Background
In early 2024, Summit Performance Solutions was contacted by an Asset Based Corporate Banker representing a Staffing Firm with an annual revenue of approximately $85 million. The company, a leader in providing integrated staffing services across the energy industry, was facing severe payroll management issues and was unable to keep up with workforce requirements. Despite initial outreach, the client declined assistance and chose to manage the problems internally. However, by late 2024, the situation had escalated: due to continuous payroll delays and errors, employees began walking out, and the company was forced to close its doors.
This case demonstrates how early intervention, using Lean and Continuous Improvement methodologies, could have prevented these issues from escalating and saved the company from a less-than-desirable end.
Challenges
The company faced numerous challenges that stemmed from a lack of effective processes and controls:
Poor billing practices: Client portal mismanagement caused payment delays, leading to payroll disruptions.
Absence of Standard Operating Procedures (SOPs): No standardized processes existed for handling payroll and billing functions, increasing the risk of errors.
Insufficient back-office support: The company relied heavily on a small number of employees with minimal training and little-to-no support, further compounding inefficiencies.
Communication breakdowns: There was poor communication between field employees and the office, exacerbating delays in processing work orders and billing.
These issues resulted in high error correction costs (over $1 million annually) and late fees (roughly $675k), further impacting the business’s cash flow.
Value Proposition: Lean and Continuous Improvement Solutions
Summit Performance Solutions proposed Lean and Continuous Improvement techniques to address the root causes of these problems and streamline the payroll processes.
1. Process Standardization:
o Implementing Standard Operating Procedures (SOPs) for billing and payroll would have reduced confusion and ensured operational consistency.
o Using Lean tools like process mapping, the company could have visualized and eliminated waste in the payroll process, preventing delays and mitigating errors.
2. Employee Training and Empowerment:
o Lean encourages a culture of continuous improvement. Proper training in client portal usage and payroll systems would have empowered back-office staff to more efficiently handle billing and payroll processes.
o Engaging employees in Kaizen events (focused improvement activities) could have provided them with the tools necessary to identify and solve recurring issues.
3. Communication Improvements:
o Implementing standardized communication channels between field employees and the office would have reduced delays in processing work orders, improving billing accuracy.
o Tools like huddle boards and digital dashboards could have provided real-time updates on billing and payroll cycle status, preventing confusion and improving accountability.
4. Error Reduction and Cost Savings:
o By reducing errors through standardized work protocols and enhanced communication, the company could have saved more than $1 million annually on error correction costs.
o The implementation of simple, Lean tools and techniques would have reduced the occurrence of late fees, saving an additional $675k per year.
5. Employee Retention:
o Lean’s focus on employee engagement would have created a culture of mutual respect and problem-solving. Timely payroll and improved communication would have fostered loyalty, reducing the likelihood of employee walkouts.
Outcome: What Could Have Been
Had these Lean and Continuous Improvement strategies been implemented, the company could have avoided losing employees and maintained operational stability with its clients. Payroll issues could have been addressed before escalating into a full-blown crisis, while addressing inefficiencies could have saved over $1.6 million annually in error corrections and late fees alone.
At the time of its closure, the company was valued at $18 million (based on 6x EBITDA), and although this opportunity was lost, the lessons from this case highlight how timely intervention and process improvements can preserve business continuity.
Conclusion
This case underscores the value of Lean and Continuous Improvement in preventing operational failures. Early action and strategic process improvement could have saved this company significant time and money, and prevented employee dissatisfaction due to missed payroll processing. For businesses facing similar challenges, it is essential to invest in structured processes and engage in proactive problem-solving before problems escalate.
At Summit Performance Solutions, we help businesses like yours optimize operations and achieve sustainable growth. If you are noticing similar issues with your clients, our consulting services can offer the support they need to avoid costly mistakes and keep their business on track.