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We are a global management consultancy that delivers exceptional outcomes and sustainable change


Is your company sailing towards an iceberg of hidden losses?

November 25, 2020 | Strategy

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On a chilly Sunday on April 14, 1912, the Royal Mail Steamer Titanic hit an iceberg. It sank in three hours. There were 2,224 passengers and crew onboard. More than 1,500 died.

History recorded the series of bad decisions that led to the RMS Titanic’s sinking. How a wireless radio operator dismissed a key iceberg warning. That the Titanic only carried enough lifeboats for half the people onboard. Or how the ship’s builders tried to cut cost by using poor quality rivets, which may have weakened the hull and caused it to break apart when the ship hit the iceberg.

The Titanic’s tragic end is a chilling reminder that seemingly small, bad decisions could snowball into big consequences.

Many captains of companies are sailing unknowingly towards icebergs, unaware of the hidden losses that are eating away at their bottom line.

Most businesses do not have a full picture regarding their losses. Many losses are unrecorded and therefore, hidden.

For example, we once dealt with a client where third of all their sales orders lacked necessary information. One out of every three applications were reworked, sales representatives had to approach customers once again for clarification, leading to customer dissatisfaction. This also slowed down sales order processing times and added significantly more labour hours than necessary.

In prosperous days, situations like these were tolerated and even written off. But in today’s challenging environment, inefficiencies of any kind must be viewed as losses because they can prevent an organisation from achieving its true targets.  

Get on top of your hidden losses

Many companies suffer from the “Iceberg Syndrome” where decisions are made based on what can be seen above the surface but ignore what is hidden below. And like an iceberg, 90% of problems are often hidden below the surface, unnoticed. As a result, companies do not have a clear picture of how the business is impacted and what is needed to remedy the problem.

Successful companies make the right decisions to minimise losses and maximise gains. They do that by continuously evaluating their operations to uncover what’s below the surface.

Here’s how you can solve your company’s hidden losses problem:

1. Define the problem

First, identify the objectives, scope, players and work areas you need to work on. Then, identify members of a team that will brainstorm a list of all major activities, inputs, outputs and decisions in the current process.

2. Gather the right information

When talking to people, ask not only for the process performance measures, also seek out process input and process execution measures. For example, sales revenue is a process performance measure, but number of sales calls is and input measure and order processing time is an example execution measure.

3. Process the information

Now that we have all the information, it’s time to process it. Uncover formal and informal processes.

For example, there may be a formal purchase requisition document, but informally, some people may be requesting materials by phone or email. The latter two methods must be included in the information gathering process.

At times, employees may need prodding to uncover informal processes. Get the people to describe, in their own words, how events really happen. That’s when informal processes emerge from the depths.

4. Map the process and make the decision

It’s time to convert the information we’ve gathered into a process map.

The process map is a simple tool that provides a detailed understanding of what goes on in a process. It also serves as a handy document that can be “interrogated” to create a better process.

Based on the information collected, identify the stakeholders involved in the activities laid out in the process map. Work through the process map with them – check that it is correct and challenge each step.

Record any observations or critiques and be sure to establish their root causes. This knowledge is important in the next step.

5. Develop the solutions and make the decision

It’s crucial to include the views of all relevant parties in the decision-making process. Not only will they be directly impacted by the change, they will have important insights that can help develop the solution.

For example, these stakeholders can help identify non-value activities and brainstorm for ways to remove them. They can also come up with ways to reduce the time taken to perform the remaining activities.

By taking their views into account, it will create ownership and make the changes sustainable.

6. Implement and sustain performance

To ensure that the new process will be completely adopted by the workforce, on-the-job coaching is essential. Workers must be directly trained to perform their new duties until it becomes second nature.

We find that it’s often better to use process maps instead of written procedures to train the workforce because they are more easily digestible and provide a better view on how their role is integrate to the whole effort.

Understand the root of hidden losses

Here are some questions organisations should ask themselves on a regular basis:

  • Do you understand your hidden losses?
  • Have you identified their root causes?
  • Are you measuring the right metrics?
  • Could you have handled the crisis better if you had taken information you didn’t know you had access to into account?
  • How about the information you didn’t know you needed – Donald Rumsfeld’s famous unknown unknowns?

It is likely that a combination of some or all these factors was at play.

For a company to stay on top of its hidden losses and ahead of the competition, it needs to know how things are run inside and out, and how to improve. Process maps are great tools to facilitate that understanding.

Also, processes need to be controlled using the input and execution measures as well as output performance levels in the plan-do-check-action cycle that we refer to as a Management Control System. This alerts us whenever a hidden loss may reoccur.

Our bespoke solutions, developed together with the company’s managers and staff, give businesses the tools to understand where losses are hidden so they can address them. Contact us to start your transformation journey.

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