Sunday, July 6, 2014

Making Learning a Habit

The ability to learn faster than your competitors may be only sustainable competitive advantage.” – Arie de Geus 

Ever since the The Fifth Discipline: The Art & Practice of the Learning Organization was published back in 1990, business leaders have talked about the need to transform their companies into learning organizations.  And although the concept of organizational learning and its connection to competitive success is logical, there seems to be significant differences in what people think the term learning organization means.  As a result, in the 25 years since Peter Senge wrote the bookit seems that very few companies have successfully implemented the concept and truly become learning organizations. 

Learning and Performance 

The first point to clarify about organizational learning is that knowledge means nothing if it doesn’t eventually result in improving performance in some way.  The value of knowledge is in the ability to use it to improve qualitycost, safety, revenues, or some other aspect important to the organization’s success.  It should be noted that the value of knowledge could also be indirect - e.g., by coaching others to improve performance. 

Secondly, it's important to understand that there is a difference between individual and organizational learning.  Although there is obviously a relationship between the two, competitive success will occur on a much more consistent basis when people improve their ability to learn as a teamIf we think of success as resulting from a continual cycle of learning and applying, the faster an organization is able to move around the cycle, the more success it is likely to achieve. 

Making Learning a Habit 

Creating a learning organization requires establishing the culture, methods, and systems that support learning and make it become a part of the work people do every day.  Leaders can talk about the importance of learning, but without a method that institutionalizes it in some way, it will never become a part of the organization's DNA.  Besides enabling is to occur on a consistent basis, effectively standardizing an approach can make learning an expectation of everyone in the organization. 

This is where many people fail to understand the significance of the PLAN-DO-STUDY-ACT (PDSA) cycle.  Often thought of as only a tool to address problems, the PDSA cycle is a method to drive individual and organizational learning. 

Based on scientific method, the PDSA cycle drives learning through conscious understanding that every action is  based on a hypothesis that a specific outcome will occur and, when the outcome does not occur as expected, the hypothesis needs adjustment.  It is in the failure and subsequent adjustment of the hypothesis where learning occurs. 

As an example, the current design of a process is a hypothesis that it will enable work to be consistently produced in the right quantity and at the right quality and cost when needed.  Whenever this doesn't occur - e.g., defect, delay, cost overrun, etc. - the hypothesis is proven wrong and something about the process needs to improve.  Team learning occurs through the understanding of the root cause(s) of the problem, and in experimenting with countermeasures to address them.   

Learning driven by the PDSA cycle can be applied across the organization from the leadership team to the shop floor.  Selecting where and how to set up a new factory, deciding whether or not to enter new markets, or choosing where to focus capital investment in the coming year are all hypotheses that can drive learning.  The key is to consciously understand that the hypothesis, to study outcomes closely to know whether or not results met expectations, and to discover how to close the gap between the two. 

The Classroom is Where the Work Occurs 

For years we've been taught that learning takes place in a classroom where experts convey knowledge to students.  When looking at the value of classroom learning in terms of improving performance and competitiveness, though, it becomes evident that the connection is weak, at best.  And although there are some benefits to conferences, seminars, and in-house training classes, they are not the type of activities that drive team learning. 

Establishing PDSA-thinking throughout the organization is a significant change for most companies, but the results in terms of advancing team learning and improving performance make it well worth the effort. 

Sunday, June 22, 2014

Is Assessing Lean Wasteful?

"The most important things cannot be measured." - W. Edwards Deming  
  
The other day, I was asked my opinion about assessments to measure an organization's progress on a lean journey.   Although I generally don't use assessments, I really hadn't given the subject much thought before our discussion.

The idea behind a lean assessment is to identify the gap between the current state of the organization and where it will be when it is "fully lean."  Although it should make perfect sense to assess the current state to better understand the gaps and whether or not the deployment is progressing, I have never seen assessments result in any real value for an organization.

Organizational transformation is a complex undertaking, and attempting to improve the process by formally assessing progress can actually drive the process off track.  When using an assessment to gage progress, the focus can easily become the score rather than true culture change.  Also, attempting to objectively measure change by assigning a number or score to the effort is still very subjective.

