Case study: The Lean at an English school (part 2)

Case study: The Lean at an English school (part 2)
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As we saw earlier in part 1 of this article, much more than just a way to make plans and then execute them, Lean shows itself as a true business philosophy that drives the growth of the company and transforms employee behavior from the board to the operation through continuous improvement.

Whereas, in the specific case of WAI we had to deal with a small and low complexity process, we identify the shortcomings in the routine quickly through basic quality tools, namely: data collection, flowchart and 5 Why.

We implemented corrective actions from what was most important to partners and attacked their two main problems, failed communication (addressed in part 1) and critical cash flow.

Case study: The Lean at an English school (part 2)

In this part 2, you will see:

Where did the money go?

It is very common that for at least the first three years of a business, the cashier control be divided among the partners, who in addition, need to control several other demands. Only after some time and growth do they (or one of them, as is usually the case) decide whether to financial control or if they choose to delegate such functions.

In the case of English language school WAI, the partners expanded the business without any planning and continued, paying the additional with their personal capital. Over time, they were even forced to give up the pro-labor to keep the accounts up to date, as they could no longer create a profit margin on school revenue.

In addition, for many times, older students did not meet the payment schedule and cried for big discounts or even committed to paying the full amount of the debt only at the end of the semester (which almost never worked). Given this scenario, the members realized that they were giving "free" classes to almost 30% of their active student body, which represented a direct loss of around 10 thousand reais in each semester.

Another WAI was the control of the canteen, which had the registration of entries in the box separated from the rest of the company (although the cost - output - was not separated). Two years ago they did not negotiate prices with the supplier, did not charge satisfactory sales prices and had several products that ended up stocked on the shelf.

Thus, it did not take much effort to conclude that the cause of the problems in the cashier was lack of control. However, we knew that only a conclusion "in the eye" would not answer the question of why they had reached such a point. Was it just a lack of control or a question of behavioral posture? We had to determine the root causes of poor financial management.

Financial management shock: the DMAIC cycle and uncontrolled hunting

We needed to build a report that did more than show numbers - that would encourage urgent decision making on the part of the partners. Therefore, we divided the management process from the DMAIC (Define, Measure, Analyze, Implement and Control) cycle so that our interventions were understood by both partners and staff and could continue over time.

Definition Phase

The consultancy was concerned with characterizing exactly what was happening, so we recorded all the billing outputs, which are:

  • Operating costs;
  • Routine expenses;
  • Expenses with advertising events;
  • Accounts and wages;
  • Refueling the canteen.

We then record the entries, which are:

  • Active registrations;
  • Sales of teaching materials;
  • Sales in the canteen.

We note that the flagship of the school's billing is the enrollments. As the teaching material is optional, most of the students went on with the course without acquiring it, so he had little weight in the total entrances as much as the profits from the canteen.

Mapping the enrollment process, we saw that it works like this:

(1) one of the receptionists presents the school to the customer → (2) provides the budget of the course by categories, with and without the teaching material → (3) inform the forms of payment → (4) explains the enrollment agreement; and finally → (5) dates the enrollment.

Measurement Phase

We built a report on the values ​​of all the surveys we did, demonstrating that the partners had a loss close to 10 1,000 reais every semester. Revenue was 19% below cost and enrollment and 27% of students were in default.

We also found that other 30% of the total number of students enrolled benefited from some type of scholarship (in this case, a discount between 30% and 70% of the total value of the course), since at the beginning the school participated in a government incentive program study of languages. This value was already out of date and the school (and the students benefited) did not try to negotiate new terms of payment.

At that point, the total of late installments represented 8% of the entries scheduled for that month.

Analysis Phase

After mapping the enrollment process and also selling the teaching materials, the consultancy continued the verification by interviewing the receptionists. This process demonstrated that they had little idea of ​​the need for control, just registering the enrollments in the franchise system and dealing with defaults as they occurred.

The tool we used here was the 5 Why. That way:

  1. Why are we at a loss this semester? A: Because we have many delinquent students and we have not been able to take more enrollments.
  2. Why so many defaulters? A: Because when they fail to pay a monthly fee, they decide to accumulate the amount to pay together next month or the end of the semester.
  3. Why do they do this? A: They have been doing this since the first years of school.
  4. Why it happens in this way, is it in the registration agreement? A: It is not in the contract, but they know that we have chosen to facilitate payment and avoid constraints.
  5. Why? A: Because we always trade this way.

Thus, we find the first root cause: absence of a payment policy and default. We concluded that this was a root cause because the premise that the partners adopted that should always facilitate payment was harmful.

