Understanding the Importance of Processes & Operations for Business

APRIL 12, 2024

As a business consultant with many years of experience, I’ve encountered operational challenges within companies a couple of times, in that the companies had nothing to work with, even the most of basic things were non-existent.

In terms of operations, if a company is to grow, it is key to have at least some form of a data collection system.

As I’ve said to some of my clients in the past, if you’re in business, you’re in the data business. Not collecting any data at all equates to navigating blindfolded.

The truth of the matter is that most entrepreneurs know this. Perhaps through experience in a prior business, be that growing it or helping it beyond the launch and start-up phases, and they are the ones who know what is needed to transcend to the next level.

On the other hand, if you’re an entrepreneur by chance rather than by choice, you might not know that there is so much to do, and odds are you’re none the wiser as to what should be done next to be able to grow.

Many entrepreneurs don’t realize that in order to have a business that is burgeoning with growth, you must be able to transition your business and ideas from your mind to paper, and to the people around you!

Unfortunately, for you to be able to pass that information on to others, you need not only to have an idea of what is going on, but you also need to have a record—data—of what happened before, and some instruction set that communicates how the work should be done.

Keep in mind that this, at a minimum, should be descriptive enough and done well enough to provide your employees with appropriate instructions on how to behave, act, and serve the customer’s needs.

Operational basics

As I said in the beginning, if you’re in business, data is your business. Collecting data on your clients is key, just as much as landing a sale. As a new entrepreneur, you probably still don’t realize it yet, but this information is your stepping stone to a bigger market, and to grow into a market, you require either new products, new locations, or new clients to whom to sell.

How are you going to know what the client wants if you don’t keep any kind of record?

I’ve encountered operations where data collection is done by hand, but in this day and age, this is a no-go. Start small, create a Google Sheet with your sales, describing the product or service sold, the amount, and the name of the client.

Sometimes other things related to the sale are important too: the time of day, the date, the day of the week, the add-ons to the sale, the payment method . . . you name it. The thing is that to understand your operations, you need to gather this information. Have you heard of “big data”? Well, big data started small with small operations like yours.

Before you go any further. Two concepts that facilitated my life: Q-Data (quality data) and language. Let’s start with the first. Q-Data refers to any information that provides additional insights into anything that you’re measuring.

For instance, remember when we experienced lockdowns back when COVID hit the economy? Well, that is an “assignable cause” for a decrease in sales, which we would of course notice when we see a drop in the daily number of customers we serve, or in the revenue level we get.

So, in order to gather “quality data”, we must be able to pair the data we normally gather with anything descriptive, be that the date, the time of the day, or the salesperson who served our customer.

The second concept you must have in mind, is “language.” It refers to how the data is stored (say in the Google Sheet) and how the data is displayed; for instance, in the US we use “.” for decimals, and “,” for thousands, in contrast to Europe where it is the other way around. Having consistency in how you store the data and how it is recorded will yield actionable data that serves your business and operations’ needs.

Ok, you have some basics in place, now what?

Odds are that the information you’ve gathered is not enough to guide you. At least, not enough at first glance. Here I present my second piece of advice—make a framework for your business.

To create a framework, you need to document the process you would follow to understand clients and your business information. Of course, this is where most entrepreneurs fail, it is not only necessary to be attuned to your customers, but also have a framework for all your operations.

For instance:

Did you start selling? Create a sales process so you can keep track of how the sale is made and what the client wants/needs. This eventually will grow to become your business CRM1 and sales funnel.
Did you start delivering/servicing? Create an operations process to keep track of how things are done, for instance, in the kitchen. This way you can keep track of your business throughput, the speed at which you can serve and deliver to customers, and the operational expenditures—how much it costs you in terms of your limited resources.
Do you now have numbers to keep track of? Create a numbers process to keep track of all those important numbers from sales and operations processes: how many clients, who they are, where they are, their satisfaction level, their purchases, and your expenses. Keep track of how much you make ($, units, etc.) Over a time frame it to grasp how your throughput is affected by the choices you make.

So far, so good.

When you’re at the point where you have sales, operations, and number processes sorted, odds are that the next to tackle is either human resources or quality management. In terms of HR, get started on the basics: your mission, vision, values, and how these play out in what you want to achieve as an entrepreneur. Then, focus on your hiring process.

Finally, in terms of quality management, most will advise you to create something very elaborate. In my experience, I’ve seen far more errors made due to a lack of inspections or improper operational processes (see above).

The better you can produce or serve without the need for checking up on quality the better because inspections and quality controls have a cost.

Most of the time, if you truly need a measurement system, I would probably focus on the Gage R&R of how your operators and analysts measure, rather than on other aspects of the quality system, such as skewness or linearity. Not that they are not important, they are!

Rather the replicability and reproducibility (Gage R&R) of your measurement system oftentimes creates a far greater impact on your expenses and results.

Conclusion

Having a process for most operations is the backbone of your business. In order to have good enough processes, you need to gather adequate data that reflects customer behavior, and which over time will yield information on what are you spending on, where the money goes, and most importantly, why.

It goes without saying, but having some degree of knowledge on how to use spreadsheets goes A VERY LONG WAY toward understanding your business’ ins and outs. In the same way, having a ledger, record, or archive of how your processes are constructed, organized, and such, also facilitate your life as an entrepreneur in the long run.

If you really look closely, operations and processes are in all the great businesses that might spring to mind. The thing is that, because these operations and processes take place in the background, you probably don’t notice them.

Also, when starting as an entrepreneur, you might not realize that you are taking all these things for granted, or think that they are self-evident. Well, they’re not. You might also think that they are free, easy, or someone else’s problem, but they are definitely not!

Having a clear understanding of why you will need data for success and growth goes a very, very long way. Not having some degree of understanding of these facts most likely will lead (there are some exceptions) to something that is not going to be very lasting or good. Because of this, I usually get the chance to help out as a business consultant.