Short-Term vs Long-Term: They Both Matter

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Over the years, I have found many organizations the lack the ability to effectively balance short-term pressures with long-term improvement.  The situation causes frustration in people because, in the end, the short-term virtually always wins while the focus on the long-term suffers. 

There are a number of reasons for a tendency toward short-term thinking.  First of all, people tend to be measured and rewarded based on achieving current year targets much more than long-term improvements.  Another factor driving a short-term focus is the targets are right in front of people.  The gaps are easy to see and it's clear that, if the problems are not addressed immediately, meeting the targets may not be possible.  Long-term gaps are also more difficult to measure and it's easy to justify dealing with them later. 

Which is More Important? 

So how should people deal with this type of situation?  We can't ignore the short-term targets because they are often necessary to assure we will be around for the long-term.  On the other hand, the more we ignore the long-term, the more we jeopardize our survival.  Regarding the question of which is more important, the answer is actually they're both important.  Customers, as well as investors and fellow team members, rely on our ability to deliver what we promise. 

Assuming that annual targets were set based on current capabilities, we should be able to meet them with enough focus and daily problem-solving.  After all, we made a commitment, so we should feel compelled to meet it.  On the other hand, if the targets do not have some semblance of reality, the company has much bigger problems, and meeting them most likely won't happen with or without a heavy focus and effort. 

When a problem arises today that will affect meeting short-term targets, it is difficult for most people to ignore it.  People will naturally jump in to address the problem and get performance back on track, especially if nobody else is available or a particular type of expertise is needed. 

The real problem for the organization occurs when people get so consumed with short-term problems that the long-term becomes an afterthought.  In reality, it seems that the poorer we are at taking care of the long-term, the more short-term problems we battle year-after-year. 

Implementing the 80/20 Rule 

I have found that the best way to assure we take care of both short- and long-term objectives is to consciously split time between the two, and in the most general terms, the split to be 80/20 (80% on the short-term and 20% on the long-term).  This is a general rule because the closer one is to where direct value is created (e.g., the factory floor in manufacturing, the sales counter in retail, or the wellhead in oil and gas production), the more time is focused on short-term objectives.  For example, a team member working on an assembly line has to focus most of his or her day on performing work within takt time that meets standards.  Although problems will regularly arise that the person will need to address, they are generally related to short-term safety, production, quality, and cost targets.  For this person, the split may be 95/5. 

Long-term projects, whether new or carried over from previous periods, should be apparent at the start of year when annual plans are being developed.  Making sure that these projects make their way into the 20% is important at this point, as is assuring that they require no more than 20% of the person’s effort.  Catchball and careful planning is critical to align expectations in the split between short-term and long-term focus, as well as the specific projects that fall into the 20%. 

As with any project, whether related to the short-term or long-term, clear objectives are needed along with a detailed and measurable plan.  The better and more measurable the plan, the easier it is to ensure progress.  Implementing a rhythm for regular reviews is necessary to assure the project is progressing according to the plan, and to determine whether changes in the plan, priorities, or resources assigned are needed to get it back on track.  We all know how to measure the short-term targets – it's the longer-term projects that require serious thought to determine the right measures.  Measuring progress to a project schedule will help but measuring quality of deliverables along the way is even better. 

Applying the 80/20 rule and ensuring that short-term and long-term objectives are met requires that managers be close to team members and truly understand what is going on in the workplace.  Rather than hearing about delays when it is too late to help make adjustments, managers must have enough awareness to provide help to get the project back on track before targets need to be changed. 

Intention is Everything 

It should be noted that none of this applies to an organization where meeting short-term targets is everything and commitment to the long-term consists of nothing more than words.  If the environment is so toxic that shipping defective products or cutting corners just to meet short-term targets is the norm, it has much deeper problems and attempting to manage through an 80/20 split will do little to help.  Like most things in business, long-term success begins with an obsession around understanding and meeting the needs of customers. 

Just like short-term objectives, long-term projects need to have targets based on successfully progressing plans, and these targets must be reviewed regularly – at least monthly – to ensure they are on-track and understand if help is needed.  If the split generally follows the 80/20 rule, and long-term commitments are taken as seriously as short-term targets, the chances of success will increase.  Discipline is needed to fight the tendency to put off developing or maintaining the measures and to skip the reviews now and then.  Like much of lean thinking, the concept is simple, while making it work effectively requires a lot of focus, effort, and consistency in behavior.   

No Systems Thinking in Trump's Plans

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It’s inauguration time and a new administration is moving into the White house attempting to fulfill its promise to “make America great again.”  A key to Donald Trump’s platform throughout the election had been the need to drive fast and significant change in government structures and systems.  Some Americans find this approach refreshing.  What I’m seeing, though, is a lack of a systems thinking in the plan, and it concerns me greatly.

APPRECIATING THE SYSTEM

The U.S. operates as a system.  Federal departments and agencies, businesses, states, citizens, and even foreign entities act as components of the system that interact and drive results that, although far from perfect, enable the country – and to some extent, the world – to function.  As with any system, there must be a clear and unified purpose to help drive objectives and improvement.  The more complex the system, the more important it is to understand how the system works and how the components interact to assure changes do not end up making things worse.

