Running a successful business requires the courage to make difficult decisions. And sometimes, the hardest thing to do is take an objective look at the state of your operations.
Whether you’re after higher profits, facing a cash flow crisis, looking to implement new products in your lineup, or just want to make your team more efficient, some form of restructuring is going to be necessary. But the thing is, even small changes can make big waves. This means that you need a solid strategy, which will help you implement your plans without risking a decrease in performance or morale.
What is organizational bloat?
Growth, especially when it happens at an accelerated rate, often comes with a common problem – organizational bloat. This is a discrepancy between the number of productive employees and managerial staff, invested time and output, or outgoing and incoming funds.
Sometimes, it’s the consequence of insufficient foresight or experience. Other times, it’s the result of undisciplined growth.
In theory, the more workers there are in a company, the bigger the output. However, this is often not the case. Small businesses typically only have one manager. This leaves plenty of room for production, while the value of the administrative staff doesn’t pose a burden on cash flow.
However, with each team expansion (and especially when businesses start acquiring more clients) comes the tendency to create more administrative roles. And that’s often done without expanding productive staff. The result that ensues is a lower average output per person and a higher cost of upkeep.
In addition to its financial consequences, this type of bloat also reflects on productivity. As there are more points of communication than would be optimal, it’s easy for instructions to become “lost in translation,” leading to poor communication, and consequently, low job satisfaction. Over prolonged periods, this results in further performance deterioration, high turnover rates, and a company culture that strays from the business’ values and mission.
Of course, bloat isn’t just a question of staff. It can also happen when companies don’t distribute resources well, when they fail to optimize operations fully, or when there are budgeting miscalculations.
Does this mean that fast-growing companies are incapable of operating with low cost and high efficiency? Absolutely not! But, bloated business operations are something to continuously look out for.
If you’re interested in taking steps to minimize bloat, here are the top strategies for successfully (and painlessly) reconstructing your business.
The Evaluation Phase
The first step towards a restructuring of any kind is going to be an in-depth analysis of all business operations. By gathering and examining data, leaders and managers are not only able to make informed decisions but, even more, they can create a long-term action plan along with attainable short-term goals.
This ensures that the process targets the right aspects of the business. Furthermore, it provides a solid understanding of everything that is generating positive results.
During the evaluation phase, entrepreneurs need to consider finances, output, key metrics, and customer satisfaction. This is also a period when they should acknowledge the needs of their business. It’s a time to reflect on their vision, mission, and values, as well as to re-evaluate goals.
Considering the nature of any business venture, it’s also not a bad idea to keep in mind the importance of flexibility and adaptiveness. After all, as circumstances change, businesses must be prepared to adapt – a concept confirmed by the 2020 Covid-19 pandemic.
On the whole, restructuring bloated business operations is not something that can effectively happen overnight.
This means that the best course of action for most entrepreneurs would be to come up with a 12-month plan (shorter or longer if needed), along with quarterly goals that make it easier to implement all the necessary changes. This leaves plenty of room for purchasing equipment, training employees, or adapting to new working protocols.
One of the biggest challenges for most business owners is making the absolute most of their funds.
It’s not uncommon to see unnecessary spending, even among those with a well-developed business plan. And while in most cases this only takes away from potential profits, sometimes, it can also be guilty of creating exponential cash flow problems which can interfere with production.
When restructuring a business, its budget should be evaluated from two distinct viewpoints: costs and investments.
Strategy #1: Cut costs
Generally, the cost of running a business includes a wide variety of expenses. Some of these can be minimized or even eliminated. Others, however, are non-negotiable.
For example, past experiments have shown that pay cuts often result in high employee turnover, especially when it comes to top performers. Sure, average-performing workers may choose to stay on (or even put in more effort). Nonetheless, the risk of sales taking a hit still remains. This is a clear indicator of the importance of finding the right areas where to cut expenses.
One easy way for entrepreneurs to minimize spending is to consider adopting more modern approaches to doing work. Remote work, for example, contributes to employee satisfaction, all the while eliminating costs associated with keeping an office. Physical storage space is practically unnecessary for most businesses with numerous cloud storage options. Furthermore, companies can quickly switch to digitalized forms, without having to deal with the hassle of administration, all the while reducing the money spent on office supplies.
While performing a cash flow audit, it’s also not a bad idea to cancel any unused subscriptions, establish rules about what representational costs are acceptable, and create a comprehensive tracking system that will allow for easy excess spending detection.
Strategy #2: Make the most of investments
The second strategy for restructuring bloated financial organizations has to do with identifying and removing any excess spending, which is spending that doesn’t help achieve its intended results.
Projects and marketing campaigns, especially those that put a financial strain on a company’s budget, should be closely monitored with the goal of maximizing returns. Here, it is crucial to follow key performance indicators, as well as to have a clear view of both annual and quarterly results.
