Monday, September 27, 2010

Fast Does Not Mean Cutting Corners

I believe that, to be successful today and in the foreseeable future, companies will need to continually increase speed and flexibility.  Changes are occurring faster than ever, and those companies that are able to adapt to - and drive - changes quickly will be much more competitive than those that are not.

Whenever I  mention the subject of improving speed and flexibility, however, I inevitably receive comments about the dangers of making decisions and acting too quickly.  The comments often include examples where efforts to increase speed have resulted in major quality or safety problems.

In my view, however, "fast" does not mean cutting corners or operating out of control - since dealing with quality or safety issues does little to improve speed or the ability to adapt to changes int he environment.  Being faster and more flexible actually requires improving focus and perfecting processes on a continual basis.

Successfully streamlining processes and systems requires understanding and continually improving the activities that add value to customers while reducing or eliminating any activities that do not.  And when the focus is on customer value, cutting corners on safety or quality is not an option.

Speed Requires Stability

When driving, the more stable the car, the safer it is to drive at high speed.  In business, the more stable the organization - in terms of purpose, values, leadership styles, employee turnover, and focus - the safer it is to increase speed.

The loss of control, along with the increased variability in processes and results caused by impatience and short-term thinking can quickly throw an organization off-course.  These are the behaviors that drive people to think that being faster means cutting corners instead of strengthening and improving processes.

Focusing on value for the customer can speed up decision-making and processes while prventing the haphazard cost-cutting measures that too often lead to financial trouble, industrial accidents, encvironmental disasters, and deaths.

Keep the Focus Clear

Speeding up an operation requires constant vigilance for anything that interferes with processes operating perfectly every time.  Interference in processes can result from design, handoffs between people, or a variety of other technical, organizational, or cultural issues.  Because of this, it is important for a company to develop the ability to honestly and objectively assess itself for those things that slow it down.

When leaders maintain stability in the organization's basics, and focus attention on improving speed and flexibility, remarkable things can happen.  The improvements in agility will be accompanied by reduced costs, increased customer satisfaction, and a safer operation.

Monday, September 13, 2010

Does Size Matter?

Is There a "Best" Size for a Company?

I had coffee with a colleague awhile back and we got into a discussion on whether there is a "best" size for an organization.  Small companies are fast and flexible but often lack the capital needed to grow.  Although large companies tend to be slow and unable to deal with change effectively, they have the capital and geographic reach that small companies lack.  A large company also has the ability to crush or acquire a smaller competitor that is seen as a threat, if the threat is recognized early enough.

An interesting observation about this subject is, as a company grows, it tends to become slower and less able to do many of the things that made it successful in the first place.  Additional layers of management and more formalized systems can slow the decision-making process to the point where it becomes unable to respond quickly to changes in its environment.  Another common characteristic of companies as they grow is a tendency to become more risk averse in an effort to meet conservative financial targets or protect share price.

Does it Matter?

So what is the optimum size for a company?  Does it depend on industry?  There are obviously some industries like consumer electronics where, no matter how large a company is, it can't survive without the ability to quickly adapt to, or drive, changes in the market.

These are interesting questions to debate, but I wonder if they really have answers.  What if an organization can remain fast and flexible as it grows?  Think about how successful a company could be if it could continue to be as fast and flexible as it was when it was small and growing.  There are not many examples of large, fast-moving companies, but that does not mean that it is not possible (or important).

A Matter of Survival?

Like most aspects of leadership, it's an issue of focus.  When leaders of an organization determine that speed and flexibility are competitive issues, they will give it the focus they need to make them happen.

I believe that success in the years ahead will require the ability to drive and adapt to changes quickly and effectively.  The world is changing at such a rapid pace that the organizations that are unable to adapt will not be competitive.  Developing the capability will require addressing areas like speed of new product development, flexibility of processes, implementing and upgrading information systems, etc.

Increasing speed and flexibility for many organizations will require transformation.  For too long, we have become obsessed with the idea of growth as the focus of a business.  Investors tend to lose confidence in companies that experience slowing growth [refer to Fortune magazine articles on Google and 100 Fastest-Growing Companies] which can cause problems when, in an attempt to appease the financial community, a company shifts its focus toward growth through acquisitions that are not necessarily strategic or sensible.

