May 4, 2022 | Leadership, Operations
Any company that has grown bigger than about twenty or so employees has developed functional silos as a necessity. The bigger the company, the more focussed and powerful drivers of behaviour of functional employees those functional silos become.
At some point, they risk becoming self-preserving organisms, which seek survival and growth in an internal environment that competes for scarce resources to be allocated.
This is always a huge problem when seeking to generate change.
Water runs downhill, it finds the easiest way down, it builds momentum, continuously making minor adjustments, carving out a modified route as necessary.
Individuals in an organisation have a choice. Metaphorically, they can just ‘go with the flow’, or they can create friction and try and redirect the water. Few attempt to redirect the flow, and fewer still have the power to mandate it.
At some point, someone comes in and says we want some water back at the top of the hill, so someone gets some buckets, fills them, and starts back up the hill.
Almost always the journey is too tough, and they give up.
The momentum of the water still flowing down the known tracks beats them.
The task of leadership is to make that journey easier, to enable the individual to redirect their piece of the water flow, not to where it is easiest, which is the way it went last time, but to a new way, forging minor changes that cumulatively create the new best route to the end point.
Customers do not care about your internal structures, rules, and priorities. They want their product as ordered, at the agreed price, on time, no defects. This is inherently cross functional.
We have organised businesses for our own convenience, when in fact they should be organised for the convenience of customers.
Header photo credit: Lunayuna via flikr.
Mar 23, 2022 | Analytics, Operations
6 sigma is a statistical toolbox designed to assist process improvement. It was originally developed by Motorola in the 80’s as they struggled with quality problems in their booming but now extinct mobile phone business. The tools seek to identify and remove the causes of variability and resulting defects in manufacturing processes. It uses statistics to identify problems, formulate remedial action, then track the impact of improvements as they are implemented.
In simple terms, 6 sigma compliance means there is less than 3.5 defects in a million opportunities for that defect to occur. This can apply to a specific machine or action, or whole production line. Clearly the latter creates many more opportunities for error, and therefore harder to stay ahead of the 3.5 defects/million opportunities benchmark.
Improvement projects are run to a proven statistical ‘recipe’ going by the acronym of DMAIC.
Define. Using statistics, define the problem, and the deliverables of the project.
Measure. By collecting data, you measure the ‘current state’ of the process or activity. This is the starting point from which the improvements will be measured.
Analyse. By analysing the data from each point of input, usually by experimentation, you isolate the cause-and-effect chains in the activity. This identifies the root causes of the variation being investigated.
Improve. Removal of the causes of variation will result in improved performance. The improvements require that changes be made and that the improved processes become the Standard Operating Procedures (SOP).
Control. Control is the continuing monitoring of the improved process to ensure that there is no ‘back-sliding’.
When engaged in a 6 sigma type project, I like to combine it with the SMART methodology in each component of the improvement process. This enables pro-active project management of the components of the process.
6 sigma is often confused or conflated with ‘Lean’ methodology. They use a similar toolset while coming at problems from different perspectives. In my view, and some disagree, they are highly complementary.
Feb 25, 2022 | Analytics, Operations
To improve performance, the key challenge is to identify the drivers of outcomes in real time, and enable the changes to be made that will improve the performance.
The ‘Box score’ is a term that has been hijacked from the recording of individual sporting performances in team sports by a few accountants seeking to capture real time operational data. The term originated with Baseball, but all team sports have a system that in some way records individual performances which when taken together are the source of team performance.
In a commercial operational context, the collection of metrics plays the same role, capturing the real performance of a part of a process, adding through to the totals for the whole ‘team’. It is a more accurate and responsive way of tracking the costs incurred in an operational situation, specifically a manufacturing process, than the favoured standard costing system.
Typically, standard cost systems while better than nothing, fail to reflect the actual costs incurred by a process. They are ‘lazy’, displaying the averages of past calculations, and as we know, averages hide all sorts of misdemeanours, errors, and potentially valuable outliers.
Sometimes these systems also have a component added to the cost of each unit of production that is noted as: ‘overhead absorption’. This just makes the inaccuracy and inflexibility of the standard costing system even more inaccurate and misleading, resulting in poor data upon which to make decisions.
Accounting has only two functions: the first is reporting to outside stakeholders. That has become a formulaic process with a template and rules about how things will be treated, this is to ensure that you are always able to compare apples with apples across industries.
The second function is to provide the information necessary to improve the quality of management decisions. The two are not connected except at the base level, the originating data.
This is where the ‘box score’ approach adds huge value: it captures the actual cost of a process.
A well thought out standard cost of goods sold (COGS) calculation typically includes calculations for the cost of packaging, materials used in manufacturing, and the labour cost consumed by the process. The calculation assumes standards for all three, and then throws out variances from the standard to be investigated. Standards would typically be updated regularly to accommodate variances that appear intractable. Changes such as labour rates, machine throughput, and price changes in materials, should be included in updated standards, but often they are not, and when they are, it is after the fact, and as averages.
