Why The Obsession With Speed?

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Many years ago, I remember W. Edwards Deming questioning the obsession businesses had with speed.  I thought it was strange coming from the man who worked so closely with Toyota - the company that invented lean.  Wasn’t one of the main objectives of the Toyota Production System to reduce cycle times and make processes run faster?

I’ve thought about Deming’s question for many years and, after working with a variety of production and improvement systems, I finally came to the conclusion that Deming may have been referring to the idea that rhythm between processes is more critical than the speed of individual processes.

Rhythm vs. Speed

Companies put a lot of effort and focus on the speed and efficiency of processes.  People are measured and rewarded on their ability to speed up the processes with which they work.  As a result of this focus, we often end up with a completely unsynchronized production or service system, thereby increasing inventory and costs, and in most cases, slowing down the company, as a whole.

I have seen many instances where people pushed as much output as possible to the next step in the process in order to meet goals – even when the next step was not ready or able to handle the extra work.  As a result, teamwork breaks down, finger-pointing increases, WIP inventory increases, and quality decreases. A common response to the buildup of WIP in the system includes measures to attack the symptoms (e.g., the increased inventory), rather than the causes (lack of synchronization and poorly focused goals).

There is an optimal speed at which a process should operate in order to meet objectives (i.e., its takt time).  Achieving and sustaining takt time requires that every step in the process operate in rhythm with each other.  Any individual step in the process that produces in excess of takt time has a negative effect on the overall system, which is often as destructive as producing too slowly.  Whether the operation provides a product or service, the key is synchronization at the optimal pace.  Even ignoring the internal cost and cultural problems associated with a lack of synchronization, one has to question the practice of producing faster than customers want.

Although I'll never know, it could be that Deming was referring to the idea that synchronization of processes – and meeting takt time – is far better than increasing the speed of any individual process.  He may have been trying to teach the concept that, without a focus on rhythm, speed means nothing.

Getting Support from Support Functions

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"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.

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A Systems Approach to Business - Part 3

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Note:  This is the third part in a three-part post on the subject of systems thinking in business.  To read the first two posts, go to Part 1 and Part 2.  To download the paper in its entirety, please go to the downloads section of www.praecedogroup.com.

Defragging the Company

Moving focus from individual components to the overall system requires a significant amount of commitment and patience by the company's leaders.  The steps to begin the process of defragging a company include the following:

• Promote the Generalists:  Move leaders from specialists to generalists to increase understanding and leadership of, people, information, material, products, and services- how they flow and work together to serve customers;
   
• Coach & Mentor:  Coach and mentor people to increase the level of understanding throughout the company regarding how each job supports other areas in the achieving the fundamental purpose.  Those who work in support areas need to clearly understand that they exist solely to support the company's main processes that serve customers (which, by the way, doesn't make them any less significant to the company).
  
  When done correctly, value stream mapping (VSM) is an excellent tool to help clarify the company's high level system, including the interactions of people and teams;
   
• Enable Relevant Feedback:  Implement a feedback system (e.g., a 360° system) that includes input from a person's internal customers, and is focused on improving performance - rather than documenting and blaming for poor performance;
   
• Clarify Expectations:  Set objectives based on supporting achievement of high-level (companywide) objectives and tie incentives to company or division performance - or, if done extremely carefully, based on success in supporting improvement efforts.  Clarify expectations regarding participation in change initiatives and improvement activities and focus efforts on the company's overall success - create an obsession for satisfying customers.
  
  As an example, a reward system for the plant managers in Situation #3 from Part 1 based on companywide results rather than individual plant results can lead to improved teamwork and cooperation between plants, and improved results for the company.

It's the Big Picture that Matters

Since there are few, if any, who would argue that company performance matters more than individual or department performance, it becomes a question of whether individual performance can be accurately measured as a contributor to company performance.  Although it's perfectly natural to want to evaluate how much value an individual or team is contributing, most organizations are far too complex to do it with simple, one-dimensional measures.  Most people are intelligent enough to do what it takes to meet virtually any goal or make any measure look good - even if it detracts from overall company performance.  There are unfortunately numerous examples over the last several years of unethical or illegal behavior driven by internal or external company measures.  Putting these examples aside, however, I truly believe that most people care about the success of the organization but have learned what to do to survive in today's business world.

Fragmented thinking is one of the biggest barriers to long-term success for a company.  Moving to systems thinking requires a fundamental shift that many will be unable to do.  Communicating the vision, clarifying expectations, and continual coaching must replace dictating and obsessive measuring and evaluation of people as a management style.  If you've hired the right people and are consistent in your approach, your move toward systems thinking - as measured by continually improving financial results - will occur.

A Systems Approach to Business - Part 2

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This is the second in a series of three posts on the subject of systems thinking in business.  To read the first post, please click [here]

Why We Fragment

I could cite many more examples in addition to those listed in the previous post where goals set for individuals or teams resulted in fragmenting the company and compromising results.  Although fragmenting is destructive to organizations, it continues to be used for a variety of reasons:

• Simplicity:  It's much easier to manage an organization by breaking it into components than to comprehend and manage the whole.  For example, holding a supply chain manager accountable for reducing material costs is easier than setting a total cost objective (which includes accounting for factors like incoming inspection, customer returns related to supplier quality, inventory carrying costs related to increased leadtimes and late deliveries, etc.).  From a systems perspective, however, total cost much more accurately measures the supply chain's contribution to the company than does material costs. 
   
