—five minutes—and does not require the use of special analysis tools. When your people become familiar with the 5-Whys exercise, it can be a fast and easy way to get at the source of daily problems.

Caution: Don’t stop asking “why” until you are satisfied that there is no deeper cause worth pursuing. By stopping the questions too early, you will identify intermediate causes that may address the problem but not solve it completely and permanently. Keep in mind that this approach generally leads to one root cause. If a “why” question leads to more than one answer, go down each path to uncover multiple root causes. Be careful not to let the 5-Whys method lead to an atmosphere of blaming people. Remember, your faulty systems or processes are usually to blame, not your people.

Go try the 5-Whys Analysis today on one of your persistent business problems. It is another weapon in the arsenal of the Systems Thinker.

Cut Costs Like the Big Boys!

Ron Carroll

6 May 2009

Do you get up every morning thinking about how you can improve your business? Improvement should be the most fundamental goal of every business owner and entrepreneur. Says who? One of the largest and most successful companies in the world, that’s who!

Continuous and unrelenting effort to improve business systems and processes is the only way to develop excellence in people and organizations. Each day provides new opportunities!

In marketing and sales, we strive to improve our methods for finding good customers. In operations, we focus on improving the customer experience and on taking costs out of the business.

How to Cut Costs

The only way to remove costs is to eliminate waste—the defects and delays found in every business process. Your business operation is riddled with waste, most of which goes unnoticed.

A faucet dripping one drop per second wastes over 2000 gallons in a year. Similarly, the small leaks in your business systems and processes are costing you thousands of dollars annually.

So, what are you going to do about it? I suggest you take the advice of those who have built the world-class organization I referred to earlier. Please watch this one-minute, eye-opening video! (RSS Feeds click here to view video)

Now, do you see that even the big boys do little things to plug the leaks in their business systems? For Wal-Mart, the space between boxes on a conveyor belt is waste; it represents lost time in the process of dispatching millions of boxes and thousands of trucks from their distribution centers each day.

Furthermore, it used to be a common practice for fabric-store clerks to give the customer an extra thumbs-worth of material to be sure they had enough. It was also common to measure a yard of fabric and then fold it over twice for a three-yard purchase. Wal-Mart taught its managers how to improve their system for measuring fabric, an annual saving of about $2500 per store (11,000 stores), or an astounding $27,500,000!

Improve Your Business Systems

You have the same problem as Wal-Mart but on a smaller scale. So, start thinking about how you can take the waste out of your business systems and processes—how you can take costs out of your business.

A few saved dollars here and there add up quickly. With a day’s worth of savings, you could treat your favorite person to a night on the town, by the end of a month—a summer cruise, by the end of a year—maybe a vacation home on the beach. It all starts with plugging the leaks, one business system at a time!

Poka Yoke: Mistake-Proof Your Business Systems

Ron Carroll

29 Apr 2009

We all make mistakes. It’s part of being human. We lose our car keys; we mail a bill with an unsigned check; we flip the wrong light switch. (As a boy, my parents always said it cost a dollar every time you turn on a light, even for an instant.) In our personal lives, we just accept these minor mistakes. Although, a childhood friend accidentally had the wrong tooth pulled—not so minor.

We all understand that mistakes happen—”no one is perfect”—but in business, repetitive mistakes can’t be ignored. They drive away customers and create waste; the cost comes straight out of your net profit.

The Systems Thinker looks for simple solutions and procedures to eliminate the cost and consequences of these inadvertent errors.

Poka Yoke

Poka Yoke is a Japanese term that describes “making something fail-safe or mistake-proof.” Poka means “an inadvertent mistake.” Yoke means, “prevent.”