If the partners did not analyze their position on debts and delinquency negotiations, it would not be good to create controls. It was necessary to find a way to make collections that were not embarrassing for the clients or the receptionists, but that gradually they would end the cycle of delinquency until its dissolution.

The second root cause was the absence of budget plans. Without setting specific goals or spending limits, members spent based on momentary needs. Such decisions meant for the school an operating cost far greater than the revenue, making the business detrimental in the medium and long term.

Implementation Phase

The time has come to create the plan of action. An excellent tool for prioritizing actions is the GUT Matrix, through which the person responsible for the action plan gives notes from 1 to 5 - 1 being the minimum level of importance and 5 the maximum level of importance - to the causes found from the following parameters: Severity (G), Urgency (U) and Waning Tendency (T).

Based on this, the partners gave their notes to the problems and the consultancy was able to define a sequence of resolutions for the action plan. The summary of the action plan ordered by prioritization is as follows:

  • Create a payment and delinquency policy - specify payment days, notification messages, limits for discounts, credits and up to the number of scholarships per semester;
  • Renegotiate the operating costs of the school - rent and other accounts;
  • Create a financial control sheet - entries, exits, budget plans for 6 months and 1 year with graphical reports to demonstrate profitability and make new decisions;
  • Create a control box for the canteen and associate it with the monthly entries;
  • Set student catchment and retention goals for 6 months and 1 year.

As the actions were put into practice, the consultancy realized that the team questioned why things would work out well if there were still results before the changes. It was necessary to carry out an incentive work to raise awareness so that there would be no self-sabotage.

The great point of this phase of implementation was to stimulate a new culture of behavior, where the members put themselves as references and the team was then, as the military says, "drawn by their example" in search of new results.

It was also clear that the redefinition of positions and activities by profile (one of the changes described in part 1 of this case study) was a preponderant factor for the team to be stimulated. This improved the communication between the receptionists and the members at the time of the negotiations of payments and signing of contracts of enrollment, well reducing the tension of the team when dealing with the clients in more delicate situation.

Control Phase

This is the smallest phase of any continuous improvement consultancy process, but precisely the phase where the real impact of the changes implemented is verified. Thus, we chose not to add anything new to the action plan, but only to observe the change in the scenario in the reports and discuss with the partners the effects of what had been implemented.

The changes that could be translated into the graphical reports were:

  • The renegotiation of fixed costs reduced 10% of the exits in the financial control;
  • The new payment policy actually facilitated the negotiation of debts with younger students, reducing the number of defaulters (obs .: we did not get a final rate to compare with the first, but the school was managing to negotiate defaults gradually);
  • The number of students who enrolled after the new enrollment goals and strategies plus retention increased, according to the school, double the usual number.

The changes that were not measured by graphs but were behavioral responses were:

  • Good level of satisfaction of the team regarding the financial controls, since they gave security to the planning of the strategies of commercial action (capture and retention of students) and construction of new partnerships;
  • Increase the credibility of the school in the local market;
  • Self motivation of the team to meet the standardization requirements of the franchisor;
  • Self motivation of the members to set enrollment goals and obtain pro-labore.

Although expectations were good, there were also actions that were not put into practice for other behavioral reasons such as, customer resistance to new negotiations, lack of use of the team's activities schedule, possible failure of communication between the partners and the team, lack of local appropriation of shares to the master plan of the franchisor (this made them ignore the need for a fixed budget) and so on.

In short, the improvement project demonstrated that much more than financial controls, the financial management of WAI it was a matter of corporate culture.

Final Thoughts: What if the improvements stop?

A well-known phrase from Peter Drucker says the following: "What can not be measured, can not be improved". After the project of improvement in the WAI, we find that, as entrepreneurs tend to innovate in the financial management of their companies, they have to surrender to traditional controls to ensure security in their development.

That is, no matter how creative the business model of WAI, it could not withstand another year of unplanned growth.

Every awareness of change depends directly on the board of directors, since it is primarily responsible for the company's values ​​and strategies. As we have seen in the case of WAI, whenever the team realized that the partners around and around adopted the old stance, it was demotivating.

The only way to keep the improvements was to make sure the partners believed in them and commit to the process first.

A WAI, similar to every small business, has an undeniable growth potential, but also a huge danger of stagnation. The great experience of consulting in this case was to learn to feel the impact of organizational culture and deal with the consequences of it.

It is also essential to understand that not all clients are prepared to receive advice, for although the results are almost immediate, there is the natural resistance to relearn how to run your own business. Both consultants and clients should prepare for this lesson.

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