If the focus is on developing the ability to drive change through innovation, and respond to change by increasing flexibility, the growth can occur organically through increased competitiveness.  Although organic growth in revenues does not tend to match the growth that can occur through acquisition, it can be much more profitable and less destructive to the company and its culture.

Innovation and speed do not need to be limited only to companies like Samsung, Apple, and Facebook.  Every company has the ability to improve flexibility and adapt to changes in its environment.  Size does not need to be a deterrent to change.  It is a company's characteristics and capabilities, not its size, that determines its flexibility.  All it takes is recognizing the need, being sensitive to the friction created as the company grows, and continually addressing the elements that interfere with the ability to change.

Monday, September 6, 2010

Getting Support from Support Functions

"Everyone here has a customer.  And if he doesn't know who it is and what constitutes the needs of the customer . . . then he does not understand his job."  - W. Edwards Deming

One of the most difficult jobs of a leader is getting everyone in the organization to work toward the same objectives.  The issue is especially difficult in support functions where team members are generally isolated from customers, which makes it harder to create a connection between work performed and the success of the business.

The problem is magnified even more when the company utilizes a shared services model (i.e., decentralized business units with centralized support functions).  I've heard many business unit leaders over the years complain about poor quality service and lack of support from corporate functions.  In many cases, business units hire their own support people - even if it results in the company doubling up in some positions - in an effort to have more control over these functions.

With the focus and pressure on reducing costs these days, more companies are implementing the shared services concept and combining support functions into a single team in an effort to reduce the company's costs of providing support.  If not done correctly, though, this concept can actually increase costs due to poor quality service or slow response to operating units.

Establishing and communicating the company's purpose can help, but it's not enough.  It is also important to show people how their roles align with the purpose and, without a systems thinking mindset, this can be very difficult, if not impossible.

It's About Value for the Customer

The key to reducing the total cost without sacrificing the quality of support is to continually focus on value.  Focusing on value to the customer is what keeps everyone aligned on what is truly important, and helps make decisions regarding where to invest and where to cut much easier.

It is the entire company's responsibility to serve the customer, and doing it effectively requires a systems thinking mindset by those in leadership positions.  But merely telling people to be systems thinkers is not going to make it happen.  Increasing understanding of the company's high-level system requires education and coaching on a continual basis . . . and the value stream map is a great place to start.

A company's value stream is the chain of events that the transforms knowledge, information, and materials into goods or services to customers.  The value stream is how the company serves its markets and makes its money.  In theory, a company should not do anything that is not directly related to the value stream because it does not provide value to customers or bring in revenue.  Even those functions that exist for purely regulatory reasons should be oriented directly toward supporting the value stream's efforts to serve the customer.

The better people understand the company's value stream (i.e., the high-level system), the better they will understand their jobs.  It will become much clearer to everyone why their job exists, who they serve, and where improvement efforts need to be focused.

The Value Stream Map and Shared Services

Once developed, the value stream map (a diagram, or flowchart of the value stream) becomes the foundation to implementing an effective shared services function.  The internal service providers are just as critical to the company's success as the operations functions.  Without an understanding of the value stream, however, it is difficult to know exactly what value service functions provide to the organization, and particularly how to improve quality and reduce costs.

With this in mind, implementing an effective shared services function requires addressing the following:
  • Clarifying expectations that serving customers is everyone's responsibility, and those who do not directly serve external customers are responsible to support those who do (i.e., their internal customers);
  • Develop the purpose of the shared services function.  Since this is most likely a new approach for the company, it is important to bring support team leaders together to develop the purpose and assure that, once developed, the purpose is clearly communicated throughout the company;
  • Map the company's value stream.  Develop the high-level value stream map for the company and clarify how the shared services functions fit into the system.  Follow up with more detailed maps to show how each support function serves the value stream, keeping in mind that support functions can also serve each other;
  • Understand the barriers to effective teamwork.  There are likely obstacles that will interfere with getting people to focus completely on serving the value stream.  These obstacles (e.g., fear, or objectives and rewards that discourage serving internal customers) need to be clearly identified and addressed.
Outsourcing services or cutting support budgets will not, by themselves, result in improving company performance.  It is critical to clearly understand the interactions between functions that exist and how these relationships contribute to serving the external customer.  It is only with this level of understanding that costs can be reduced while service to customers is improved.