Everyday examples include:

An electrical plug that can only be put into the socket one way
A bathtub or swimming pool with an overflow outlet
A sensor on an elevator that prevents the door from closing on people
A circuit breaker that shuts off when the electric current spikes
An orange cone that protects road maintenance workers
A software spellchecker that corrects misspelled words

An often used Poka Yoke in business is the checklist. It helps employees to be thorough, and if necessary, do things in the right order. Email alerts and notifications prevent forgetfulness. The alarm that sounds when a forklift backs up, rubber bumpers on a pushcart, and a “slippery when wet” sign, are all examples of things that prevent mistakes, accidents, and damage.

When your tax person puts several little stickies on pages of your tax return that say “Sign Here,” he or she is trying to eliminate the accidental error of not signing one of the pages, a mistake that will cause you unnecessary delay and hassle in getting your tax refund.

This past week I took my wife into same-day surgery to have a procedure performed on her wrist. In the waiting room, the physician’s assistant verified with her that it was the left wrist. He then stamped the wrist with the word “Yes” to make sure there was no confusion in the operating room. This procedure eliminates the hospital’s risk of performing surgery on the wrong hand, foot, limb, and so forth. The physician’s assistant also told me that the procedure was written in plain language on the patient’s record—not cryptic medical jargon—and that the attending staff take a time-out before the procedure for one last review of what they are about to do. These important little steps prevent big problems later on.

Improve Quality with Poka Yoke

Do you see how simple, low-cost procedures can really improve the quality of your business operations? Pause for a minute to consider a solution for one of my first examples: lost car keys, mailed checks without a signature, or inadvertently flipping the wrong light switch. Send me a quick note explaining how you would easily solve the problem.

Then, put Poka Yoke to work in your business systems and processes. Talk to your employees about re-occurring mistakes. Be careful not to blame people; let them know you are looking for weaknesses in the system. The worker may need to record the errors for a period of time so you can more clearly understand the problem. Come up with a Poka Yoke solution to eliminate the mistake once and for all!

Your simple solution will create happier customers, put a few more dollars in your pocket, and reduce some of your daily frustration.

But remember, little improvements add up, and make a big difference over the course of time. It is true that “by small and simple things are great things brought to pass!”

Related Article:
Cut Costs with this Simple System!

Put the Right People into Remarkable Business Systems!

Ron Carroll

22 Apr 2009

People are your greatest asset! So, if you are frustrated with poor performance, low productivity, sloppy work, excessive mistakes, wasted time, and a variety of other “people” problems, perhaps Michael Gerber, author of E-Myth Revisited, has the answer.

Frustration with Employees

He declared:

“YOU are the problem.
YOU have always been the problem.
YOU will always be the problem,
Until YOU change!”

“Denial ain’t just a river in Egypt,” said Mark Twain.

YOU are the problem because you have failed to put good people into well-designed and effective business systems and processes. When you blame people, you divert attention from the real problem—the faulty business system that YOU are responsible for!

Do Your Business Systems Include These Elements?

People are the most important and expensive component in nearly all business systems and processes. To get the maximum value from your people, place them in the right job within a proven system. As in the systems of football, include the following game-changing elements:

Training and Development (e.g., playbooks; whiteboard instruction; weekly practice)
Ownership and Accountability (e.g., coach, quarterback, team captains)
Teamwork (e.g., offensive team, defensive team, special teams)
Goals and Performance Standards (e.g., first downs, points scored, total offensive yards, goal line)
Measurement (e.g., first down conversions, percent of completed passes, time of possession)
Scoreboards and Feedback (e.g., game scoreboard, yard markers to first down, cheering/booing crowd, media coverage)
Schedules and Deadlines (e.g., time in the huddle, time left on the clock, timeouts)
Reporting, Evaluation and Team Meetings (e.g., half-time meeting, team meetings during the week, personal meeting with coach)
Celebration of Victories, Recognition, and Reward (e.g., end-zone dance, locker-room parties, interviews, press stories, and pictures)
Appropriate Compensation (e.g., based upon performance, contribution to the team)

Create a Culture of Discipline

Your business environment has a significant influence on your workforce. Weaker people can become highly productive, and stronger people can lose their edge, depending on your company culture. Recently, a business manager told me he had three individuals with black belts in Six Sigma; however, over time they had become “pink belts.”

