Tag: feedback

World-Class Operations Summarized

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The classic and current classroom texts on operations excellence tend to become too technical, specialized or applied.   Quality, process, lean, six sigma, supply chain management and other buzz words compete for supremacy.  Modern operations management can be distilled into eight simple insights.

The results of activities vary in ways that can be described and predicted by statistics and probability distributions.  Variability is inherent in human and natural activities.  Reducing variability is as important as improving efficiency or effectiveness.   Fail-safe solutions are especially valuable.  Confusing inherent variability with true exceptions/trends is common, but leads to wasted efforts.

Processes are everywhere.  Inputs are processed into outputs.  Improving the links in a process may be more important than optimizing component steps.  Processes cut across natural functions and require different management.  The broad outlines of product development, sales and operations are similar across diverse organizations, allowing rapid definition and optimization.

Most importantly, self-improving systems can be constructed by defining simple goals, measures  and feedback loops.  The cumulative effect of incremental plus breakthrough improvements from project teams and front line participants is enormous, often dwarfing the improvements from the far greater investments of organizations in day-to-day pursuit of urgent but unimportant tasks.  Self-improving systems clarify the different opportunities presented by re-engineering, kaizen and continuous process improvement efforts.

The quality paradigm, focused on perfection and eliminating waste, is a complement to the finance paradigm which focuses on short-term trade-offs and diminishing returns.  The true total direct plus indirect cost of quality together with the sales and margin benefits of higher quality usually justify greater investment in quality, even within a strict financial decision-making paradigm.  But the pursuit of extraordinary quality levels (six sigma) and the elimination of waste in all forms have revolutionized the way world-class operations teams approach their work and create new value.  The belief in the possibility of zero defects has led to a simple approach of repeatedly eliminating half of the remaining defects, improving all measures of customer value.

The notion that all value is derived from customers has ordered a complex world.  The balanced scorecard aligns resources to operations to customer perceptions to financial value in a logical fashion.  Processes can be directly evaluated to determine value added versus non-value added steps from a customer perspective.  The customer centric view has helped to align sales, operations and product functions.  It has led to a set of universal customer demands for quality, speed, flexibility, value, relationships and related costs.

The logical connection of sequences of variable events resulted in the overthrow of deeply held beliefs in planning, scheduling, optimal capacity, inventory buffers and production.  The pull approach promotes extra capacity, reaction, controlled production, zero inventory, single unit batches, flexibility and integrated suppliers.  It rejects many of the push worldview’s attempt to deterministically control a probabilistic set of process steps.  The implementation of lean manufacturing has demonstrated new ways to make processes more effective in a world of variable final demand.

People matter.  In the long-run, they are best positioned to operate self-improving systems for maximum total value.  Managers who can set clear goals and engage staff succeed.  They empower staff and hold them accountable for long-run progress while maintaining controlled systems.  They encourage the use of visual feedback systems, fail-safe steps and simple measures to gauge progress.  Managers provide resources, eliminate roadblocks and teach the principles of modern operations.

Finally, modern operations is only sustainable as part of an integrated planning, analysis and control system.  A stand alone quality system will fail.  When quality and operations goals, measures, plans, projects and reports are incorporated into the overall management system, they are self-sustaining.

There is synergy across the pillars of modern operations.  Understanding variability, defining processes, building self-improving systems, using ideal long-term goals of zero waste, pursuing customer value, using pull production designs, empowering people and operating a single management system are mutually reinforcing components of world-class operations.

Building an Integrated Planning and Control System

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In the process revolution since WWII, we have seen every business function discover that input-process-output descriptions of activities followed by a “say what you do, do what you say, be able to tell the difference” feedback structure are the key to long-run success.  Firms need to evaluate and consolidate these planning and control systems into a single fully integrated system, since they are all attempting to reach the same goals using the same tools.  There are at least five different sets of systems independently active in most firms today.

