“What Gets Measured Gets Managed”

– Peter Drucker

Tree care requires skilled technicians in the field who learn what works and incorporate those practices into their processes. Similar methodology can be used to yield higher profits from a business. Photo courtesy of the author

Arborists are practicality driven; we recognize what works and then incorporate best practices into our processes. With our industry’s spirit of innovation, we have seen major improvements year over year as our techniques and technologies evolve. As rapidly as we have seen innovation in field operations, we also have enhanced our ability to run our businesses. As such, we recognize management as a pathway to continuous improvement.

Specifically, we can expand our management capabilities to support the growth of our businesses. There is a model we can use to refine our management process – IPO, which stands for input-process-output. This article discusses IPO as a framework for continuous improvement, and how it can be used to analyze and improve processes to yield higher profits from a business.

What get measured…
The quote “What gets measured gets managed” is attributed to the 20th-century management pioneer Peter Drucker. Drucker was instrumental in evolving modern management theory in a variety of dimensions. Among other things, Drucker emphasized the importance of what he calls “feedback analysis.”

Feedback analysis requires an understanding of the relationship between measurement and management. When applied correctly, feedback analysis is a pathway to the growth of a business, in addition to being a method for personal and professional development. This is because feedback analysis enables us to know if our management strategies and tactics are working.

Many of Drucker’s sentiments parallel the spirit of continuous improvement we see in the arboriculture industry. Our ability to innovate and improve relies on our ability to analyze what’s needed to succeed, determine what tools and techniques we need to make it happen and relate that to a clear idea of our intended result. Further, we must find a reliable way to measure the effects of our efforts.

Despite this, there are so many choices in improvement methods and management techniques that continuous improvement can seem like a moving target. It can be challenging to target our efforts and determine a course of action. Further, it is often difficult to know if what we’re doing is working. This is where IPO comes in.

What is IPO?
IPO is a systems-thinking tool to help owner/operators identify continuous improvement initiatives that lead to higher profits. It is a tool to help identify and systematically correct inefficiencies, or bottlenecks, within the business. In this way, IPO helps us find and fix flawed processes, ultimately yielding better outputs (profits).

According to IPO, process serves as a bridge between inputs and outputs. Therefore, improvements in the quality of the inputs combined with targeted refinements in the process will yield better outputs. IPO helps us analyze our process based on the measurement of inputs and outputs, which gives us a clear pathway to adjust or course correct as we improve our process.

Although we discuss IPO as a means to drive profits, it’s important to note that the model can be used for any effort to improve processes. This includes a variety of aspects related to continuous improvement. This could include safety management, customer service, employee development, service design or any other key business process that can be measured and managed. IPO works because it incorporates continuous improvement as a pathway to growth. Because arboriculture is evolving, we must continuously improve and stay on the forefront of best practices within the industry.

Tracking changes
Every year, the industry makes incremental improvements. This includes advances in climbing tools and techniques, along with other equipment innovations. Further, our ability to manage our businesses has greatly improved with the advent of a variety of technology improvements. We have seen innovations in business-management technology, business intelligence and data analytics. This includes, but is not limited to, mapping software, work-order management and scheduling tools, customer-relationship management (CRM) tools, telematics and more.

As we continue to improve our operations, we get faster, deliver better services and become more efficient. Despite this, trying to change too much too quickly often leads to challenges. Needless tinkering or trying to do too much too soon with little thought about inputs, outputs or desired outcomes can be expensive.
IPO helps us sort all these options out and progressively track continuous-improvement initiatives. In this way, continuous improvement can be achieved by using IPO, which involves defining the metrics, measuring inputs and refining the process to optimize outputs.

Figure 1: Financial key performance indicators, or KPIs. TCIA graphic.

Know your numbers
KPIs, or key performance indicators, are a calibration tool to help measure and manage key business processes based on the numbers. As they say, knowledge is power. KPIs give you the knowledge you need to make informed decisions around your business processes. Knowing and measuring KPIs is the first step in using IPO. This knowledge helps you make adjustments to your process and know whether or not your process is working.

Four financial KPIs in a service business are revenue related:

• Total amount billed during a given timeframe.
• Gross margin – revenue minus labor.
• Fixed and variable expenses –represented in the P&L.
• Profitability – what’s left over. (Figure 1)
• KPIs enhance our data analytics capabilities, using numbers and measurement, to positively impact our business
  decision-making capabilities.

Using IPO to drive profits starts with identifying and measuring inputs.

• Because tree care is a service-based business, one of the main inputs is sales. Once we sell the work, we have to figure out how to get it done.
• Tree care is a technical service that requires a high level of training to get the work done properly. We need people to fulfill our services, and these people need to be skilled.
• Further, tree care often involves the use of specialized equipment. This includes a variety of small tools, climbing gear and chain saws. We also need large equipment, such as trucks, chippers and aerial lifts.

These three elements represent the inputs discussed in this article. (Figure 2) Accordingly, your process (depicted as a funnel in the graphic) combines the inputs of sales, people and equipment that lead to an output.

Figure 2: The basic IPO model. Graphic courtesy of the author.

Analysis and optimizing
Improving your process involves identifying bottlenecks, streamlining and optimizing. This three-step process of analysis involves identifying where the work is significantly delayed or finding bottlenecks and correcting them. The second step involves reducing waste. This aspect of service design focuses on eliminating unnecessary steps, reducing redundant tasks and/or streamlining. Streamlining finds and fixes elements of your process where time is wasted, which increases efficiency. Lastly, optimizing involves evaluating existing capabilities and strengthening those capabilities to optimize outputs.

Profits tend to grow when we identify and correct inefficiencies and refine our methods. As we do this, we deliver our services faster, with higher quality at increased levels of efficiency. The IPO model works because it is a framework to analyze each phase of the operation in order to maximize the outputs as inefficiencies and bottlenecks are eliminated.

Putting it all together: Examples
To boost profits through sales, we can use the IPO model one of three ways. The first involves increasing volume or top-line revenue (boosting sales). This is done by increasing the number of customers you serve or increasing the average size of each transaction. You also can offer a wider range of
value-added services. This may include offering plant health care or consulting services to supplement general tree care services offered. Lastly, we can increase the frequency of transactions per customer or optimize pricing.

Sales-management, work-order-management, CRM-telematics and scheduling tools are all technology solutions to boost sales efficiency.

The second method for driving profits is to manage labor efficiency. To do this, focus on developing your people to drive profits. Focus on supporting the operation and your technicians in boosting safety, productivity and quality.

Tree care is a technical service that can be lucrative, because we need skilled technicians to deliver high-quality services. Therefore, investing money in your people in the form of training can boost efficiency and therefore profitability. As people develop, they are more capable of delivering high-quality services as they apply their skills.

The third method to drive profits is managing fixed and variable costs. There are a variety of strategies and tactics to achieve this. This includes being deliberate about investments in equipment and making sure those investments boost efficiency in the operation. You also can apply IPO to analyze and optimize all fixed or variable costs, including overhead structure, back-office functions of the business and any other aspect of equipment or infrastructure.

Conclusion
Applying IPO to boost profits is a dynamic process that supports management improvement based on the measurement of inputs and refinement of the process based on its effectiveness. This process works because it helps to systematically identify and correct inefficiencies in the business, which allows owner/operators to continuously improve their operations and optimize the bottom line.

Bill Owen, CTSP, based in Milpitas, California, is director of arbor operations for Monarch Tree Services, a division of Monarch Landscape Companies, a seven-year TCIA member company headquartered in Los Angeles, Calif.