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Innovation, Quantification, Orchestration: Part One of a Three Part Series: Innovation

2006 | Mar 8 in Management

By E-Myth Business Coach,

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Why do some companies grow and thrive, while others wither and die? What do successful companies know that others don't? At E-Myth, we believe that one key to succeeding in business is through analyzing and improving business development systems. According to Michael Gerber, business development occurs through a cycle of "innovation, quantification, and orchestration." Systems innovation, then, is the starting point of the cycle.

"Improvement" is the Objective of Innovation

Innovation is about creating new systems, enhancing existing systems, and doing things in a better way. In your efforts to create a world-class organization, you must strive to innovate everything your business does, because the goal of innovation is improvement.

Clearly, you can't innovate everything at once, so which of your systems should you focus on now, and which ones will have to wait a while? It all comes down to the question of need - your customers' needs and the needs of your business. For example, perhaps your primary need is to focus on economics - minimizing costs, maximizing profits, and ultimately increasing the value of your business, or perhaps it is to focus on "quality of life" issues - increasing personal satisfaction for both you and your employees. To begin to evaluate and optimize your systems, select the one that is most important to you, and then follow the process outlined below.

The Systems Innovation Process

A system consists of a series of steps, or "benchmarks" that work together within the system to produce a desired result. Let's look at this in a more practical way. At E-Myth, we propose a seven-step innovation system which will provide you with the means to evaluate your current performance, as well as an objective viewpoint on what you need to change or improve, and how:

  • Step one is to select a system that you would like to improve
  • Step two is to observe exactly how that system is currently operating
  • Step three is to move beyond observation and actually diagram how effectively the current system is, or is not, working
  • Step four is to quantify and measure input/output costs, which will be the baseline against how you will measure future performance
  • Step five is to analyze the system's work flow to improve or change whatever systems aren't working, or aren't producing the needed results
  • Step six is to implement new techniques for improving the work flow. This will necessitate re-drafting the current system to encompass the new changes
  • Step seven is to quantify the newly revised system

If, at the end of this process, the newly "innovated" system doesn't exceed the performance of the "old" system, go back through the steps and try again. Keep cycling through the steps until you have developed an innovated system that's worth implementing in your business.

Continuous Innovation

Let me share a quick story with you about an E-Myth client who took an ordinary business and turned it into something quite exceptional. Our client was a man with a dream. He was a man who wished to take his small, humble health food store and grow it to realize extraordinary owner's equity. He closely followed the systems innovation process, and patiently and tirelessly focused on all the systems he had implemented - he observed them, measured them, analyzed them, and quantified them - again and again and again. He took this responsibility very seriously, and even the smallest of systems were hugely important to him, such as how to stock and display the produce, and how to bolster the store's image and brand with eye-catching staff uniforms and displaying the company name and logo on the grocery bags. Over time the business grew, he opened a second store, and he continued to practice the systems innovation process.

The outcome? He later sold his small organization to one of the world's largest and fastest growing health food stores - Whole Foods. The reason for his great success was that he never stopped innovating, and therefore he never stopped improving.

Effective Systems Keep Your Business Healthy

Innovation allows you to continually improve the organization because, without it, you are leading by random assumptions, rather than by objective reasoning. It is important that you don’t rush the process, or jump to premature conclusions. Discipline yourself to thoroughly understand the complete system. Get the whole picture, and THEN move on to the innovation work. That way you’ll avoid creating only partially effective solutions to problems.

Remember, effective systems are at the heart of successful businesses. Systems innovation is the first step in a cycle aimed at keeping your business healthy and thriving, year after year.

Now it’s Your Turn!

We’d like to hear from you! What systems have you innovated in your business? What prompted you to action? What outcomes have you seen? What advice can you give on best practices or lessons learned? Please click on the "Post Comment" button below and share your experiences with the E-Myth Community!

Check back next week for the second article in this three-part series: "Quantification"

Comments

  1. .Cody H. says:

    Very good article. I would like to suggest with some of these article that information is provided on how to go about achieving the results which they talk about. What do people think?

    Submitted Mar 10, 2006 4:14 AM

  2. .Rachel C. says:

    Hi Cody, Great question. We would recommend first that you start with the system that is provided in the article. The systems innovation process is all about how to go about innovating systems. Have fun!

    Submitted Mar 10, 2006 1:02 PM

  3. .Esi F. says:

    As I talked to my E-Myth Coach about sytems, it was very intimidating at first because I thought, "Ohh my GOSH, this is going to take all month to document." But my coach asked me what mind-set was I in when I said that(that Entreprenuer, the Manager or the Technician)? The question was initally a little confusing, but the more I think about it I realized that I was completely guilty of thinking like the technician. As I start to think of the business more and more as "it" instead of "me." It makes sense to have these systems in place to support the infrastructure of the company I want to create. I don't want to be there everyday answering the phones and making orders. If I keep doing what I'm doing, I will never feel comfortable taking a vacation. So I started with a simple system of placing an order. I wrote the system like the person using it will not be able to ask any clarifying questions which required adding detail that I thought was apparent or self explanatory. I started to realized that I am guilty of NOT sharing my expectations and standards to my employees, I just assumed. I totally get why my employees weren't producing consistent results and meeting my expectations. I didn't give them any tools and ALL of my expectations/standards were not communicated very clearly. WOW, systems work and my people are starting to get the hang of them. It is a slow implementation process but now I can take lunches away from the office and not worry. I can't wait for my first vacation in 10 years!!! -Esi Fassi