Some of the problems I’ve encountered in the past when using an assessment tool to gage and drive progress toward a lean transformation include the following:

1.  Disintegration with the Business  

Assessing lean separately from the business can strengthen the belief that it is another flavor-of-the-month initiative that has nothing to do with actual business results.  Companies exist to serve customers, and if it is not absolutely clear that the objective of pursuing lean is to help do it better (more safely, with better quality, and lower costs), it doesn't matter what the assessment is showing; the effort will fail.

The real assessment occurs during the reflection of business results and target conditions during the annual planning process.  Creating an effective annual plan requires developing an understanding of the reasons for the gaps between what the organization tries to accomplish and what it actually accomplishes.  Besides the fact that this process is itself a lean effort, taking action to close the gaps can be used to further drive lean behaviors and systems.  Developing a plan that fails to address the big issues, attempts to take on too many priorities, or is ignored throughout the year shows a problem with the lean deployment – and you don’t need an assessment to show it.

Whether or not the effort is referred to as “lean” does not matter - people will see that it as a way to improve business results and be much more likely to join the effort.
  
2.  Subjectivity   

Regardless of how clear the assessment questions or elements appear to be, the process is still subjective.  Attempting to increase the clarity of assessment questions generally requires additional effort, training, and time, and you have to ask if this is really where you want your lean resources to spend time. 

Another issue with the subjectivity of assessments shows up when people are held accountable for the rating number or grade from the process.  When assessment scores are used for performance reviews or bonuses, the focus becomes the score rather than the application of lean thinking to improve performance.  And arguments around the scores is nothing but waste. 
  
3.  There is no End 

Deploying lean is like climbing a mountain that has no peak.  Since there is no end to the journey, there is no way to clearly define the target.  If a team scores a 5 out of 5 in kaizen activity, for example, does it mean that they have no room to improve?  This type of thinking is the complete opposite of what a lean transformation is trying to accomplish.

4.  Change Requires Dealing with People 

Building sustained success with lean requires continual coaching, developing, and stretching of people.  Changing the way leaders and team members think is critical to the process and unfortunately there is no set formula for change.  Besides the fact that people learn at different rates, each team member will have different levers for transformation, and what is successful with one will not necessarily work with another.  Because of this, it is not possible to standardize the change process.  Successful organizational transformation requires an understanding of W. Edwards Deming’s System of Profound Knowledge.  One of the four elements of profound knowledge is psychology.  Leading a lean transformation requires an understanding of people – how they think, how they learn, and what motivates them to continually improve.  Attempting to standardize the process by tying it to an assessment ignores this and relying on the tool to drive change.  

5.  It’s Still About Gemba

Assessment processes often turn into office exercises where an auditor meets with a supervisor or manager in an office to discuss the area being assessed.  Even if the assessment is conducted in the actual workplace, it is generally nothing more than a snapshot of how things are working at a specific point in time.  Afterwards, some type of report is written that may or may not be read by the organization’s leaders.  Even if a leader reads the assessment report, it is not possible to develop the level of understanding needed to lead the change without regularly going to where the work is done.  Assessments shifts leadership from a face-to-face coaching and development process to one of judging and grading – definitely not a lean leader behavior.

In the end, it’s important to remember that the effort is about continually improving toward perfection rather than “adopting lean.”  Using an assessment to gage progress on the journey can easily shift the focus away from this and toward the idea that lean is another trendy business initiative that will eventually go away.  Letting an assessment take the place of everyday interactions – including meetings, one-on-one discussions, and observation – misses valuable coaching opportunities that are the basic responsibilities of leadership and much more effective in changing behavior.

Sunday, May 4, 2014

Simple Formulas Are Nice But They Don't Work

American business loves quick and easy answers.  In fact, the best way to get people to pick up a book or read an article (and I admit, I’ve done it myself) is to provide an easy-to-follow formula that solves a difficult business problem.   While this approach can help sell magazines, it really doesn’t do much to help drive actual improvement.  Organizations are too complex to assume there is a quick answer to any of the significant problems they face.  Although formulas do appear to provide easy steps to follow, they do not provide the knowledge necessary to effectively address the big issues.