A culture of discipline, enthusiasm, and excellence really begins to happen when you put the right people in remarkable business systems—a magical combination.

Jim Collins, in his book Good to Great, sums it up best:

“A culture of discipline involves a duality. On the one hand it requires people who adhere to a consistent system; yet, on the other hand, it gives people the freedom and responsibility within the framework of that system.”

If you want a highly motivated and productive workforce, begin by creating measurable business systems and processes. Processes create habits, and habits drive culture. Most of your employees naturally want to do a good job. By creating a results-driven culture, they will perform at their best, even when you’re not around.

Of course, there are occasionally people who will not meet your standards. However, if you have more than your share of these employees, take a look at the effectiveness of your hiring system or your training system. I guarantee that an under-performing system is responsible for every one of your business problems.

So, don’t blame people anymore. Instead, elevate your business systems and processes by getting my free report below, “Better Systems – Better Business,” and 10-Day Mini-Course, “Fast Start to Systems Thinking.”

Are You a Systems Thinker?

Ron Carroll

17 Apr 2009

When I was a boy, my parents gave me a miniature see-through plastic V8 engine for Christmas. As my father and I assembled it, I was able to learn how an automobile engine works. When the battery-driven model was completed, you could turn it on and see all the moving parts in action; even the spark plugs fired with little red lights. It provided an illuminating and instructive view of an automobile engine, one of our most enduring “systems.” Transparent Engine

See Beneath the Surface

To a “Systems Thinker,” the world is similarly transparent.

In business, a Systems Thinker can easily interpret what is going on—what’s working and what’s not working in their organization. They have a vividly clear view of the “nuts and bolts” of their operation, transcending the typical awareness of others.

The Systems Thinker has the following advantages when examining the people and processes that make up their organization.

They know that for every effect, outcome, or result, there is a specific cause they can influence to make things better (law of cause and effect).
They see the interrelationships of moving parts, systems, and processes that work together to accomplish company goals.
They recognize that the root cause of business problems is usually found in faulty systems, not people. To make improvements, they find the weak-point of a system and fix it.
They understand that growing a successful and profitable company requires strict attention to process planning and measurement throughout the organization.
They know mature business systems and processes that produce consistently desirable results are their greatest asset. Effective systems will enable them to one day sell their company for top-dollar, replicate it in other markets, or hire someone to run it for them.

There is No Better Way

As you become a Systems Thinker, you are increasingly aware of the hum of systems and processes within your business operation—whether in the store, the factory, or the office. You see all the moving parts of the “engine” as it works to power the organization’s throughput of products and services.

As a Systems Thinker, problems become more apparent and solutions more obvious. Ideas flood your mind for elevating your business systems to create a remarkable organization. There is no other way!

Focus on Your Vital Few Business Activities!

Ron Carroll

17 Apr 2009

In a typical four-hour American football game, each team has the ball in play about seven to eight minutes—that’s a grand total of fifteen minutes! The rest of the time, we are listening to commentators, looking at replays, watching commercials—just waiting around for the next play to begin.

Ball in Play

If you want to create a better organization and make more money, you can do it by paying close attention when the “ball is in play,” when things matter most, where money is made or lost. Some of those business activities might include:

Finding and pursuing sales leads
Personal contact with prospects or customers
Producing or delivering products and services
Attending business-improvement meetings
Interviewing and evaluating job candidates
Training people to become more effective
Evaluating job performance
Reviewing Key Performance Indicators (KPI) and financial statements

I’m sure that you could list others, and some unique to your organization.

Focus On the Vital Few

Think of three business activities that have the most influence on your company’s success. Are those systems or processes giving you maximum results?

Systems are the essential building blocks of your business operation. Some of them are most important to your success; they are the vital few activities that drive growth and profitability. Most of these critical systems or processes touch customers either directly or indirectly.

