Developing Effective Business Systems

1 Systems vs processes

Firstly, let’s understand the difference between processes and systems.

A system achieves a business objective of the business eg managing the finances.

A process is a specific series of sequential steps within that system and achieves an objective of the system, eg processing employee expenses claims.

A procedure is a specific element of a process, detailing how a step is done, eg authorising an expense claim.

Clear processes and procedures are the building blocks of effective business systems.

Successful systems have clear processes that everyone involved can understand and follow.

Your processes set out how you do things in your business. They need to be fit for purpose, comprehensive and able to be followed by anyone with the relevant training.

Systems are more than the Information Technology (I.T.) that a business might be using, they are the processes and procedures that are used in the business to turn inputs into outputs. If you put a number of processes and procedures together you get a system.

There are systems throughout any business, from sales and marketing to HR and finance, to customer relationships to producing goods and services. If something is done over and over again it lends itself to creating a system or consistent process.

Example: a finance system

As an example, let’s look at a finance system.

Firstly, what does it need to do? It needs to accurately capture all the transactions in the business, record them correctly and comply with the law (eg account for tax correctly).

There needs to be clear a process for staff to put in an expense claim, raise a sales invoice or purchase goods and services for the business, to name a few. Each process needs to have controls embedded within it to protect the business and to comply with the law.  It also needs to be as easy as possible for members of the team to use.

The outputs of the finance system are reports of various types for different purposes. At the highest level the system needs to reliably provide accurate financial information to the right people at the right time in a format they can understand and interpret.

For you as a business owner, you need to have meaningful reports about profit and cashflow. You need to be spending your time interpreting the information and translating it into actions to take, not spending your time manually entering data and just hitting monthly deadlines. You need systems to take this burden off you so that you can fulfil your role as a business owner.

Clear processes are the building blocks of effective business systems.

2 Developing clear processes

So how do you develop clear processes?

Clear processes come from being clear what the inputs and outputs are and the stepping stones taken from start to finish to turn the input into an output.

So, for putting in an expense claim, the employee needs to complete an expense claim document, supported with evidence, like receipts, submit that to the line manager who then authorises it for payment. That process turns an expense claim (the input) into a liability for the business to pay (the output). Other processes in the finance system then pay the employee in due course.

For a small business that is highly dependent upon the business owner, or a handful of people, this can be particularly difficult. You are having to break down into component steps things which you currently do instinctively and without much thought. The steps are obvious to you, it’s all second nature. This can actually make it surprisingly difficult to break down into individual steps.

You’re almost certainly doing more than you think you are doing! For example, authorising an expenses claim includes checking there is real evidence to support the amount claimed, that the item complies with your expenses policy and the law on expenses, that there’s no fraud or error, that it was necessarily incurred for the job, that there is a budget or cost centre for it to be allocated against, that it’s a reasonable claim and so on. You are probably instinctively doing all this (or maybe not!) and breaking this down into steps can be hard going. In this example there is also a lot of detail and so “authorising the expense claim” ends up being a short-hand for all that detail in the process.

Fortunately, you only need to break processes down into enough detail to be able to be clear about the steps.

Breaking out your process into enough steps gives you the clarity you need for a good process.

The next step is to document it.

3 Document your business processes

For any process to be successful the people using it need to understand what to do. Clear documentation of your processes helps in a number of ways. It is useful for people when being trained, it means that other people can more easily step in to run key processes when the usual team member is away and the discipline of documenting it often highlights issues and inconsistencies.

Use flowcharts

One of the clearest ways to document processes is via a flowchart – a visual depiction of the series of sequential steps. Indeed, if you can’t draw it as a flowchart, you might need to rethink your processes.

Documenting a procedure on the other hand is less easy to depict as a flowchart, this is more likely to be narrative text, or sets of bullet points or checklists. You might have a procedure for each main step in the flowchart.

Theory vs practice

The activity of documenting processes and procedures often shows that the theory of how it should work differs from what people are actually doing day to day.

People often find different ways of doing things which are more efficient and ignore elements that add little value or are too complicated.

Updating your documentation gives the opportunity to refine the procedure, or top up the training.