Fortune Magazine recently published a one-page article entitled 5 Ways to Stay Ahead of Rising Costs.  The article presents five easy steps to address out-of-control costs in an organization, including a two or three sentence description of how to apply the step.  Although each step appears to make sense on the surface, accepting and blindly following recommendations like this can easily backfire and result in causing more harm than good.

The article’s focus is on imposing accountability for spending in order to drive responsible management of costs.  Although it’s hard to argue with the need for accountability, it is very easy to misapply this type of effort and distract people from their main responsibilities – including serving customers.

Below are the five ideas presented in the article, along with my thoughts about each.
  1. Share the Responsibility:  This involves making someone in the company accountable for every line in the financial statements.  By the time the numbers make it to the financial statements, however, it is too late to do anything about them.  While I have no problem with making people accountable for understanding and monitoring spending within their areas of responsibility, it needs to be done real-time, and through a process of comparing actual costs against expected costs.  Also, it is unrealistic to think that one person can be responsible for an item – like a line on a financial statement – that is comprised of so many elements.  This type of approach often clouds the idea that cost is an element of a target condition, which includes safety, quality, and delivery of product or service, rather than an isolated objective.
     
  2. Reveal the Price:  Making sure people know what actions cost is important and can lead to improvements as long as the focus does not become solely on reducing the price.  As presented above, the target condition of applying this practice needs to be something like reducing cost while maintaining or improving quality.  I agree with the article, however, that most organizations really have poor cost information systems.  In far too many companies, information on costs is often inaccurate and provided far too late to drive any real improvement.
     
  3. Monitor the Use of Items:  Of all the ideas presented in the article, this is the one that’s probably applied the most and resulted in the least amount of improvement in organizations.  Although it’s the easiest step to take, shifting into a counting paperclip mode of operation is one of the most frustrating and distracting actions companies take when costs are out-of-control.  In my first job out of college, I asked for a set of folders to organize the projects I was working on.  A couple days later, the office manager came to my office with an expandable folder that was taped, written on, and worn, explaining that the company was focusing on reducing the costs of office supplies.  After she left, I threw it in the garbage and bought my own folders.  Although that was many years ago, I still remember how demotivating that was, and how it made me feel about my decision to join the company.
     
  4. Spend Wisely to Win:  I completely agree with focusing spending on the efforts that are most likely to result in business for the company.  The problem with this suggestion is the difficulty of applying it in real situations.  This is a perfect example of an idea that requires significant knowledge to effectively apply.  A lot of thought, clarity, and planning is needed before attempting to blindly implement this type of thinking within the organization.  It’s just not that simple
     
  5. Raise Your Prices:  As with the idea of spending wisely, raising prices can be very dangerous if not done correctly.  Determining what your products or services are worth lies with your customers – not you.  If you can’t make money by selling at the price the market is willing to pay, you’ve got to find ways of lowering costs without lowering quality.

I’ve seen many organizations over the years go through periods where costs became the focus, and each time people would respond by lowering spending.  More often than not, though, while short-term costs dropped, longer-term problems increased significantly because of the lack of knowledge and planning behind the approach.

Although controlling costs is obviously important, companies are not in business to save costs.  If your approach to managing costs is not backed by knowledge, you can wind up saving your way into oblivion. 

Formulas for success – like the one in the Fortune article – make running a business seem easy, and although the elements of leadership are simple, they are anything but easy.  You still need to be able to communicate the purpose, develop and deploy an effective strategy, and continually adjust along the way to be successful, and an overly simple formula will not make it any easier to do.

Sunday, April 20, 2014

In Defense of Shareholders

. . . our whole attitude in [Berkshire Hathaway] and what we like to see with the businesses we own stock in is we want to run them for the people who are going to stay in rather than the people who are going to get out. “ Warren Buffett
______________________________

Whenever a lean blog publishes a post on the subject of shareholders, it’s usually focused on the negative effects that they can have on a company’s long-term performance.  This one is going to be different.  Reading Warren Buffet’s 2014 letter to Berkshire-Hathaway shareholders reminded me of the important role shareholders play in a company’s success and wonder what business would be like if all investors approached business the way he does.

