Many people think of innovation as being applied to just new products and services and maybe new ways of doing business, but Process Innovation is one form of innovation that needs to be at the top of your to do list.
It all boils down to the simple profit and loss equation. Profit equals revenue minus costs. There are only two ways to increase profits, either increase revenues or reduce costs. It’s that simple.
Building revenues can be risky business
Increasing revenue is the way a business grows and expands, but to do so comes at significant risk as was discussed in some of my previous articles.
In essence increasing revenues means more sales, perhaps more marketing and advertising spend, new markets and hopefully new and innovated products. All of these require risk investment with uncertain returns.
Moreover, in order to put perhaps one dollar on the bottom line in profit will require five or more additional dollars on the revenue line. This is not an ideal ratio, but it’s a fact for most businesses.
Make it risk free
Process innovation on the other hand is quite different. Process innovation works on the premise that you are already making and selling something and simply asks you to explore the way you do things. In most cases there are ways to make process improvements and thus reduce costs.
Indeed, if done properly process innovation is risk free and better still, one extra dollar saved goes straight to the bottom line as profit.
What to do?
In looking at process innovation in reality there are only three things that need to be considered.
Costs: How much are you spending on every aspect of your business? Wages, rents, leases, materials, insurance, communication costs and so on are some easy to assess costs.
Cycle time: The time it takes from receiving an order until the payment is in your bank account. Indeed if you can halve your cycle time you can literally double your business from the same capital base. It is overly lengthy cycle times that have literally send very profitable businesses to the wall with owners unable to meet the financial demands of growing pains.
Quality: Defined as “conformity to specification”, quality is one aspect of your business you must ensure is not eroded as you implement process innovation.
The big mistake
Implementing process innovation is very simple providing you make sure at the very outset that you map and measure any process before you make changes. The business casualties from unforeseen “knock on” effects of making changes abound. So, before you make any changes, make sure you have a full grasp of all the issues.