Find ways to perform at your peak when the ball is in play and the game is on the line! Don’t be surprised if simple ideas and improvements put significantly more points on the scoreboard!

Mini-Course: “Fast-Start to Systems Thinking”

Ron Carroll

17 Apr 2009

This 10-Part Mini-Course, “Fast-Start to Systems Thinking,” will change the way you look at your business. Each article teaches a powerful principle that will get you on the road to building high-performance systems and processes within your organization.

Click each Table of Contents article below to take this Mini-Course.

Table of Contents

Business Systems are Your Essential Building Blocks!

Create Low-Cost Business Systems and Processes!

System Innovation Drives Breakthrough Success!

Design an Efficient Workflow!

Add Critical System Components!

People Are the Most Important Components!

System Quality is Job 1!

Increase System Efficiency and Speed!

Manage By the Numbers!

Create an Organization of Excellence!

Start on the road to Systems Thinking today!

Enjoy,
Ron Carroll

Business Systems are Your Essential Building Blocks!

Ron Carroll

17 Apr 2009

Mini-Course Day 1: “Fast Start to Systems Thinking”

I know that owning a business brings a lot of daily challenges and frustrations that can remove much of the joy. I’ve owned several companies and worked in the trenches with many business owners over the years. Regretfully, it took much of my career to figure out the one absolute way to solve every business problem and eliminate most of the aches and pains.

Have you ever had any of these or similar thoughts?

“My cash flow is stressing me out.”
“I can’t seem to hire good people.”
“Our quality needs improvement.”
“Employees are wasting time.”
“I don’t get enough sales leads.”
“Profits are down.”

In this 10-Day Fast-Start Min-Course, I want to show you how well-designed systems and processes are the solutions to all of your business problems. You may be thinking, “I already have systems.” And I know you do. But frankly, most people don’t fully understand the true nature of systems, and how to develop them for maximum results.

“Let systems run the business and people run the systems. People come and go but the systems remain constant” (Michael Gerber, “E-Myth Revisited”).

Discover the Power of Effective Business Systems

Effective systems are the essential building blocks of every successful and profitable business; they encompass every business function! The ability to create effective business systems and processes is a learned skill based on powerful and proven principles. In the next ten days, I’m going to discuss ways you can harness the power of your business systems to create a high-performance organization that will increase your customer loyalty, profitability, and overall business success.

What exactly is an effective system? It is a procedure, process, method, or course of action that produces a consistent and measurable result. Systems enable your business to accomplish its most important objective—to profitably find and keep customers—even without your hands-on involvement!

Good systems are the “magic formula” for success! They increase efficiency, accomplish objectives, and give customers what they want every single time. They are the solution to frustrations, waste of resources, poor performance, and other business problems.

While the right people are critical to an organization, a mature business operation has fully developed systems and is systems-dependent rather than people-dependent.

If properly designed and implemented, systems boost cash flow and profit. The financial return of good business systems far exceeds the cost of their development.

When I go about doing business in the marketplace, I don’t get frustrated with people so much anymore. I see poorly designed or executed systems. And the person usually at fault is the business owner, not the employees. Owners or managers have failed to install an effective system or process. Could that be happening to you?

System Development is the Master Skill

I’m now going to make a rather bold statement: Developing effective business systems is the primary skill that must be mastered by the small-business owner and entrepreneur! All business functions—marketing, finance, and operations—fall within the scope of this single skill mastery.

When all of your business systems and processes—marketing, accounting, customer care, hiring, production, order fulfillment, and so forth—are delivering predetermined, consistent, and desirable results, your business will grow and flourish. It will become remarkable!

One day, you will be able to sell your company for top dollar, franchise it, or hire someone to manage it for you. You will enjoy the rich harvest of your labors. There is no other way!

Developing effective business systems is both an art and a science. I teach you how to do it in my eCourse, “Box Theory™: Double Your Profit with High-Performance Systems and Processes,” I think it’s the best few bucks you can spend. There is no risk, so please take a look (I never get requests for refunds with this ebook).