Investing 101

Investors are a critical part of the operation and growth of a company.  Financing all investment opportunities with debt would be cost prohibitive, and result in stunting growth or sinking the company altogether if interest payments became due before revenue streams from the investments began to occur.  Since interest payments provide the bank’s revenue stream that supports its operation, it needs to be as predictable as sales of products are to a manufacturing or distribution company – which is why shareholders came into the picture.  In the most basic sense, banks finance an organization’s short-term needs while investors finance long-term growth.    Investors who have a “day job” generally rely on salary or wages to finance their day-to-day lives (i.e., their operation) and use investments to finance long-term needs.  Investors without a regular job usually buy stocks that provide little growth but stable income in the form of dividends.  [Note to Finance Professionals . . . this is very basic, so please just go with it]

A combination of the immense growth in stock prices over the years and the instant gratification society in which we live has led many shareholders to begin to act like banks and demand short-term returns for their long-term investments.  As a result, the balance between short-term and long-term performance has been upset.  In an effort to keep up with the demands of shareholders (and continue to efficiently finance growth), decisions are sometimes made that can actually damage the company’s long-term success (e.g., mass layoffs or curtailing needed investment).  Focus and energy are steered toward satisfying the needs of shareholders rather than customers and the death spiral begins (although the effects may not become evident for many years).  In an effort to assure that the value of a company remains high boards started basing executive bonuses on share price.  As a result, some executives ended up losing sight of the true target condition – lower the overall cost to finance long-term growth – and focused only on the share price by taking action that increases the short-term stock value while actually hurting the long-term.  Imagine how different things would be today if, decades ago, companies like IBM, Exxon, or Boeing focused more on short-term performance than long-term development and growth.

To survive and grow, companies must continually build new factories and develop new products, processes, or services.  And, although the leadtime for new developments has dropped, it still takes time to do it successfully.  Developing a new car model or explore and develop a deepwater oil field can take years and cost billions of dollars and, even though the payback may not be seen for many years, it is a necessary investment to assure an ongoing revenue stream.

Are We Are Part of the Problem?

Not surprisingly, I’ve met many people over the years who complained about decisions and actions taken by their employers because they appeared to focus more on the short-term share price than the long-term growth and overall health.  It is surprising, though, that many of these same people check the share prices of the stocks they own several times a day, and buy and sell stocks throughout the year in response to rising and falling prices.  It is easy to get disappointed when the value of a stock we own drops, just as it is to get excited when it rises.  As an example, after making resounding returns on Google stock, many people sold their shares in July of 2011 when the price dropped 20% within one month.  I wonder how many of these same people realize that, had they held on to their shares and thought more about the ongoing earnings and long-term growth potential of the company than the short-term share price, their investment would have increased more than 120% since that time.

We would all like the share prices of the stocks we own to increase every day, indefinitely.  This is not possible, though, so we have to invest in companies that have a high likelihood of increasing over the long-term – i.e., have a clear vision, high quality leaders, a believable estimate of future earnings, and demonstration of the ability to continually improve.  Once these things become evident and we make the investment, we need to get out of the way and let the company operate.  Over the last several years, following this type of philosophy would have led to the decision to invest in companies like Google, Amazon, Tesla . . . oh, and Berkshire-Hathaway.

The Shareholder Activist

In recent years, the activist investors have taken a much more prominent role in the business world.  In some instances where activists successfully shook up the company, the result has been positive while in others it has been disastrous.  I believe it comes down to a question of motives.  Those who have already invested in the company and, in an effort to protect their investment by stopping an ineffective management team from damaging the company often result in positive change and long-term growth.  On the other hand, those who are short-term investors or are on an ego trip can cause considerable destruction to its employees and its longer-term shareholders.  In either case, though, the battle between the activist and company leaders creates an ugly and stressful situation for everyone involved.