Strategic planning systems operate at the highest organizational level, attempting to evaluate the situation, set direction, identify critical success factors, define strategies and key performance indicators, and approve major investments and projects.  More evolved frameworks, like the balanced scorecard, attempt to link strategic goals to operational performance.  Many firms have learned to link strategy to measures and projects.

Modern financial planning and control systems have evolved for more than 100 years.  Strategic plans are translated into long-term financial plans to guide borrowing, investment, operations and risk analysis decisions.  The financial plan is translated into a negotiated annual budget.   A financial performance management system evaluates managers against business unit, department, product, customer and project goals.  The key transaction processes are defined and monitored.

Risk management has evolved to become a separate discipline apart from classic P&L management.  Regulatory compliance and external financial reporting have become more technical and legal.  Internal controls have moved to secondary and tertiary levels of safety with an emphasis on “defensible positions”.  Emergency preparedness and disaster recovery have developed into new disciplines.  Risk management tools have evolved from insurance policies to include hedges, contracts and outsourcing.

Human resources systems have grown to become parallel factors.  The regulatory side has greatly increased the emphasis on compliance and risk reduction.  HR performance management systems have become linked to business performance through SMART goals.  HR has been charged with helping managers professionally address frequent change management issues.  HR has also become a senior management partner in attempting to create cultural alignment.

The process or quality systems approach has been the greatest innovator.  At the highest level, a management or total quality management system attempts to incorporate all activities.  The quality approach requires clearly defined customer goals.  All processes must be defined and documented at the staff and system level.  Operations measures are defined to provide simple and direct feedback.  Quality goals are set and quality improvement is defined as a separate goal.  Processes are defined within the generic framework of product, sales and delivery.  IT systems are positioned as facilitators, requiring technical and user documentation.  Individual application systems become more complex, incorporating best practices, but allowing many exceptions.  Change management becomes a sub-discipline, with growing project management expertise.  Process changes are driven by re-engineering, kaizen and continuous process improvement efforts.

Ideally, a firm defines and operates a single planning and control system which integrates the strategic, financial, risk, human resources and quality management dimensions.  Failure to integrate these components leads to added costs, political conflicts, waste and missed opportunities.  A performance management cross-team with representatives from sales, product management, finance, HR and operations is needed to coordinate this effort.

There ARE many components.  We need to overcome the desire to have a fully integrated system that encompasses all possible components as exhibited by the US military in their Afghanistan plans.

http://www.nytimes.com/2010/04/27/world/27powerpoint.html

Self-Improving Systems

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General systems theory was outlined in the post-WWII era when innovative thinkers began to consider how and why biological and ecological systems worked — or sometimes didn’t work.  Subsequent applied and theoretical work expanded the use of these insights.  Most importantly, we now understand that successful systems must be self-preserving, self-controlling and potentially self-improving.

A self-controlling system is often described using the thermostat model.  A system has a goal, a measurement device, the ability to compare actual with desired results and some action taken to return the system back within its control limits.  More sophisticated systems have secondary feedback loops to check the measurement, feedback and action steps.  Self-improving systems also have some built-in driver that improves the goal and results through time.

Most development economists have concluded that in the long-run productivity improvements are the key to economic well-being, far surpassing the contributions of simple resource availability.  Productivity improvements are created by individuals’ insights and brilliance, but more often by the cumulative results of self-improving processes.  Hence, our economic future depends upon the broad application of self-improving systems.

The biological model of evolution shows that “survival of the fittest” results in populations that are best ready to thrive in the range of environments encountered historically.  On average, this means that existing species are well positioned for most futures.  It does not rule out decimation due to some new environment, competitor or predator.   Biological pressures through the impact of pollution or global warming could threaten the beneficial effects of the biological model on economic growth.

Biologists and some anthropologists also say that our natural family and other small groups have developed to meet the needs of the species.  In spite of the many changes in culture since the “enlightenment”, these built-in relationships seem solid and provide a self-preserving parenting and small group cycle.

