Sunday, February 9, 2014

Business Planning and the 85-15 Rule

A problem organizations commonly encounter during the annual planning process is overloading the plan with too many initiatives.  Although this shows a lot of enthusiasm and energy during the development of the plan, it often results in frustration and disappointment during the year as people get overloaded and confused by too many priorities.  Good intentions don’t always lead to good results.

When applied correctly, the A3 planning process can greatly aid in the development of a plan that provides clear and focused objectives for the team.  And integrating the Plan-Do-Study-Act (PDSA) cycle into the process can enable the energy – and clarity – to continue throughout the year.  A key to making the process successful, however, is to create a plan that focuses 85% of the organization’s effort on meeting current year targets and 15% on breakthrough improvement.

85% Effort = Maintain

The first step in creating an effective annual plan is to obtain clear understanding and agreement on the targets that need to be achieved during the year.  And generally, these targets should be set at a point equal to the capability of the company’s processes and systems.  As long as processes are maintained at current levels, the targets can be achieved.  Although unforeseen problems will undoubtedly occur throughout the year, they can largely be handled through the company’s meeting rhythm and kaizen process.

This is what I often refer to as the day job.  It involves putting effort toward maintaining the current level of performance and meeting company commitments.  As a general rule, assuring process capabilities are maintained to a level that meets targets should require about 85% of people’s effort.

15% = Improve

As important as it is to put forth the effort to maintain process performance and meet targets, if no energy is directed improving performance, it will only be a matter of time before the company is passed by competitors.  Step-change or breakthrough improvement must be a strategic focus if it is to become a reality.  To assure this happens, the annual plan should include breakthrough objectives that require about 15% of the organization’s effort.

The breakthrough objectives come from a thorough reflection of the company’s past performance and future direction.  A clear understanding of the big problems – i.e., where the organization’s performance needs to significantly improve – must be established in order to comprehend the root causes that need to be addressed.  Examples could include enhancing a weak product development process, establishing a system for coaching and developing future leaders, or significant improving safety performance.

During the year, an unforeseen problem can surface that affects current process capability and meeting targets that will require significant effort to address (e.g., a significant quality problem, repetitive machine breakdowns, or a rash of safety problems).  In situations like this, when the normal meeting rhythm and kaizen process will not be enough to address the situation, breakthrough improvement may be required, and a decision needs to be made whether or not the organization is going to undertake the effort.  If so, people need to be clear on which breakthrough projects may be delayed to maintain the 15% focus on improvement. 

Kaizen for Leaders

Confusion between the maintenance and improvement efforts often leads to the development of an unachievable plan.  There will always be distractions attempting to interfere with maintaining the 85-15 balance, so continued PDSA is required to maintain clarity and focus.  This is basically kaizen at the leadership team level, where annual targets and improvement needs represent the target conditions and the plan (breakthrough actions) and priorities – become the countermeasures.

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