Monday, 24 January 2011

Process excellence includes keeping your competitors guessing and your board aware.

How does our perception of process excellence play out in an aggressive market place? Is process excellence a barrier to competitiveness? Well, I believe it can be, if the mindset is not prepared for change. Here is why.

In turning our business around, we recognised the need to increase sales; developing $140m new prospects in 6 months and converting this into a 70% increase in first year revenue; a team effort combining the best disciplines of engineering design, manufacturing and service.

Our bids were close to perfect, including the right level of resource and materials. We worked closely with suppliers. We built and installed reliable equipment. We evaluated risk and included appropriate mitigation. Contractually, we offered tight, but fair terms, with appropriate warrantees.

A winning combination, you might think? Our engineering excellence played well with established customers. Our competitors knew our strengths. Our owners wanted positive cash flow. Lower cost new entrants challenged pricing. How did we all respond?

Our excellent processes ensured that the original bid was profitable, commercially complete in every detail and would pass the scrutiny of the customer’s buyers and our board’s technical experts.

Our competitors took a different perspective of the project life-cycle. They submitted a lower initial price and were happy to run with negative cash flow for longer. Either through guile or incompetence, they might under-quote on engineering time or forget to include some items. They knew that by the time their work was incorporated into our customer’s large infrastructure project there would be many changes to the successful bid. They also knew that the initial project would be awarded to the lowest bidder and the changes in the years ahead would not be put out to re-tender.

Our competitors gambled on making money from the variations that would be requested later in the cycle. How were we aware of this behaviour? Large bids are opened publically by the awarding organisation. From the numbers read out, we got a quick sense of where competitors’ offers varied from our own. They worked on the presumption that they could correct any mistakes and add back profit via some of the many requested project variations. They knew that changes post project award were commonplace. Our owners, from a service and financial background, did not understand this.

We were sometimes outraged that our competitors acted with lower quality. They were prepared to manage risk and relationships later to ensure profit across the whole life-cycle of the project.

So, my advice to those who pride themselves on process excellence is this. Ensure that your processes are reviewed regularly against the needs of ALL those who benefit. Be aware that your unique selling points can be exploited. Keep your competitors guessing and your Board aware of what you are doing.

Feel free to push back on my observations and have a great week.

Michael

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