Making large-scale changes to components of a system without understanding how they interact amounts to tampering, and can quickly lead to chaos.  And what I've seen in the comments, tweets, and appointments in the new administration, this appears to be  exactly what's happening.  Talks of closing borders, eliminating the Affordable Care Act, turning education focus to charter schools, cutting environmental regulations, etc. look more like fragmented actions than steps resulting from a deep understanding of how the system operates and where the real gaps lie.  In lean terms, the Trump team is developing countermeasures to problems without truly understanding the causes.

EXAMPLES OF FRAGMENTED THINKING

Some examples that appear to result from a lack an understanding the system include:

Import Tariffs  On the surface, raising import tariffs to increase domestic jobs sounds like a good idea.  The effect this has on U.S. purchasing habits and the American and world economies, however, is complex and not easily understood.  For instance, there are many economists who believe that the Tariff Act of 1930, along with the retaliatory responses of many U.S. trading partners was a significant contributor to the Great Depression due to the negative effect on American exports and imports.  Exports fell because of higher tariffs on American-made goods and, because the prices of imported good increased, people bought less overall.

A second, but difficult to quantify consequence of significant tariff increases is the effect on developing nations that rely on access to the U.S. market to continue growing.  The administration wants to build a wall along the U.S.-Mexican border to keep people from crossing into the U.S. illegally.  Since many of those coming into the U.S. from Latin America do so for economic reasons, raising tariffs and pressuring manufacturers to scrap foreign factories to build in the U.S. will result in lost jobs and other problems for those countries.  It seems logical then, that this action could actually increase the number of people attempting to cross into the U.S. to escape poverty.  And this does not take into account the fact poor economic conditions tend to increase drug trafficking.

A third, but rarely considered effect of restricting trade with other countries is reduced influence on the working conditions that exist in some countries.  Improvements in labor conditions in many developing countries have resulted from the influence of American companies and trade groups because of the size and power of the U.S. market.  As we reduce imports, we reduce our ability to influence international labor laws.

Scrapping the Affordable Care Act

The Affordable Care Act (ACA) has been a huge source of political strife since it was enacted in 2010.  Whether you agree or disagree with the effects of the ACA, it is important to understand and recognize that the Act is a component of the healthcare system which, in turn, is a component of the overall American system.

A systems approach to dealing with the problems from the ACA is to improve it – not scrap it and start from scratch.  It includes understanding the problems – i.e., why they are problems and what is causing them – and taking steps to reduce or eliminate them.  Although completely replacing a system may address some of the problems, it is likely to create many others that are not problems with the current system.

THEORY AND LEARNING MUST DRIVE ACTION

Raising import tariffs and scrapping the ACA are just two examples where actions meant to drive improvements can lead to negative consequences if done without a holistic understanding of the system.  As long as I remember, though, American politics has never taken action resulting from a deep understanding the nation as a system.  Fortunately, the changes have rarely been large enough to cause major problems in the American system.  What I’m hearing now about the coming changes, however, I’m very concerned that the damage could be long-term and significant.

Are We Too Obsessed With Competitors?

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“The greater danger for most of us lies not in setting our aim too high and falling short; but in setting our aim too low and achieving our mark.” - Michelangelo

It is common for businesses to direct a fairly significant level of effort toward understanding the competition.  Collecting information on costs, market share, new products, and a host of other areas often drives business planning and improvement initiatives to keep a company from losing ground to others.

For a number of reasons, though, I believe we go overboard and expend far too much energy worrying about competitors.  Considering the amount of money and time spent on researching the competition, one has to wonder how much better it would be for an organization if this energy were directed toward more important areas of the business.

WHY IT’S A PROBLEM

What I used to accept as a normal business activity, I started to question as I saw little benefit – and sometimes negative effects – from the effort.  Some of the reasons for this include the following:

• Leaders Don’t Follow
  Looking to competitors to focus your efforts can guarantee that you will always be a follower.  Creating a culture of continuous improvement and innovation are what makes an organization successful – looking to others for ideas does not.  This in addition to the fact that a strategy of following is not highly energizing or motivating for team members.

• Many Competitors Are Mediocre
  A number of industries are plagued with mediocrity, and focusing on competitors who are mediocre will result in little benefit.  Leading a pack of poor or mediocre companies is not something with which to be proud.

• You’re Not in Business for CompetitorsFocusing on competitors takes resources away from a company’s most important group of stakeholders – its customers.  Companies like Marriott, Apple, Google, and Toyota have shown repeatedly that focusing on customers generates far greater returns than focusing on competitors.  A company exists to serve one or more needs, and success comes from focusing on those who have the need.

• It Puts Blinders on ImprovementBringing performance to continually higher levels cannot happen by looking at what others are doing.  Looking at the performance of industry leaders can limit what people think is possible.  Targets are set at what others have done rather than at true breakthrough levels.  As a result, “safe” targets are set and creativity is crushed.

AN EXAMPLE

Many years ago, I worked for an instrument manufacturer in a highly competitive industry that, because of lagging sales, decided to redesign its flagship product.  What was once the most accurate instrument of its type had fallen behind other producers, and we wanted to regain the lead.

