Scalability: Don't Get Caught In the Undertow
Posted by Randy Wadle on Mon, Nov 23, 2009 @ 07:30 PM
I looked up the definition of scalability on Google and found lots of descriptions of computer hardware and software, cloud computing, etc. The one simple definition that I liked the best was this one from investorwords.com:
"The potential for a business or an aspect of a business to continue to function effectively as its size increases."
While this captures the essence of what scalability means for a business in terms of its processes and resource utilization, I believe it leaves out the fundamental reason why scalability is a critical topic for leaders of growing companies. I think worthwhile addition to this definition would be:
" without requiring linear increases to production, delivery, and service resources."
Since businesses get paid for their output, increasing the output potential of your resources (people, equipment, contacts, etc.) has a significant and direct impact to your bottom line.
"If it ain't broke, don't fix it?"
Maybe you are happy with the level of output being produced by your resources already. Your business is profitable and you are a market leader. What is your motivation for "tinkering" with the way you sell to or serve clients, automating your processes to improve scalability, regularly evaluating your business to determine what areas to nurture?
The answer lies in a famous quote from Benjamin Franklin "When you're finished changing, you're finished". And why was that such a wise statement? Because circumstances (economic conditions, motivations, values, and technology) are continually changing. New businesses invent themselves using the circumstances that exist at the time. Successful businesses have defined and repeatable processes that are continually measured and reinvented in response to changing circumstances. If your business isn't continually reinventing itself, then the very essence of your organization, what you are selling to your customers and how you are selling it to them, may no longer align with current circumstances. Given enough time, your competitive advantages will erode in lock step with your profit margins.
Let's contrast three different scalability models and how they affect financial performance over time.
Inverse Scalability
This model depicts a company that gets exponentially less efficient as growth accelerates. Profit margins erode as the business grows and becomes more complex. Production, delivery, and service procedures that work optimally at lower output levels cannot keep pace with growth and eventually lead to investment requirements that outpace corresponding revenue increase.
Linear Scalability
This organization is able to keep pace with growth but requires a similar increased investment in resources to handle opportunities for growth in revenue. This model does lead to increasing profitability and is supported by processes that are responsive to changing circumstances.
Exponential Scalability
This organization embraces changing circumstances with adaptive processes. It is continually looking to squeeze additional capacity out of existing resources. Procedures include embedded success criteria and measurements that will spotlight high impact opportunities for improvement. Over time, this organization will capture expanding market share as competitors can no longer compete from a cost or quality perspective.
Simple Steps to Improving Scalability
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Identify best performing employees in each key area of your business and analyze what makes them best. These people are the nucleus of your success; encourage, reward, and empower them to propogate their success to their co-workers.
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Prioritize the functions that are served by these high performers by importance to your business. Assuming your business is a for-profit enterprise, profitability is the end goal so try to define how each function ultimately affects the bottom line. Not all functions can be directly tied to profitability but if you cannot come up with any way that successfully executing the process ultimately improves profitabililty (or whatever the ulimate success measure is for your organization), then you should question the importance of continuing the process.
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Rate the prioritized function list on a 1-5 scale by frequency, repeatability, complexity, and breadth (how many clients it affects).
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Determine your strategy for selecting processes to reinvent. One approach will seek to tackle the highest impact processes first regardless of how difficult it will be to introduce changes. Another approach looks for quick wins and selects easily improved processes to drive momentum for the overall process improvement effort. Either approach is valid and the two can be combined by choosing one challenging process and a few from the low hanging fruit bucket to tackle in a phase.
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Thoroughly document the best practice for the process. Each step in the existing process should be outlined with dependent steps clearly defined. Real life examples or models should supplement the documentation where possible.
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Examine each process looking for wasteful or redundant steps, opportunities for reorganizing steps to eliminate delays, and most importantly, ways to implement new technology to streamline or automate the best practice.
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Clearly define how the new process will be measured and the timeframe for reviewing the results. Process improvement projects with no defined measurement or formal feedback loop reduce the chance of universal adoption resulting in a strong return on investment.
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And as made famous on shampoo bottles for ages...Lather, Rinse, Repeat.
Process improvement and measurement is the key to scalability for any organization. All businesses have repeatable processes and most of those processes would benefit from standardization, automation, and measurement. Successful businesses expect and challenge personnel to "get better with age". These businesses are typically full of motivated and empowered leaders that embrace change and enjoy coming to work each day.
With increasing optimism, business owners prepare for a new year that will restore growth, opportunity, and the entrepreneurial spirit in America. Is your business ready to ride the wave or will you be caught in the undertow.
"It is never too late to become what you might have been."
George Eliot
Randy Wadle
rwadle@netwisetech.com
(866) 474-0922 x701
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