UK: Focusing On Non-Financial Operations

Last Updated: 11 April 2013
Article by Kevin Parish

Improving non-financial operations can help you get ahead in creating space for change.

There has never been a time when it has been more important for businesses to operate efficiently. At the moment, many businesses will rightly be focusing their attention on winning their next sale or contract, and maintaining or increasing their market share through innovation or better marketing. This is occurring at a time when margins are under pressure in many industries and where some markets are reducing in size. Other businesses, particularly those in sectors where there has been contraction (such as retail and leisure), may also be looking at cost-cutting measures to improve their financial position.

Optimising, monitoring

Few businesses, particularly hard pushed owner managed businesses, will have the resource and skills internally to turn their attention to their business processes as a source of enhanced business performance. Some will have looked at matters such as internal controls and segregation of duties (particularly if their auditors adopt a risk and systems based approach) but once you step away from the accounting function the same attention is rarer, even in some process-led businesses. Optimising and monitoring those tasks that are not purely financial but which are, instead, driving the delivery of the product or service can bring substantial gains.

In many companies the processes, workflows and management information have largely evolved over time, with the requirements of different departments being introduced and changed as and when individuals and circumstances dictate but without a joined-up approach. These disparate sources of influence often create not only conflicts but gaps in management information and responsibility and with limited exceptions, the processes are generally not documented and visible to middle and senior management.

There are a number of key areas where review and enhancement of non-financial business processes can bring rewards.

  • Operating efficiencies – leading in turn to enhanced competitiveness and improved financial performance.
  • Improved management information, facilitating decision making and performance management.
  • Risk reduction.
  • Staff morale (although this can be a double-edged sword) by improving their experiences in the workplace.

Reducing the benefits of process down to a relatively simple level, imagine for a moment the difference between you laying a path in your back garden and entrusting the job to an experienced landscaper. You may be able to produce the path to the same quality and have developed a plan to do it but I can almost guarantee that it would take you longer. Experience is a factor but the landscaper will (hopefully) arrive with a process in mind for your job and some carefully chosen tools to do it with. Extending this example further, if one landscaper has a tipper truck and can tip all the sand and gravel they need straight into a location on the site that is convenient and their competitor has to spend two hours moving it from a bag left at the roadside, there is a difference in process and one is likely to be substantially more efficient than the other. If, in order to win the work, both landscapers price the job at the same level, then one should not only make more profit but be finished sooner and ready to move on to the next job.

Mind the gap

The consequences of a failure or gap in business process can be catastrophic. In the context of a professional practice, a failure to, for example, identify a client and to obtain signed engagement terms that encompass all of the advice given could lead to a regulatory issue for having failed to properly undertake 'know your client' procedures, which could (in a worst case scenario) have criminal repercussions. This first point would also lead to potential loss if the client couldn't be located when it was time for them to pay their bill.

In the event of a payment dispute the absence of an engagement letter convincing the court that the client should pay a disputed bill would be more difficult and even worse in the event of a professional indemnity claim. There could be difficulties in defending the claim and with the practice's insurer.

Professional practices and financial institutions will generally have a good understanding of these mission critical procedures, backed up by checklists and clear lines of responsibility. Other less compliance-led businesses are far less likely to.

Recent experiences

We have recently worked with businesses to help them optimise their operations outside of a formal restructuring process. An outsider's perspective is valuable for this type of exercise for far more than just providing a dispassionate and fresh view of the existing processes. We have found that acting as an external consultant can allow us to obtain a greater level of disclosure from front-line staff as to the shortcomings of existing systems and their concerns when their comments are largely anonymous.

A recent assignment saw us assist management in identifying, planning for and implementing significant changes to their entire operations over a period of just a few weeks including:

  • changing the timing of a number of business critical functions
  • altering internal documentation
  • introducing new controls and management reporting
  • putting systems in place to automate data validation and checking using existing software
  • changing working practices and job roles
  • restructuring the management team
  • introducing KPI's and core standards.

The ultimate goal of reviewing any aspect of a business is to enhance stakeholder value. An operational review, with the full buy-in and support of management and the assistance of someone independent with the right skills can reap substantial financial and non-financial rewards. The process itself can be done progressively over time or through an intensive period of activity where fundamental change is required as part of a restructuring or turnaround plan. The critical thing is to start before the business reaches a crisis point and while it still has the resources to implement change.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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