    Submitted Mar 16, 2006 1:02 PM

  4. .Michael W. says:

    I enjoyed the article because it reinforced something that I did as COO of an Information Technology company about six months ago...and that was to inventory our processes and determine what needed to be fixed. After about 2-3 months of conducting an inventory, I found that we had no accountability and no ownership which lead to increased overhead costs. After sharing the inventory with employees, they were very surprised to find out exactly where they belong and how they could make even a greater difference. Within the next month, we continued to document the processes and establish policy and procedures. Long story short...we were able to reduce overhead costs by 30%.

    Submitted Mar 30, 2006 3:05 PM

  5. .Helen G. says:

    I found the ideas about systematizing the structure of one's business very useful. And since I don't visualize abstracts very well, I'm wondering if anyone has some concrete examples of how they specifically applied the steps, particularly Step 4 -quantifying and measuring input/output costs. (I'm not even sure I know what is meant by input/output costs!) Thanks, Helen

    Submitted Apr 4, 2006 2:45 PM

  6. .Josh M. says:

    Hi Helen, I'll see if my situation can clarify a little bit for you.  I own a hardware store and recently began the process of streamlining my stocking system.  Originally every single item had to be hand stickered checked off the packing list and placed on the shelves or hooks.  This cost me roughly 2 full days of labor or 18 man hours.  So at $10 an hour my order cost me $180 to put away each week, plus the cost of price stickers.  The system works but it's slow and time consuming, plus I was losing sales b/c I would sometimes run out of stock before getting items on the shelf.

    By redesigning the system and putting the prices on the shelves and peghooks, rather than stickering each individual item, I significantly cut the time it takes to put items away.  This required investing in new peg hooks and label holders for the shelves of about $1000.  My order is now put away in about 8 hours, reducing my labor to $80 per week.  So after only 10 weeks my investment is paid off and I save $100 per week in overhead costs, plus I lose less sales by having more stock on the shelves.

    Submitted Aug 11, 2008 8:06 AM

  7. .Donna P. says:

    I inherited a insurance agency and had no knowledge how to operate an office I observed the one gentleman who stuck around for 3 months  to show me the ropes. this agency had one telephone and did not use e-mail to either communicate or send quotes to clients they did'nt even know how to use the scanner and computer when I asked does this scanner scans in to this computer, he said I don't know. the reason I mention this is that I observed that he would mail out letters, several of them daily at a cost of 37cents per piece, I knew if we e-mailed the letters.  it would be free.  I quickly figured out how to scan a doc and or create a doc and e-mail it to clients, of course we did not have any e-mail addresses for clients why would we  they did not use that system, so I made a deal with one of my  insurance co reps  that if I aquired x amount of e-mails he would have to buy me a new lighted sign for my business and he agreed and we hit the phones calling  are current clients and explaining how we were making inprovments to better serve them and most gladly gave us their e-mail addresses and I was able talk to them and  to introduce myself as the new owner of the agency, killed two birds with one stone and I won that lighted sign for my business. now every quote we take  the  3rd question  we ask  after name and number is what is your e-mail address so we can e-mail you the quotes and we can talk when you have the quotes in front of you. that is the first system I ever put in place and not only did it work to save money but we now can market new products to those clients  or use it just to keep in touch several times a year with those clients not to mention it leaves a trail for liability protection. much more accurate than memory of a phone call.

    Submitted May 19, 2009 5:34 AM

  8. .Ken S. says:

    I agree with the notion of "systems" (I'm a big fan of Sam Carpenter's www.workthesystem.com)--the problem for me comes in identifying what a system is, and how to address the process of improving them systematically and with a long-range vision in mind. I have an electrical contracting business, in business full-time for 17 years now, but it is really just a job, not at true business as such. Electrical work by its nature is non-repetitive and non-recurring--if you do your job correctly, you shouldn't be being called back! So it has to be based on referrals, new business, customer satisfaction resulting in being called back when additional needs arise, etc.

    Also, I need help developing a long-range vision and strategy while managing to build along the way. It's difficult to hire employees when there is not consistent work--I've always been very conscientious of benefiting those whose services make my business successful. That lack of consistent work in turn makes it difficult to find good people when there IS work--they have gone on to better jobs!

    Still, I like being in business for myself. Overall, it is one of the best decisions I made. I enjoy serving people, customers and workers alike. And I like having accomplishments I can look back on with satisfaction--"We did that!"

    Submitted Feb 14, 2010 8:23 AM

  9. .Jef M. says:

    Thank you for sharing your ideas. 

    I will be conducting a leadership seminar for school principals. Surely, I will be able to use your ideas.

    Thank you.

    Submitted Sep 19, 2010 5:12 AM


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