If you have traveled domestically or internationally, you’ve probably noticed that McDonalds’ hamburgers are the same everywhere. It’s not an accident. Senior managers at each franchise are required to participate in training at the corporate facility known as “Hamburger University.” In addition, McDonald’s has written procedures for every facet of its operation. What’s more, because of those procedures, McDonalds is legendary for the entry level skills of its employees – they are the world’s largest employer of high school students.
The business model that Ray Kroc devised is considered as his greatest business achievement. In order to sell franchises, he built a model that worked no matter who purchased them. Specifically, it worked without him because franchise operations were designed around procedures, not superstars.
The McDonald’s Phenomena
I first noticed the McDonalds’ phenomena during a vacation in St. Maarten. When I returned, I asked myself: “Making hamburgers with high school kids is one thing but how can I use procedures in a company that provides consulting services?” The answer took several years to develop and the result was the Integrated Change Management (ICM) methodology documented with project management (PM) procedures in our ICM/PM Manual. The manual was used on all projects, in employee training, and as the basis for certifications required for promotion. The ICM/PM Manual also was valuable to prospective buyers because it gave them confidence that the business could operate efficiently and effectively without me.
Your Business Needs Procedures too!
If your company doesn’t already have and use a procedures manual, start developing one today. The manual should describe how things are done so employees (and a future owner) conduct business in a reliable, efficient and repeatable manner – even if you aren’t there to supervise. Typically, the manual will address the following topics, in addition to processes and procedures that are essential and unique to your industry:
- Organizational roles and responsibilities,
- Recurring meetings and reports,
- Business development strategies and marketing methods,
- Sales reporting, quotas and commissions,
- Bidding, estimating and contract review/approval,
- Project management processes and responsibilities,
- Product development, quality control, and delivery,
- Customer service and warranties,
- Billing and accounts receivable, including discounts, returns, refunds, and special orders,
- Purchasing including purchase order approvals,
- Shipping and receiving,
- Cash management,
- Normal business hours and after-hour, holiday and inclement weather procedures,
- Equipment operations and maintenance,
- Computer operations and security, and
- Email and web usage, and web site postings.
Since procedures change often, there must be a process for collecting changes and updating the manual. Consider an on-line Wikipedia-like environment for your procedures manual because it is easy to maintain and avoids cumbersome distribution of hard-copy manuals.
Personnel policies manuals are normally separate from procedures manual, although they may be combined. While personnel manuals are largely boilerplate disclosures related to employment practices, a failure to have an up-to-date personnel manual could subject your company to costly employment litigation.
The Value of Procedures
You may think it’s excessive for your company to divert resources to document operating procedures. But in addition to greatly enhancing the attractiveness of a business to buyers, written procedures are a good business practice.
They are valuable for increasing quality, for branding the company as reliable and consistent, for training employees, and for continuously improving performance. ISO-9000 certifications and Capability Maturity Model Integration (CMMI) appraisals (levels 3-5) are widely recognized and highly respected in this regard. Furthermore, written procedures will reduce operational complexity because less-qualified employees can fill positions where the duties, procedures, and performance metrics are specified in writing.
Buyers Like Written Procedures
A thorough Procedures Manual allows your company to appear well managed and less risky to a prospective buyer. If your company has unique techniques for delivering a service or product, be prepared to show the buyer procedures that describe how you do it.
The Procedures Manual will be relatively short if your operations are straightforward and simple. However, if your business operations are complex like my consulting contracts, the Procedures Manual is likely to be longer and require considerable thought and time to prepare.
Either way, a Procedures Manual is a high-value investment that will streamline operations in the short term, and increase the value of your company in the long term. When you prepare the offering memorandum to sell your company, be sure to mention that written operating procedures and employment policies will be available for the buyer to review during due diligence.
End Your Dependence on Superstars
Business owners often feel that their success depends on building an amazingly competent staff, including managers with advanced degrees from prestigious universities. That’s a mistake! It’s difficult to find such people and when you do, they are expensive, hard to retain and a pain-in-the-neck to deal with. Instead, what your company really needs to be successful is effective procedures and structured training. In short, you need a business model like McDonalds that will produce consistent results virtually independent of the people you hire.
Such procedures will resolve many of your current challenges by streamlining decision-making in your organization or by eliminating the need for decisions in the first place. Furthermore, such procedures increase your company’s value in an M&A transaction because they are exactly what buyers want to minimize risk! So build your business around procedures rather than superstars.
About the Author
Richard G. Stieglitz, PhD (www.dickstieglitz.com) is a consultant to the owners of privately held companies and author of the best-selling book: “Expensive Mistakes in Buying & Selling Companies – And how to avoid them in your deals.”