On the whole, if a campaign is generating a high cost without noticeable returns, it might not be a bad idea to explore alternative solutions or make budget cuts. On the other hand, this doesn’t mean that all investments should be passed over.
While innovation does require a higher amount of effort and initial funding, it also holds the potential of opening up new opportunities. Under these circumstances, it can be justified to look into short term financial assistance that can allow for uninterrupted expansion.
Still, business owners must take the time to do in-depth market research, as well as to assess all possible risks so as not to create situations that could jeopardize their entire operation.
When the source of bloated business operations stems from managerial decisions rather than financial ones, it’s time to take a look at the productivity of your team. Having a lot of people on your payroll, yet not producing enough income, is often the sign of low efficiency.
In these cases, it’s crucial to decide whether the best possible plan of action includes cutting costs and making do with fewer people. For many companies, this would be the go-to strategy. However, it’s not the only option. There are numerous ways you can help your team perform better.
Strategy #3: Invest in staff growth
For one, think about what you can do to help your team be more efficient.
Giving clear instructions, nurturing accountability, providing better equipment, or taking the time to assign tasks based on strengths are all excellent starting points. Moreover, don’t underestimate the importance of continuous learning and skill-building, which are significant stepping stones in building a great team.
It’s also not a bad idea to consider outsourcing highly specific or low-skill jobs. Doing everything in-house is convenient, but it can also create excess pressure on your team or put a strain on your finances.
Content marketing is one of the best examples of wasted funds. While you could do it yourself and save some money, in truth, it’s much more budget-friendly to hire a professional to write your blog posts or manage your social media pages. The reason behind this is simple – instead of wasting your time on something you’re only relatively good at, you could be spending the same time to focus on more pressing matters.
Finally, don’t forget about the importance of culture and communication.
Whether you’re starting from scratch or introducing changes to an already existing team, do keep in mind that a healthy company culture inevitably leads to better performance. And one of the fundamental contributors includes effective and open communication that builds on trust, accountability, and mutual support.
Strategy #4: Streamline Operations
If you’ve done your homework during the first phase of business reconstruction, you already have a clear idea of what areas of your company need restructuring. In addition to financial missteps, poor managerial decisions, and ineffective communications, don’t forget to pay proper attention to all your procedures as well.
Remove all time-wasters from the list of your assignments, especially those which are duplicative and which generate low value. See whether there are more effective ways of doing certain tasks. For example, a lot of companies still rely on manual labor. Yet, plenty of assignments can be completed by using automation, freeing up time, saving energy, and allowing teams to invest their efforts where they matter the most.
Don’t forget about the importance of great project management, too. You can opt for a software solution such as Trello or hire a person whose job it will be to keep an eye on progress. Whichever you choose, know that having insight into ongoing projects gives you greater control over your invested resources and allows for timely reactions no matter the circumstances.
Ensuring a Seamless Implementation Process
The most taxing element of transitioning to a new business operations structure lies in the concern (and possible pushback) you’ll receive from your team.
However, keep in mind that this is an expected reaction to any type of change. By preparing for it and knowing how to handle it well, you can make the novelty of the situation work in your favor instead of against you.
The first thing you should aim to do is communicate your intentions and reasoning in a timely manner. Know that your employees rely on you for stability, so don’t risk losing their trust over your fear of delivering difficult news.
If you find that there are parts of your operations that aren’t performing well, or even if you’re just preparing to introduce a new way of working to accommodate growth, inform and explain the changes your team can expect. Furthermore, don’t underestimate the value of feedback. Sometimes, all you need to do to help someone perform better is to ask them how you can support them, then deliver.
Of course, if the changes you’ve decided to make include pay cuts, be prepared to have some of your staff leave. In this case, do your best to assist them in finding other opportunities. You may not be able to see the importance of this now, but know that it might have an impact on your future talent acquisition and the appeal of your company to workers.
Running a successful business often requires making difficult decisions. Reducing bloat from your operations can definitely be a physically and emotionally tiring task. Nonetheless, it’s a requirement that needs to be met for the sake of the health of an organization.
Though there are many ways of reconstructing a business, all of them aim to do the same – improve production, cut costs, and ultimately, ensure a secure future for the firm and its employees.
This is why you should aim to improve continuously. Making sure to follow key performance metrics every quarter will allow you better insight into the areas of your business that need more work. Investing in employee growth will help your team perform at their peak without having to go through severe efficiency dips. Be aware of your role as a leader in making this process as smooth as possible.
And, of course, don’t forget about the impact of transparent and open communication. It’s just as important with your employees as it is with your investors.
In the end, a properly managed restructuring can be an excellent opportunity for your company. Not only does it hold the potential of eliminating bloat, but even more, it can make you stronger, more focused, and capable of going into battle with your biggest competitors.