I think you’ll see the same value as did a recent customer:

“WOW! This Is Great. I’ll be eating this up all weekend. Can’t wait to share results with you.”—Jay M.

Tomorrow we will discuss how the quality and efficiency of your business systems lead to lower costs, higher profit, and a competitive advantage—just what you need in our ailing economy!

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Mini-Course, “Fast-Start to Systems Thinking”

Create Low Cost Business Systems and Processes!

Ron Carroll

17 Apr 2009

Mini-Course Day 2: “Fast Start to Systems Thinking”

If you now believe that systems are the essential building blocks or your business, then you must believe that your primary task as a business owner is overseeing their development.

Michael Gerber, in his book “E-Myth Revisited,” teaches that you have to work on the business, not just in the business. Creating high-performance systems and processes is how you work on your business. It is the primary responsibility of owners and managers.

You begin by improving your business systems that will provide the biggest payoff—the systems that make you money and directly benefit customers.

Keep in mind that your customers all want the same thing. They want your products and services better, faster, and cheaper than your competition. They want:

Quality
Speed
Low Cost

Quality Plus Efficiency=Low Cost

A quality product or service means that it has few or no defects. It does what it is supposed to do. It is as good as or better than the competition. It meets customer specifications and often exceeds their expectations. Whether in the factory or the office, you take cost out of your business when you eliminate the waste and rework that come from poor-quality business systems and processes.

Speed means delivering your product or service fast or on time, according to a schedule, or by a deadline. There is little delay or downtime. System cycle-speed is more important than employee speed. Employees can only work so fast, and if pushed, create more quality problems.

To increase speed without losing quality, focus your efforts on reducing idle time—the time things are sitting around waiting to be worked on. Bad things happen when work sits around. Merchandise becomes outdated and damaged. Information becomes old, obsolete, and hard to remember. Momentum is lost. Products and services can’t be billed.

Reduce your operational costs by getting things done right the first time, and out the door as quickly as possible.

Remember: A process that makes errors cannot keep up its speed. High-quality makes it possible to attain a fast speed. Low-quality and slow-speed are what make business processes—and the resulting products and services—more expensive.

Therefore, if you want to be competitively priced—if you want to offer customers the best value—you must improve the quality and speed of your business systems and processes. Quality, speed, and low cost are interdependent, and you have to work on them simultaneously.

“If you need a new process and don’t install it, you pay for it without getting it” (Ken Stork).

A recent phenomenon in my town is a restaurant called Café Rio. They serve fast-casual Mexican food and are rarely without a long line. The selection is limited, but every food option is a proven winner at a cost of about eight dollars. Quality is outstanding because the food is fresh and moves quickly through the system—no heat lamps. The customers’ orders are prepared in front of them to their exact specifications. The assembly-line approach moves hundreds of people through per hour—customers never wait very long. The Café Rio system produces a high-quality product, with lower than average labor costs, and continually delights customers. The result of Café Rio’s high-quality, fast-speed, and low-cost formula is a large base of repeat customers, a good profit on each meal, and a significant number of meals delivered each day. It has become a fast-growing franchise operation.

The only way to consistently offer the lowest possible price—and still make a profit—is to improve your quality and speed, and to eliminate waste—the defects and delay buried in the systems and processes of your business operation.

Increase Cash Flow and Profit

Effective systems and processes will give you an efficient and smooth-running business with maximum cash flow and profit. My eCourse, “Box Theory™: Double Your Profit with High-Performance Systems and Processes,” is now FREE and will provide you with many powerful principles to dramatically lower your costs and thrill your customers. Download the eCourse and FREE Box Theory™ Gold software today.

Tomorrow we will talk about the importance of innovation from a Systems Thinker’s point of view. It may not be what you think.

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Mini-Course, “Fast-Start to Systems Thinking”