How lean should your business be?

Recently I had the privilege of meeting a successful manufacturing entrepreneur, Phillip Butler of Textor technologies, who has built a multi-million dollar business making absorbent materials for nappies.

His business is built on taking risks in the face of opportunity and innovation through research and development to develop patents that allow his organisation to manufacture unique materials that can be exported to other countries.

When I meet people like this I listen carefully to learn anything that I can about how to run a business, mine or anyone else’s.

Many of his comments were around the requirements of business to be lean. Light leadership, minimal board structures, flat management structures and as few staff as possible. Phillip suggested that the future of Australian manufacturing was to be innovative and highly automated to compete with larger organisations with access to cheaper labour.

Large organisations are often bogged down, by process and by large environments that are complex to change, hampering the ability to innovate effectively. Thus there remain niche opportunities to innovate and sell back into larger organisations with requirements they cannot meet internally.

Running lean operations means focusing on core skills. Avoiding the building of internal teams focused on non-core areas can enable faster innovation. This does not bode well for jobs growth from our manufacturing sector. Yet the importance of export revenue and local productivity dictates that this needs to be the case. High-tech highly automated niche manufacturing with short innovation cycles and well funded R&D offers a bright future for Australian exports.

Where this creates a big opportunity for local employment is in the services sector with skills required in robotics, IT, finance, design, IP law, marketing and many other business functions where high levels of expertise are required in short focused bursts by companies in an innovation cycle.

What I mean by this is, for example, with an IT upgrade from old servers to new servers there is a project required. An internal IT function spends years supporting existing infrastructure and works at or near capacity in providing that function to the business.

An upgrade project requires specific skills that can be learned but are then improved by experience with the process and the technology. So for an internal IT resource to do this function would require specific training and then they would still learn on the job to complete the upgrade.

This would disrupt the business and would have a very high cost to the organisation. The process from start to finish could take a number of months. The skills gained by the internal IT people would not be required again in this business and so would now go to waste.

Alternatively by outsourcing that specific upgrade project to a service provider who has project-focused technical people with well-honed knowledge and experience the project might only take days or weeks to complete with a minimal interruption to the business.

The project skills of the external service provider can then be redeployed to the next customer very efficiently. The external technical resources can still be called on when issues arise and so the total skill base available to the company has increased reducing future risk.

The same might be said for designing a new production line or marketing a widget in a cluttered market place.

So supporting more lean, agile, niche manufacturers should be very good for our local services industry and if we can make it profitable to export the niche products manufactured, the sector should grow to help to soak up the surplus of manufacturing skills we have as our automotive industry closes down.

Extrapolating this thinking to get our businesses fit to trade in 2016, how lean should your business be and what non-core components should you outsource? What projects do you need to get done by others to be ready to innovate and drive productivity in your business next year?

David Markus is the founder of Combo – the IT services company that is known for business IT that makes sense. How can we help?