• Lack of Trust:  Micromanagement - which is unfortunately very common in organizations today - results from a lack of trust in people, and cannot coexist with systems thinking.  Leading from a holistic perspective requires relying on vision, clear expectations, delegation of responsibilities, and encouraging people to support other areas, rather than setting easily measurable goals and dictating how work is to be done.  People must be given the authority (as well as a method, training, and the responsibility) to improve processes - including the hand-offs between processes - without detailed input from supervisors.
  
  Another factor that leads to fragmentation is a lack of trust and patience that the organization will achieve targets without knowing that the components are meeting targets.  Even if there is no proven relationship between the targets set for individuals or departments and the targets for the organization, people feel like they're being proactive when they can measure something.  And, as mentioned above, implementing an indicator that accurately measures a person's real contribution to the system is difficult and expensive to maintain;
   
• Functionally-Focused Leaders:  Leaders who lack experience outside of their own function have trouble clearly understanding how their areas support others in the organization.  As an example, a CFO who implements a system that improves productivity within the finance team but causes additional work for other parts of the company does not understand the role of finance within the organization.
   
• Layoffs:  Nothing can make people worry less about the company and more about their own jobs than a round of layoffs.  When layoffs occur, people turn their focus to pleasing the boss instead of pleasing internal and/or external customers, and will do whatever it takes to survive, even if their actions do not support the organization's performance.  Unfortunately, layoffs have become commonplace in U.S. organizations and the practice continues to fragment companies.

Many people know of no other way to manage a company than to break it into "manageable" pieces, but experience continues to show that the practice leads to suboptimal results.  Continual efforts throughout the organization to understand (see figure 1) and continually improve the system will yield much higher returns than worrying about measuring people and individual teams.

A Systems Approach to Business - Part 1

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Note:  This is the first in a series of three posts on the subject of systems thinking in business.  Systems thinking is an critical subject for organizational leadership that cannot be adequately covered in a single post.

"If you try to take a cat apart to see how it works, the first thing you have in your hands is a non-working cat."  Douglas Adams

In the most basic sense, an organization is a continually developing system of people, processes, equipment, and sub-systems working together to achieve a common purpose (the key word for this discussion being 'system').  Like any organic system, organizations are complex and need to be managed as a whole in order to achieve the purpose.  Efforts to break a company apart and focus on individual elements can negatively affect the balance and interfere with success by creating competition and fragmentation between components.

Although most people in business would agree that the performance of the company is more important than that of individuals or teams, the way many organizations are managed achieves just the opposite.  For a variety of reasons, leaders inadvertently fragment organizations, and set individual or team goals and objectives that often interfere with long-term success.

Consider the following:

Situation #1
In an attempt to reduce material costs, an incentive program for the supply chain team is implemented with rewards tied to containment and reduction of costs.  The program succeeds in reducing material costs but leads to increased production costs, customer returns, shipping delays, and warranty expenses due to the purchase of substandard materials and longer supplier deliveries.


Situation #2
Sales managers are rewarded based on revenues generated from the regions they manage.  The sales manager in Scandinavia has a significant opportunity with a new customer but, to secure the business, needs a good deal of technical assistance from the sales manager in France - who is very knowledgeable in this customer's particular application.  Although the French sales manager wants to help, he feels he can't afford to spend time on an activity that will not generate sales in his territory.

Both sales managers end up barely meeting their targets, but the company misses the opportunity to secure business from a new customer.  Also, teamwork between the sales managers has been damaged.

Situation #3
Plant managers in a global manufacturing company are measured and rewarded on meeting EBIT targets for activity in their plants.  Plant A has more demand than capacity, while Plant B has more capacity than demand.  The manager of Plant A decides to buy products from the outside to meet demand.  In order to meet the EBIT target, however, he orders product from a competitor instead of Plant B because of a lower price (the manager of Plant B priced the product high enough to assure the order wouldn't negatively affect his plant's EBIT).

As a result, the manager of Plant A met his targets and received a bonus while the manager of Plant B did not.  Because Plant B did not meet its targets, the company as a whole failed to meet its targets.  Teamwork between each of the plants, which was already strained, has deteriorated further.

There are numerous examples like the above where goals or measures encourage behavior that fragments the organization.  Although it seems perfectly logical to evaluate performance of a team member on a measure like EBIT or sales revenues, it can easily cause someone to act in a way that is detrimental to the performance of the organization, as a whole.

Organizations are far too complex to objectively, accurately, and easily evaluate an individual's performance.  Extreme care must be taken when setting objectives and basing rewards on achieving individual targets. 

The more one adopts systems thinking and understands how it is important to continually focus on improving the overall system - especially the hand-offs between people and teams - the easier it is to abandon traditional measurement and reward systems and move to a more holistic approach to leadership.