Are Problems In Your Business Getting You Down?
Many times as a business owner there are problems that come up within our business, and we think we know the answer to the problem We then implement a solution in order to find that problem is not resolved and is reoccurring. Sometimes this is an issue because we are too close to the business, or because we were not given the right information. Has a similar situation in your business occurred to the one below that ended up occurring over multiple departments within your organization?
A new salesperson on your staff sells one of your products to a new client and the salesperson is rewarded by getting their commission and has moved to the next customer sale.
As time goes on, you start seeing that this particular client is calling in over and over into your customer support department and from the surveys it does not appear that their issue is getting resolved by your staff. They are ranking your support team in an unfavourable manner on their survey.
You ask the sales rep that owns the account goes out to see the client and when they return and the two of you speak, they confirm the issue is in the support area and you work to determine how to address the problem.
At first glance, it appears that the support team has not performed their job with this client based on the information provided, so you make some changes in order to make sure this does not happen again.
A few weeks later, there appear to be more incidents happening despite the changes that have been put in place in customer support. This is now going on with multiple products, so you decide to pick up the phone and talk to a couple of clients.
It turns out that the symptom of the issue showed up in customer support, but upon further investigation, it is uncovered that the customers are unhappy that the product does not perform as expected.
You then find out this problem originated in the sale, as the product was oversold and that no matter what changes you made to customer support, it would not have solved the issue.
So the question becomes is how do we determine where the problem really lies, is it really a problem, and what is the best way to resolve it. There is a bit of a process to follow in resolving problems, especially ones that go across several departments.
What is a Problem?
Problem: A measurable gap or deviation between an observed state and the expected state, norm, standard, or status quo.
In this business example, we can use a business owner who is reviewing his financial statements. The business owner sees that his gross margin (Sales – Cost of Sales) is 50%. Is this a problem?
The answer: It depends. There are some questions that need to be answered first.
What did the business owner expect?
What were the margins before? In other words, what was normal?
By means of comparison, what are the margins in the industry?
What should have been the margins?
These are quite different questions, each of which can result in a different solution. In the table below, for each scenario, would you think there is a problem? There is a fair amount of difference in each scenario. First of all, it depends on what industry you are in; each industry tends to have its own structure.
Scenario 1 could be a software company. These companies tend to have a very low cost of sales, but higher fixed costs,
Scenario 2 could be a services company where labour, not physical goods are being offered, and
Scenario 3 could be a manufacturing company where raw materials are being transformed into finished goods
Answers to these questions will start the process to determine where the real problem lies. For example, in scenario 3; expectations and what the margins should have been are in alignment. Compared to industry the owner expects improvements from previous normal results. It would have appeared that plans for the expected margins should have been met (60%); however, actually observed margins are lower. Are discounts being offered that dropped revenues? Are there surprise expenses? Have some costs increased or unplanned? Many questions; few answers at this time. It appears there needs to be onion peeling going on.
In the other scenarios, where there will most likely be multiple products, issues of pricing, costs of sales, product mix, sales expenses, and even transaction posting errors can be suspect. A common source of frustration with owners is that expected programs or products were not released on time, ran into quality issues with products, late to the market, the unexpected competition to name a few.
Perhaps the most difficult answer to get is “What should have been?”. This often implies gathering the facts without bias or personal influence from anyone involved. You need to gather objective evidence that supports observations, not evidence that supports a theory we might believe, or a conclusion (hypothesis) that we might jump to early in the process.
In order to set in motion a problem-solving exercise, the problem needs to be clearly articulated. Problems are about the relationship between variables; the fact that the margins are 50% is not a problem in of itself; the fact that the margins ‘should have been,' or were ‘expected to be’ 60% is problematic. The problem statement needs to be focused on a particular issue, address the relationship between variables, and should contain the foundations of its own solution; namely what should have been.
In scenario 2 above; the fact that i) margins were 50%, ii) margins were expected to be 55%, and iii) margins should have been 40% represents multiple problems. These problems deal with the variables of 1) what is versus what was expected, 2) what is versus what should be, and 3) what was expected versus what should be. Each of these will derive its own unique solution, and there may be no one solution to address the 50% observation without relating it to owner expectations (realistic?), execution dynamics, or product performance influenced by market dynamics.
Whenever you are surprised by an observed result, sit down and ask yourself these four basic questions:
What did I expect?
How / What were we doing before? In other words, what was normal?
How are others in our situation doing?
What should have been?
In our opening scenario, what would be important to understand?
What were the customer expectations?
Was this situation normal or abnormal in your organization?
When the problem arose, did you find that other customers were having similar issues in the customer support area with the same product?
Once other customers started experiencing similar matters in support, but with differing products, you start trying to eliminate and determine where are the shared variables.
Upon investigation, you discover that the customers with the issues were all sold products by the same salesperson.
You sit down with the salesperson to find out how they are setting expectations with the clients, as it appeared they are selling features that are not currently in the products and will not be for some time.
As part of the discussion, you uncover that the salesperson was not up to speed on what was currently in the product versus when the features sold were planned and had not received the proper training and information from his manager.
It is sometimes difficult to get to the root cause of a problem, especially since issues may have symptoms seen across various departments. What may have initially been seen as a problem in support and then was traced to the salesperson actually turns out to be a training issue in the sales department.
If you find that you find yourself in situations where problems are occurring but you are not always able to determine the root cause; this is where we find we are able to truly help business owners.