Advice from the Oracle

It continually amazes me how so many tend to ignore the advice of Warren Buffett who is arguably the best investor of our time, and instead follow the high-profile activist investors.  While we all respect Buffett and can’t wait to learn about his next investment, though, we continue to look at share prices daily and sell shares when prices fall over a given period of time.  His comment in the letter about his farm sums up the fallacy of this approach:

. . . if a moody fellow with a farm bordering my property yelled out a price every day to me at which he would either buy my farm or sell me his -- and those prices varied widely over short periods of time depending on his mental state -- how in the world could I be other than benefited by his erratic behavior? If his daily shout-out was ridiculously low, and I had some spare cash, I would buy his farm. If the number he yelled was absurdly high, I could either sell to him or just go on farming.

We don’t expect the companies to act this way with markets and offerings, so why do we think it’s okay to do it with our investments?  The people who sold Google stock in 2011 reacted to the neighbor yelling a lower and lower price every day, even though the company had a strong revenue stream and many new products in the pipeline that would allow that revenue to continue to grow.  Many of the people who sold their shares did so because they did not understand this and feared that the stock was overvalued.

Where We Are

It would be great for companies – particularly well-managed ones – if all investors followed Buffett’s investment strategy.  Effective leaders could focus on what’s best for the long-term and build strong, healthy companies without worry of distractions from shareholders focusing on quick gains.  Since this is not – and likely never will be – the case, we’ve got to learn to live with the demands of investors.  They are, after all, important stakeholders in the business and their needs cannot be ignored. 

Taking care of shareholders, though, does not mean focusing on short-term actions that do nothing but increase share price.  It means focusing on the customer, developing new products and services that continually take care of customer needs, and doing it safely, quickly, and efficiently.  We need to partner with shareholders in a way that everyone wins.  Warren Buffett has done this by being very open about his focus and making it clear that Berkshire Hathaway is not a company for the short-term investor.  To be successful with this approach, however, requires effective leadership, clarity and constancy of purpose, and the ability to deliver as promised.  And even though adjustments will be required during downturns or when things do not go as planned, leaders must never make decisions or take actions that stray from the purpose.  They must keep investors updated on the outlook and planned adjustments (including the reasons for the adjustments), and respect the fact that they are partners in the business and have a stake in its success.

Interesting that it still comes down to effective leadership . . . something that companies like Amazon, Toyota, Google, and Berkshire Hathaway remind us every day.

Sunday, March 23, 2014

The People Formula

"All anyone asks for is a chance to work with pride." - W. Edwards Deming

When you get right down to it, the formula for creating an organization that performs at a high level and continually improves is fairly simple.  Although there are obviously factors that make implementing the formula more difficult than it appears, companies often further complicate things by ignoring the people aspects of the business or taking actions that actually detract from it.

The basic formula for organizational development is as follows:

HIRE WELL x CONTINUALLY DEVELOP x KEEP HAPPY

The reason the variables are multiplied is because ignoring any element (i.e., making it a zero) results in a zero for the entire process.  Although one could debate the “how” of each of the formula’s elements, it is difficult to disagree with the elements themselves.

Hire Well
The importance of the hiring well component of the formula is recognizing hiring a process that requires continual improvement to effectively support the organization’s higher-level objectives.

Hiring well means finding people who are competent and a good fit with the culture and direction of the organization.  Too often, businesses focus on the competency component and underplay the cultural fit requirement.  Because the search process often starts late – when the workload has grown beyond the point where current staff can handle it or the person currently holding the position is moving on – there is pressure to hire quickly.  The “easy” stuff like verifying previous employment and validating technical skills takes front and center while cultural fit tends to be assessed through gut feel.

Although not the subject of this post, there are a number of ways to verify the fit of a candidate’s personality and values with the organization.  The point here is to recognize that hiring is a process with target conditions that are aligned with the objectives of the company.  As such, it is just as important to apply the Plan-Do-Study-Act (PDSA) cycle to hiring as it is to any other process within the organization.

The target condition for recruiting and hiring could include things like cycle time, quality of candidates, cost of recruiting, offer acceptance rate, and overall employee turnover.  Once the target conditions are established, the process can be managed and improved through kaizen to continually improve its contribution to the organization, as a whole.

Continually Develop
It should come as no surprise that developing people is a critical element of organizational success.  With that said, though, there are really very few organizations that continually develop the abilities of the people working in them.  This includes coaching people to better understand the processes with which they work, improving problem-solving capabilities, and providing the opportunities to learn.