Reducing risk

Creating documentation also shows up where individuals are a key part – or the only part – of the process. This is a risk because it is no longer a process that is robust and that others can follow because the only person that understands the process is the person doing it.

It is quite possible that that person doesn’t even really know the individual steps they follow as they are so familiar with it – they “just do it”.

It’s only the process of documenting what they do – and have someone else review it – that the process can be fully understood and communicated to others.

4 Assign responsibility

There’s no better way for a system to fail than for no-one to be responsible for the processes within it. Every process should have a person assigned to it. Indeed, it should be clear who does each step of a process.

For example, let’s go back to our expense claim process:

• it is the employee’s responsibility to complete and submit their expense claim on time
• it is the line manager’s responsibility to check it and authorise it
• it is the finance persons’ responsibility to pay the authorised expense claim on time.

It can be particularly helpful to assign responsibility for an overall process to one person as well – they then have the oversight of how the whole thing is working. It then becomes their responsibility to convert inputs to outputs consistently and at the right quality – and they do so by having a process that is fit for purpose.

5 Turn processes into business systems

Clear processes are the building blocks of effective business systems.

A system in any area of the business is made up of a number of processes and procedures fitting together into a coherent whole to meet a business objective.

To continue our example, the finance system will have a number of procedures and processes to ensure that all income, expenditure, assets and liabilities are recorded and processed correctly and then meaningful and accurate reports are provided to management to act on.

Bottom-up vs top-down approach

This suggests that it is best to document processes and build them up into systems. However, a better approach to developing effective business systems is to look at the high-level purpose of each system and break it down into its key processes and document each one of them, starting with the most critical ones first.

6 Train people to operate your systems

In many small businesses (and some larger ones!) I often find in a particular area that one person IS the system or process.

The flowchart would simply have a box that says “Jane”, which is to say that at this point Jane then does something that non-one else understands!

This is great whilst Jane is working, not on holiday or doesn’t leave. It’s also great when Jane does a great job and others can see that she does a great job. Often, that’s not the case and the business owner finds out too late!

A system is a set of processes that people follow and the system is controlled by one person.

Put simply, a system is operated by a person, it isn’t a person!

If you find that you have someone like this in your business, then you have a linchpin problem.

Without the linchpin in place your system falls apart. This is a risk area for your business. You might like to document those areas first – and yes they might be the trickiest to document but they may also be the biggest risk area for you.

Once you’ve got past the problem of people being the system you can train people to operate the system.

7 Monitor and improve your systems

As a business owner, you are interested in the successful achievement of the business objectives of each system in your business. Each system should produce meaningful information for you to monitor the overall system. Hopefully you can delegate the detail of the processes and procedures within the system to someone else, leaving you to focus on the main business objectives.

For example – are your business finances managed effectively and is the finance system giving you the financial information you need to take timely decisions?

Effective systems and processes need to be fit for purpose today. As the business grows and develops over time, priorities change and the systems and processes need to grow and develop too.

Even in a stable environment systems and processes can be refined, improved and even simplified. They need to capture the organisation’s learning over time, based on real experience rather than theory or the way a piece of software happens to be configured.

The role of IT in developing effective business systems

So far I have resisted the temptation to talk about IT – indeed you may have been expecting me to talk about different IT systems.

Using IT is almost invariably going to be the end result of your development of systems, but it isn’t the starting point.

This article is about making your business systems effective. IT systems help to make them efficient.

IT does a fantastic job of making systems efficient because they take repetitive tasks and streamlines them, makes them consistent, embeds controls, records data and enables reports to be produced. It can even automate some of the processes for you.

But there is no point in automating an ineffective process or designing an IT system to streamline the wrong business process. IT should come second to your thinking about the systems and processes that your business needs.

Conclusion

To build a robust, scalable and profitable business almost invariably requires you to develop effective business systems – and then to make them increasingly efficient to further improve productivity.

Whilst thinking through and documenting processes may not seem very exciting – and may even feel like a bureacratic exercise (which it can become if you’re not careful) – it is essential. Even by just setting out simple steps or outlining them at a high level, you will gain clarity for you and your team and have a baseline for improvement.