It was a fairly significant effort, but we succeeded in improving the accuracy enough to once again be the best.  After announcing the new product, we even became concerned after hearing rumors that a competitor had initiated a redesign of its own product to provide an even higher level of accuracy. 

Although we were proud of our accomplishment, sales were disappointing.  As part of an effort to address the sluggish sales levels, we began to visit our customers.  Our product was used by customers to calibrate their products during production.  We quickly found out that, rather than increased accuracy, what they really wanted was the ability to perform quick changeovers from one product to another within their own process.  In contrast, in order to provide higher accuracy, our product required longer stabilization times, meaning that it provided the exact opposite of what our customers really wanted.  We wasted a significant amount of time worrying about what our competitors were doing when we should have been worrying about what our customers were doing.

STOP THE MADNESS

When suggesting that a company should stop worrying about competitors, I am often met with blank stares or comments that I don’t understand the business.  Like anything, though, the effort put into studying competitors should be questioned as to the value it provides.  People should be clear about the results they expect from the process and follow up with understanding what was actually achieved.  If results were not as expected, something related to the effort needs change or the effort needs to be stopped completely.

Improving Dashboards With The 3-Meter Rule

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Dashboards are critical for a successful continual improvement effort.  Effective dashboards can drive better coaching, faster team meetings, and more effective problem-solving.  A common problem that interferes with the effectiveness of dashboards, however, is the inclusion of charts that attempt to convey too much information and are difficult to understand.  One way to prevent this problem is to make sure that all charts on a dashboard comply with the 3-meter rule.

Simply stated, the 3-meter rule means that a chart should clearly convey its message from a distance of 3 meters.  When looking at a chart, if you need to move close or ask for explanations to understand the information displayed, you can assume that the chart is in need of improvement. 

Dashboards should drive conversations around closing gaps between current and targeted performance.  To make sure the conversations are focused and effective, however, they should be centered around data. When the problem or breakdown is not clear, people will spend time attempting to understand the intention of the chart rather than addressing the problems shown by the data.

Besides helping focus the discussion on problem-solving, a chart that meets the 3-meter rule enables more people to be involved in the conversation.  The closer someone needs to be to understand a chart, the fewer people who are able to see the information and participate in addressing the problem.  Minds wander and separate discussions begin to happen, which negatively impacts the effort.

Creating charts that are easy to understand from a distance of 3 meters sometimes requires significant reflection and effort, but the investing time upfront can greatly aid the improvement process by making objectives clear and the problems that interfere with meeting the objectives visible.

Identifying Proper Leading Metrics

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One of the areas of lean that people tend to have difficulty grasping is the relationship between leading and lagging metrics, and how to identify effective leading metrics. People spend a lot of time attempting to determine leading indicators that, in the end, are often disconnected with any of the actions being taken to improve performance. 

Leading and lagging metrics both have a role to play in improving performance and are not difficult to identify once you understand the process and how to properly connect them to the problem-solving.

LAGGING METRICS

A lagging metric measures the result of a process. Barrels of oil produced, total recordable incident rate (TRIR), warranty expenses, and production costs are all examples of lagging indicators because the activities they measure have already occurred. The result lags the activity being measured and, whether you are happy with the result or not, you can't do anything to change it. 

Lagging indicators are important because they tend to represent what's important to the area being measured. They measure a result we are ultimately trying to achieve and help us determine if our efforts were successful in meeting targets.

Other examples of lagging metrics include on-time delivery, actual capital expenditures, defect rate, and customer satisfaction. Identifying them requires a clear understanding of what the business or team is ultimately trying to achieve. 

LEADING METRICS

A leading metric is a measure of an activity that influences a lagging metric.  As a measure of an activity being performed by a team, leading metrics can be influenced by the team in an effort to improve the results of a lagging metric. 

As an example, suppose a team is trying to improve safety performance as measured by TRIR and, through a breakdown of past incidents, discovers that hand injuries represent the largest category.  After breaking down the problem, the team determines that incorrect use of tools is the most likely cause and failing to wear gloves is increasing the severity of the injuries.  As a way to reduce the number and severity of hand injuries, the team introduces regular training sessions and an audit process to help assure team members are using proper tools and gloves.

The team can now create a dashboard that measures like TRIR (lagging metric), injury type (lagging breakdown), hand injuries (lagging metric), training classes held (leading metric) and audit results (leading metric).  By following these leading metrics, the team is assuring that the activities to improve safety are happening and that they are truly reducing hand injuries. 

In the above example, the effort of identifying the leading metrics did not consist of an isolated brainstorming session attempting to identify a specific metric to follow.  It was integrated with the problem-solving process and became nothing more than identifying a measure of the actions taken to eliminate a root cause of the problem.

KEEP IT SIMPLE

The problems people have related to identifying leading metrics often result from failing to connect the effort to problem-solving.  Attempting to determine the proper leading metrics in isolation from problem-solving often leads to frustration and wasted effort in creating and maintaining the measures, and a lack of clarity in understanding how to improve performance of lagging metrics.