Archive for the ‘General’ Category

Family Business Model Transformation – Built to Sell

Most family business clients today are not thinking as much about the longevity of their company as to its potential  value as an asset for sale. The idea of creating a company that can be passed on to heirs, and perpetuated for decades, has gone away and the new strategy is  ‘Build it to Sell’.  This is antithetical in terms of the famous book by Collins and Porras, ‘Built to Last’ and reflects the sensibilities of today. No longer are we interested in the long term. Rather most are looking for short term gains in niche businesses that can be staged, packaged and sold to the ‘money’ that is looking for high returns. There is nothing wrong with this but it represents a major reframing of the traditional business model for a family business. This new direction follows closely the models run by the private equity investment groups. When you have a concentration of money chasing above average sustainable returns, as we do today, the lure of wealth can overcome the sentimentality of perpetuating the business on behalf and through the family. It is also not a ‘given’ that the children will grow up with a good work ethic and responsibility for taking charge and moving the firm to the next level. So building a company to sell has a lot of attractive elements that make it the new way to think in terms of business models and ownership.…

Budget Transformation

One of the issues that all clients have faced through the years has been that of budgeting. The problem, as with most business issues, begins with the starting point. If your starring point for budgeting is revenue/ sales or expenses  you may be disappointed in the results. Reframing the process to start with Profit is the key. How much profit do want your business to make? Also, it is not profit in terms of dollars, but rather a percent of revenue/sales. The point is that the business needs to be able to generate a certain percent of profit regardless of sales. This point of view, created by a reframing process, is the pathway to transformation.  I call this copywrited process ‘Profit Specific Zero Based Budgeting’. It contains many more elements but its point is to give the business owner a model that can respond to market changes and still deliver at the end of the day. Decisions are made in a different context with this model. This is a key to good budgeting and as it is impervious to market conditions. If one stared with sales then the budget process does not consistently work as it only responds to a ‘good times market’. If it is focused on expenses then most owners get into a ‘spend/ downsize’ vs. budget mentality and try to spend or downsize their way to profit. Both are flawed points of view. Try to set the goal for your profit % first and see if it does not lead to better performance.…

The Transformational Change Cycle

Business owners always are interested in how to successfully introduce change (the new and better way) to their staff. This is especially true when the change will materially alter how one works and sees their position and importance to an organization. Usually what happens is that the boss introduces the change (slow or quick) and a reaction comes back from the staff. This then causes the boss to react and so for the and so on. Sometimes the reaction is so negative that the boss gives up even though he or she truly believes in the change. In other, less relationship oriented organizations, the boss ignores the reaction and lets the change play out. This creates an impression of a win/lose scenario. Knowledge of the typical change cycle reaction process has been known for some time and what follows is a discussion and introduction of a new transformational way of thinking about change.

When change is introduced at any level in an organization the employees go through a series of steps in managing and incorporating this change into their lives. This realization has led to the now famous six steps of change. These are Loss, Doubt, Discomfort, Discovery, Understanding and Integration. (Note: This is a copyrighted process of CCMC, Inc.) The length of time it takes one to go through these six steps is usually directly proportional to the scope of the change. While this is informative and predictive it is not a powerful tool for change. What it presupposes is that the starting point is always loss and then the cycle runs through the next 5 steps from there. I suggest that this presumption limits the potential for transformation. If instead of starting with LOSS you start with DISCOVERY you have a whole new opportunity. Then if you add three new steps along the way you can make change a positive and exciting new process.

The Transformational Change Cycle is set up as a process to address the opportunity and not the problem of change. Its stages are as follows:

1. Discovery

2. Belief and Understanding

3. Comfort and Integration

4. Creativity

5. Embracing

6. Leveraging

 

This is a cycle built around a goal. That goal is to integrate the change and then enhance it (Leverage) to create a new higher level of performance and possibility. Future posts will address how this works and how it can be introduced and used as a tool to accelerate organizational performance. Please call or contact us for more information on how this can help your organization to reach a new level.

 

(The Transformational Change Cycle is a copyrighted product of the J.R. Hull Co., Inc. 2013)…

Transformational Thinking in Manufacturing

Many business owners have asked me how they can reach the next level of performance. I often suggest that they model the business based on the levels of performance they would like to reach. This is transformational thinking. Once the model is developed then the specific actions and changes that need to occur to bring it to fruition can be developed.

The following is an example of transformational design thinking in terms of building a manufacturing solution to specific criteria. (Note: This is excerpted from the book ‘ Business Transformation: The Roberts Story which is available on line)

Design Purpose: Design a cellular manufacturing solution that can generate a 68% profit that fits the following assumptions.

1. Annual Sales – $1M

2. Number of parts to be manufactured – 20

3. Workday – 20 hours

4. Yearly work hours – 5,000

5. Annual number of parts at 80% capacity = 4,000

6. Required Takt Time (pace of production) – 1 part per hour

7. Projected Takt Time from assumptions – 1.25 parts per hour

8. Projected cell capacity load at required take time – .80

9. Complete PQ Analysis (Product Quality Analysis)

10. Create cell to generate average part cost/ profit at – $150 per part

THE DESIGN/MODEL RESULTS

1. Cell Elements – 1 lathe/ 1 mill

2. Set up time = 0

3. Run time average (for 1 part) = 60 minutes

4. Labor – $400 a day/ two employees @ $20@ hour for two shifts

5. Material $150 @ day

6. Equipment = $190 a day/ Average payment on two machines at $200,000 @ machine

7. Utilities – $50 @ day

8. Total Direct Cost – $790 @ day

9. Indirect Burden – $160 @ day

10. Total Cost – $950 @ day

11. Total Daily Throughput – $3,000 @ day

12. Maximum Daily Profit – $2050 @ day (68% profit)

Transformational modeling of this type allows the owner and management to design to cost or design to profit. It is counter intuitive and provides a win/win for all stakeholders. It requires the customer to cooperate with the manufacture/ supplier to select the right group of parts that will allow this type of cost savings.

 

 

 

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Transformational Thinking Applied to a Insurance Brokerage Operation

I have worked with many insurance brokers over the years to build business value. One of the discussions that always arises is how to increase the sales per employee. I usually suggest that they create a model, or models, of an organization that is operating at the levels they desire and then work backwards to the action steps to reach those levels. The following is an example of how this type of transformational thinking works in the modeling of a highly productive insurance brokerage operation.

Transformational Goal: Create a commercial insurance brokerage organization that generates $100M in sales at a Sales Per Employee(SPE) of $500,000 and a profit margin of 30%.

Method:  Create a transformational value stream (TVS) working back from the vision for the organization to the components necessary to create the result.

 

1. Sales/SPE = 200 employees @ $500,000 each

2. Organizational Component – Top Management and Administration =  20 people(5 owners), + 45 production units/ cells of 4 people each.

3. Individual Production Unit Sales – $2.2M

4. Average Account Revenue Size ($20,000) –  5,000 accounts

5. Average number of accounts per production cell – 111

6. Annual Profit$ – $30,000,000

7. Average Producer Commission – 30% = $30,000,000 or $666,666 average annual  income per producer.

8. Average annual wage for non producer/ owner employees @ 20% of the total revenue =  $133,000

 

This is a scaleable model as it is made up of individual components that when ‘stacked’ create the whole. There are further ways to leverage this model which we will discuss in future posts or call to discuss in the interim.…

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