To do this well often requires that leaders improve their ability to coach, something drastically needed in most companies.  The best environments for developing people tend to be those that stretch thinking and learning is guided by experienced and qualified coaches.  Objectives are set aggressively and people are put in situations that force them to think differently to achieve them.  It is similar to working with a personal trainer.  Although it often hurts, sticking with the regimen and following the trainer’s advice often leads to improved physical condition.  In the workplace, developing problem-solving capabilities can also hurt, but lead to significant achievements if the coach is effective and the person is committed.

It should be noted, however, that missing a stretch objective should never count against a person as long as he or she learned and showed commitment to the process.  Punishing a person for missing a stretch target will only serve to halt learning and stop people from accepting such objectives in the future.

Keep Happy
Keeping people happy is another area where a kaizen mindset can help.  Although employee turnover may not be the best measure of happy employees, it is a start.  The ideal condition for any company should be 0% turnover, but getting there may require setting the target at a level that is better than the current rate.  Once it becomes clear where the organization’s current turnover rate is in relation to the target, steps can be taken to close the gap.

One first step that many organizations can take to quickly improve employee satisfaction is to eliminate the traditional performance review.  Although studies have proven over and over again that grading performance – especially when based on force-fitting results to a normal curve – results in far more dissatisfaction that satisfaction, many organizations refuse to let go of the process (see blog post on performance reviews here).

Hiring well (bring in technically competent people who fit within the culture) and continually developing team members should greatly improve the performance as the organization moves toward the “perfect” workforce.  As you move toward the ideal condition, applying a normal distribution to ratings is illogical and destructive to the organization.  Leaders often do not understand the importance of the system in employee performance, and that the system is the leadership team’s responsibility.  If leaders want a perfect workforce, and team member performance follows a normal distribution year-after-year, the fact that the situation is not improving is more of a reflection on leaders than workers.

Putting it Together

Keeping the formula in the forefront will help improve the organization’s focus on its people.  The traditional management force that is still so prevalent in western business, however, will continually interfere with true improvement of the people-side of the business.  Moving beyond attempts to improve motivation and performance through superficial means will require hiring and developing leaders who respect people and truly understand the connection between people and organizational success.

Sunday, March 16, 2014

Lean in Oil & Gas - Part Two

Lean in Oil & Gas – Part 2


This is part 2 in a series of posts related to applying lean to the oil and gas industry.  To read part 1, click here.

The previous post presented examples of applying lean to the development of oil and gas wells in shale plays and in the exploration process.  As further examples are presented, keep in mind that far better and sustainable results are achieved with lean when people gain a fundamental understanding of the philosophy, rather than copying the way others have done it or by focusing only on the tools.  This requires continually working to develop a mindset that, whether you are a completions engineer, financial analyst, or CEO, everything you do can be improved when you approach the work you do with a kaizen mindset, as follows: 
  • What do want to happen (what is the target condition)?
  • What actually happened (what is the gap between actual and target)?
  • What is causing the gap?
  • What will you do to close/reduce the gap – and how will you test it to be certain what you plan to do will work?
  • What is the new gap and/or target condition as you continually strive for the ideal condition?

In many ways, lean is as simple as approaching business in terms of the questions above.  As written in several previous posts, however, just because something is simple does not mean that it is easy.  There are a host of cultural, personal, and organizational barriers that need to be addressed to transform an organization from traditional thinking to lean thinking.  To further complicate the process, as the organization moves toward a lean mindset, there will always be a pull back to the old way of working that will continually need to be recognized and addressed.  It’s as if the lean journey is like climbing a mountain that has no peak.

Further Examples

Commissioning of Offshore Platforms

The target condition for commissioning an offshore platform includes handing a perfect facility to the operations team on-time and within budget.  The definition of a perfect facility should be clear from the start of the project and, in addition to technical specifications (gas/oil/water flow rates, tubing pressures, number of wells, etc.), should include quality expectations (e.g., efficient layout, equipment and instrumentation is in full working order, drawings are up-to-date, crew trained to operate/maintain equipment, etc.). 

