Chapter 7 – Misers Prevent Unicorns From Finding Pots of Gold

How do I ensure that my revenue support costs are productive and provide value the customer wants?  Do you have any recommendations on what can produce the best results for the effort and expense?

The Quote-to-Cash (“QTC”) cycle is the lifeblood of every company.  If you cannot take a quote, generate an order, invoice the customer, and collect from that customer, then you do not have a business.  QTC operations are also the most complex activities in nearly all companies, with webs of interdependent systems, complicated revenue recognition rules, and hopefully, lots of demanding customers.  Fortunately, these activities are where back-office activities receive enthusiastic support. An active and dynamic company allocates attention to anything that can exploit sales opportunities.  It is your job to take advantage of this support and do something that goes against the typical support mindset – build in redundant labor and system resources as a margin of safety.

Why not staff headcount at an optimal level?  Isn’t optimal efficiency a key principle of the “Lean” production method (the ideal level of throughput is what is known as “One Piece Flow” which occurs when one item is being worked and no items are waiting in queues to be worked on at any given time. As one piece is finished work begins on another)?  The method does value efficiency, but not at the expense of effectiveness.  The problem with with operations that achieve “high efficiency” is that variations only go in one direction – the wrong direction.  Consider the interactions between your team and other parts of the organization.  Any issue will cause fissures in one area to spread throughout the entire process.  Variations from any standard or expected result increase the risk of error across the company.  For example, understaffed teams are mistake-prone. Overworked personnel overlook issues that cause revenue to deviate from forecasts. Billing errors create unhappy customers.  Overall, “perfect efficiency” increases the risk of process failure.  And revenue is no ordinary risk.  QTC failures can blow up businesses and careers.

The opposite of the perfect efficiency strategy is redundancy.  An team staffed beyond optimal efficiency is insurance that allows you to survive under stress, thanks to the availability of spare parts; that is employees who can fill gaps or address problems. Redundant or “reserve” employees equal insurance.  The cost of this insurance is maintaining spare people in spite of their potential idleness.

The advantages and benefits of giving certain employees large blocks of what might initially seem like spare time are innumerable:  substitutes for employees that are sick, on leave, or at training, improved work life balance for the team, staffing for projects (amazing how much someone can accomplish when they are not distracted by normal day-to-day activities), and so on.  The biggest perk of all, one that will emerge, unpredictably, is this:  participating in activities that force employees to think transforms them into vital resources.  Employees not shackled to daily responsibilities for discrete periods of time can study issues.  Removed from performing the same activities day after day, intelligent workers can turn into potential problem solvers, better understand the perspective of others, and deal with other points of view.  They can manage projects.  They can be tasked with integrating new tools or teams.  And, by doing so, they become even more valuable to the company, and themselves.

The Quote-to-Cash cycle includes all the activities that occur from the time your company issues a quote to a customer to the time where it collects cash from that customer.  Over time your company’s cycle often does not keep up with changes in your business.  Mired in procedures, system glitches, endless meetings and top-down directives, innovation often becomes stifled.  A remedy to this calcification is to pair these reserve employees with a project manager and empower them to solve problems within the cycle.

Pairing a project manager with a skilled employee who knows a process is a great way to organize end-to-end process reviews.  Together, they can effectively engage the key contributors.  They are able to facilitate discussions between these contributors.  And they have the time to reflect and follow up on project tasks.  For the order-to-cash cycle, these tasks will almost always involve simplifying processes and integrating revenue system tools.

Redundancy is a tool strategy as well.  Every fast growing technology company should have a high degree of reliance on revenue system tools.  As with equity and cost systems, the Quote to Cash process cannot scale if it relies on tasks being performed manually.  Don’t let your company be a miser, automate your QTC process.  The greatest catastrophes of success occur when your business takes off and your QTC process cannot.  It’s like trying to buy insurance once your house is on fire.

What becomes your challenge is to implement and integrate tools in a manner that allows them to scale with your business.  How can you integrate information from internal product tools (ad servers) to your customer relationship tool (sales) to your order management tools (billing and collections, payment gateways, credit checks, etc.) and then into financial reporting tool?  Connecting these tools is a challenge that should frighten any manager, because with revenue, what you don’t know today may be needed tomorrow.  For instance, just twenty years ago no one imagined tools that would need to integrate into the internet or cloud based applications.

Revenue tools must have the capacity to efficiently process all information generated by sales activities at the maximum possible speed without error or down time.  Even before the term “fault tolerant” was used to describe the ability of a system to continue operating properly in the event of the failure of some of its components, managers were careful to build in redundancy as a margin of safety.  But you do not want too much redundancy.  Someone must link performance to scheduling in order to understand loads to the systems.  Someone must measure demand as well as the timing of demand on Company resources. Who is that person? At what rate are processes performed?  What is the variability of the workload?  What are the costs of errors, re-work or down time?  Where is data created or initiated? Most importantly, at what load does a system begin to fail?

Reserve or redundant resources mitigate the complexity and complicated rules associated with quote-to-cash activities.  Complexity has its costs (demand variability, hand-offs, input variability, product variability).  Compliance has its costs in the form of revenue recognition experts, tax tools, and audit procedures.  But the most expensive cost is the naive strategy of attempting to achieve perfect efficiency without a contingency plan, or a sense of reality when it comes to labor or tools.  Be insured, because if your QTC process fails, so does your business.

• See What happened to Zenefits