Module 1: Case 1

APEX Studios: Enzo at a Crossroads

It was April 5^th and Enzo had just finished his work to process payroll and finalize the accounting for March's business. It had been another disappointing month for Enzo and his small graphics design company. He opened APEX Studios nearly two years ago, and while he had been profitable since the beginning, he was still not making enough money for the venture to produce a sustained level of income he needed to support his family. He'd left his well-paid corporate job to be an entrepreneur and though he did not expect this business to make him rich, he had confidence that it could be developed to produce an adequate income and give him the freedom of being his own boss. Every month-end, however, he anguished over the disappointing income statement. The business was earning enough that he could take a salary that paid the bills but there was nothing left for his boy's college fund, for retirement savings, or to invest back into the business.

Enzo knew graphic design. He had been a lead designer for the city's top design firm for over six years. When he was passed over for a promotion to design supervisor, he decided it was time for him to go be his own boss. He had saved enough to invest in the necessary production equipment, computers, and office essentials to open his business. The space requirements were not much, so rent was reasonable. From the very start, Enzo had business and it had grown quite a bit over the first six months. But it took a while for Enzo to figure out efficient operations, how to negotiate and price jobs effectively, and to interview, hire, and train new employees.

The second year had some good momentum. Enzo felt he had made some positive moves to streamline the business, control inventory, and negotiate good prices from his vendors. He was very careful with selecting the best value in materials needed for client projects and he was diligent with pricing jobs and working to negotiate such that his profitability was acceptable. He had reorganized how the materials inventory was stored, and where, to simplify the work of his production crew when they needed to find specific materials or work-in-progress. He had also spent a good amount of time learning the production equipment and then training his two operations staff to reduce waste, produce quality work, and keep on top of the project schedules and deadlines. As his employees increased their knowledge and ability to work without supervision, Enzo had tried to spend more time developing additional business with his best clients, dropping by to introduce himself to prospective customers in the business community, and networking through the local Chamber of Commerce.

His third try at a lead designer, Sheryl, seemed to be working out really well. The first two hires for this position had disappointing work ethics and Conrad, the first he hired, had lied on his resume about his knowledge and skills with design software. But now, Enzo thought he was lucky to have Sheryl and that, like his other four employees, he was getting a good return on the level of compensations and benefits he provided. Last May, Sheryl took it upon herself to suggest that she could design a new website for APEX and that such a move could really help reach and attract new clients. After a luncheon to discuss her ideas, Enzo offered to pay for her to attend a training session on web design and search engine optimization (SEO). By September, the new site had been up and running. Enzo was proud that his small company was now on the Web with an attractive site. People could now find APEX on the Web and read about and see photos of some of their best work.

Between Christmas and New Year's Day of the previous year when business was pretty much at a standstill due to his clients mostly being shut down, Enzo spent an entire weekendreflecting on the year and how things were going with his business. While the website looked great, its ability to bring in new customers was disappointing. There was barely enough new revenue associated with new customers to cover the cost of the training and software Sheryl needed to do the project. His core group of customers seemed safe, and many were growing, but he had also lost two good clients over the year. There had been a few sales successes, too. Like the new bank client and the car dealership, both were contacts he had made through the Chamber of Commerce. Nevertheless, after forecasting out the trends of revenues and profits, his wife's income, and the household expenses, Enzo knew that if the level of profit generated by APEX didn't turn around significantly over the next 18 months, we would have to seriously consider closing the business or (hopefully) selling it. He didn't like the idea of being a failure or of going back out to look for a job. Well into the night, Enzo wrote down his ideas and plans for improving APEX's performance. He reviewed where he might be able to reduce expenses (such as finding a lower priced credit card processing company and ending the contracting of janitorial services which he could do himself on weekends). He reevaluated the list of people he knew through the Chamber of Commerce, and through his church, and his other personal contacts and prioritized those he would call to ask for referrals. He spent an hour looking over the website and doing Google search tests to see if there was something that might make the site work better for generating new business. He also scribbled several introduction scripts he could use to cold-call on businesses near his own office.

Now, as he stared at the March accounting statements, he knew he was at a crossroads. The year-to-date results were not bad, but there was no significant upward trend to generate optimism. He felt like a failure. He had spent so many hours analyzing and revieing the business, making decision to reduce expenses, investing in new ways to attract new clients, and putting himself out there to network, prospect, and make a few cold calls. But nothing seemed to be working. Time was running out. If APEX couldn't start generating a sustainable and adequate level of income to support his salary needs, he would have to make a drastic move. The thought of closing, letting all his employees go, and going back on the job market was depressing. So was his savings account. It was 8 p.m. he was already late to get home for dinner. He pulled out a note pad and once again began scribbling ideas and plans...but then stopped. "This isn't working", he said to himself, shaking his head. All the time and effort he spent on ideas and plans just wasn't worth it, at least not tonight. He flipped off the office light and went home to his family.

Question: Describe the most important root cause of that performance problem. Answer in the five whys and problem solving technique