Actual performance for commissioning and handover involves understanding how well the target condition was met, which includes among other things, delays, rework, equipment failure, cost overruns, and punch lists.  Each of these identifies a gap that needs to be closed – or an opportunity for kaizen.  Even if commissioning a new platform is a fairly rare occurrence for the company, countermeasures to close the gaps can improve processes in other areas, like maintenance and turnarounds.

One thing that becomes clearly evident during the commissioning process is that many problems that surface during handover actually result from work done – or not done – earlier in the development process.  An appreciation for systems thinking starts to take hold and people begin to focus on improving the upstream engineering, design, and construction processes.  When this happens, it becomes clear where some of the lean tools and countermeasures fit in the process, including things like establishing and managing buffers, creating pull, implementing kanban, and maintaining dashboards.  Although these types of tools can help the operation improve toward the target condition, they can also make things worse if the objectives and context are not clear.

Establishing Annual Plans
Every organization can benefit from utilizing kaizen – or the A3 process – to establish its annual plan.  At the organizational level, the target conditions are specific objectives for key areas like safety, production, reserves, and costs.  It is vital that the target conditions be clearly aligned with the company’s strategy and represent the journey toward the ideal.  As an example, suppose the total recordable incidence rate (TRIR) is running at 0.50 (one incident per 200 employees per year).  If the company wants to become one of the industry leaders in safety, it will recognize the need to significantly improve its performance in this area.  Its leaders may determine that, within three years, TRIR needs to be down to 0.22, and that for the current year, the company needs to improve to 0.40 (a 20% improvement).  The framework for business kaizen – has now been established as:
  • Ideal Condition: TRIR < 0.22 (it is actually 0.00 – but the company has recognized that 0.22 within three years means they are on their way to a perfect operation);
  • Target Condition: For the current year, the target condition is 0.40;
  • Actual Condition: 0.50 (it also needs to be determined how stable TRIR performance is – if there is significant variation, the 0.50 does not mean much);

The next step in the annual planning process is to reflect on the operation to begin to understand the root causes of safety incidents.  Since a 20% improvement in TRIR is a stretch, some type of breakthrough is needed to move the organization to a new level of safety.  Following the kaizen process, the next step is to determine countermeasures targeted at removing or reducing the root causes to safety incidents.  This could include such practices as standardizing the processes across assets that are causing the most injuries and near misses, increasing site visits by leaders and operations experts, improving training of team members on-site in kaizen and safety, or a host of other activities.  Just as with improvement of a local process, it is important to test countermeasures before rolling them out across the organization to assure they achieve desired results.  This is the STUDY step in the PDSA cycle, and allows adjustments when things are not working as planned.

Detailed plans are not developed beyond a one-year timeframe in that it allows for adjustment to keep moving toward the target condition.  It is difficult to know what will interfere with performance beyond the current quarter, much less the current year, and we want to make sure we don’t lose sight that the objective is ultimately to achieve results.  People can get so focused on implementing a plan that a “check the box” mentality takes over and achieving a target becomes secondary.  Within a lean culture, leaders don’t expect people to develop perfect plans.  They do, however expect people to continually study the effects of a plan and make adjustments, when necessary to close the gap between target and actual performance – all within the framework of scientific method.

Leaders also need to follow the PDSA cycle on a regular basis throughout the year to assure the gaps are closing and that improvement in one area does not negatively affect another.  For example, an organization can increase production while negatively affecting cost and safety.  To prevent this from happening, the organization’s leaders need to review performance at least quarterly to keep an eye on the business.  This represents kaizen at the business level, as the annual plan itself will require adjustment to assure organizational results are achieved.

Never-Ending Improvement

As people begin to understand the effect lean has on the way the organization operates, they begin to see how the process never ends.  As in the safety example above, although a TRIR of 0.22 within three years is thought to be world class in today’s world, it may not be three years from now.  Besides the fact that the industry will improve, the team will begin to understand that perfection means that no accident is acceptable and the only acceptable target is zero.

Further examples of lean in oil and gas will be provided in Part 3 of Lean in Oil & Gas.