The development of the scientific method and use of peer reviews transformed science from natural philosophy, alchemy and astrology into a cumulative force for progress in scientific understanding.  This force has had a great economic benefit, expanding the use of the scientific method to a broader and broader sphere.  While philosophers and politicians raise valid questions about the ethical use of scientific discoveries, the march of science continues.

Representative democracy with “checks and balances” has also functioned as a self-improving system.  We now understand the need for cultural support for the rule of law.  We know that a variety of representative democratic systems can work well.  We know that there are sometimes populist, military or ruling class pressures that can undermine or destroy a democratic system.  We understand that democracies are often slow, sub-optimal and inconsistent.  Nonetheless, representative democracy has generally been a force for economic progress.  The consensus that western style democracy will be the dominant form of enlightened governance model was much stronger a decade ago, but remains the likely choice for most countries.

Economic systems like capitalism and international trade can also be seen as self-improving systems.  Adam Smith’s “invisible hand” and David Ricardo’s principle of comparative advantage lead competing interests to naturally improve their performance through time.  Modern economists generally agree that capitalism is not automatically “ideal” due to market failures, monopolies, public goods, externalities, unequal distribution of income, deadweight costs of booms, busts and bubbles, and the potential sustained waste of resources due to inadequate demand.  Recommended solutions to these shortcomings that can be implemented through the political process.  As with representative democracy, some form of regulated capitalism is an ongoing positive force for economic growth.

Finally, the systematic adoption of formal quality measurement and improvement systems by most organizations is another form of self-improving system.  By clearly defining goals, measuring progress, adapting and providing support structures that encourage process re-engineering and continuous process improvement, organizations have found that annual productivity improvements are possible in nearly all areas.  The quality revolution continues to expand its reach, moving from operations areas into overhead, service, government and not-for-profit applications.  The set of quality tools and best practices continues to grow.  The pressures of the economic and political marketplaces make sure that this will be a source of progress.

There are areas of modern life where self-improving systems do not provide built-in assurance of progress in the future.  Culture, religion and international relations do not work as self-improving systems today.

Historically, culture continued through inertia or the reinforcing interests of the ruling groups in society.  Without changes in the environment, a self-preserving system was common, even if a self-improving system was not.  Today’s increased level of global communications and cultural awareness provides support to avoid the total disintegration of culture.  The lack of thought leaders or leading cultural influencers today means that subcultures may improve, but the overall culture is not positioned for progress.

Religions were historically integrated with culture and reinforced them.  The “enlightenment” development of secular viewpoints and increased awareness of world religions has greatly complicated attempts by any one religion or ecumenical group to create a self-improving religious system.  Historic attempts to more deeply analyze a religion often resulted in inflexible forms such as scholasticism.  Attempts at reformation with ongoing evolution of doctrine resulted in splinter groups or fatal dilution of core content.  Within the secular humanist tradition, some progress is made through self-help books and applied psychology, but most observers would say that the self-awareness of existential philosophy has been a mixed blessing for people trying to create their own forms of meaning in life.

International relations is also a system without inherent stability.  Contradictory philosophical views dating back to the Greeks have enthusiastic supporters.  The idealistic goals of the United Nations and other world organizations are appealing, but the institutions do not clearly ensure the ongoing improvement of the human condition.  Greater economic and political integration in Europe is offset by the expansion of the number of nation states.  Mutually assured destruction evolved as a self-preserving system at a time of 2 superpowers, but provides no such assurance today.  The rise of Brazil, Russia, India and China to complement the US, Europe and Japan creates a multi-polar world without a clear system for ongoing improvements or avoidance of major conflicts.

The rise of self-improving systems in biology, science, economics, national governance and quality processes provides hope for a future of unlimited possibilities.  The lack of self-improving systems for culture, religion and international relations raises major concerns for the future.