A ‘box score’ by contrast captures the actual cost in real time, or close to it, so that more informed management decisions can be made.
30 years ago, I did an experiment in a factory I was running, the objective of which was to identify the exact cost of the products running through a line. To collect the data, a host of people needed to stand around with clipboards, stopwatches, and calculators. At the time it was called Activity Based Costing, ABC. The result was good, but the improvements resulting from the information gathered did not generate a return on the investment necessary.
These days with the digital tools available to collect data, there is little excuse not to invest the small amount required to measure the real throughput and resources allocated to get the better information for informed decisions. The options to collect real time data are numerous and cheap, and in modern machinery, just part of the control mechanisms. These devices can collect data and dump it into anything from Excel to advanced SCADA systems, which enable the data to be analysed, investigated and the outcomes recorded and leveraged for improvement.
Managing operations using the actual costs captured and reflected in a ‘Box Score’ manner enables more accurate and immediate decisions to be taken at the point of causation. It is no different to a cricket captain taking a bowler off because the batsman is belting him out of the park. When you can see what is happening in real time, you can do something about it.
Header: courtesy Wikipedia. The scorecard in the header is the scorecard of day 1 of the 1994 ashes test in Brisbane. It progressively captures the days play as it happened: a ‘Box score’
Jan 10, 2022 | Lean, Operations, Small business
While contracting as GM of a Federal body some time ago, I used to travel from Canberra to Sydney’s western suburbs on a regular basis.
I had the choice of driving which took a predictable three hours door to door, or catch a cab to Canberra airport, wait, catch the plane to Mascot, then a cab to my Sydney destination. That method took an unpredictable 2 and a half hours to 4 hours depending on all sorts of variables over which I had no control.
My car would happily sit on the speed limit all the way, a far slower speed than the alternative aeroplane.
Clearly, the top speed of one component of a journey will not determine the time for the whole journey, which is what really matters.
This applies to everything in life and business.
Find a way to remove the bottlenecks and the speed of your journey, whatever that is, will increase.
Dec 20, 2021 | Change, Operations
Some great minds have worked in increasing the performance of management.
Einstein is one of them, although may not have known it when he said: ‘Everything should be made as simple as possible, and no simpler’.
Along the same lines, 20 years later Einstein’s mate Peter Drucker said a similar thing: ‘Much of what we call management consists of making it hard for people to work’
Never was a truer word said about the machinations and genuflections usually necessary to get anything done in any organisational bureaucracy.
Organisations evolved to give us leverage, no one person can build something as simple and today basic as a computer mouse. There is a huge pool of people who all contribute from the electronics to the physical formation and design of the thing. This pooling of resources allows us to scale. This is not a new phenomenon. We have been complicating our lives since we moved away from subsistence family level groups. This classic genealogy of a pencil: ‘I, Pencil’ by Leonard Reed was written in 1946, well after we started complicating our lives by fragmenting and specialising tasks to achieve scale.
The down sides are real.
The added transaction costs in scaling operations, necessary to manage all the divergent and disparate jobs that need to be done, go largely unreported. As a result, they linger like a fart in an elevator, making life a bit more complex and often unpleasant.
The basis of all the thinking that has been labelled ‘Lean’ is flow, a necessary pre-condition to profitable scaling.
How do you get things to flow, to manage to the constraints of the value stream, thereby focussing attention on the constraints in some sort of order to be able to address them progressively in the most productivity delivering manner.
Achieving flow is akin to deep cleaning the elevator. It removes the lingering residue of people creating friction, making life more complicated than it needs to be.
Nov 26, 2021 | Analytics, Management, Operations
Communication of outcomes, from the strategic drivers of your business to what was produced in the last 5 minutes at a station on the factory floor, is increasingly recognised as the key to performance improvement.
Communicating the right things, to the right people, at the right time is as important as the communication itself. A communication is only successful when the meaning received is as intended, and the receiver can do something useful with the information.
Most businesses are already able to collect more data than they know how to use productively. The challenge is to pick the few that are the drivers of decisions at each level. Collecting data for the sake if it makes no sense. If it does not provide insight to decision making, why bother?
The five questions:
Who is it for?
The MD needs different information to the operations manager, whose needs are different to those on the factory floor. This cascade exists across the business, up and down the functional silos. The more the information can be made responsive and relevant to the cross functional users the better.
What is the objective?
What are the people using the data trying to achieve, and by when? Information is most useful when it charts progress towards an objective. Again, the nature of the information and the cycle will vary by level and role in the organisation.
What is the frequency?
By the minute, hour, day, month, all users have unique needs, and all information has a cycle time that makes it relevant. Typically, the higher up the organisational hierarchy, the slower the cycle time. However, making the information available to all on demand is an extraordinarily effective way of generating functional and cross functional alignment.
How do we improve performance?
Solid data is the starting point for every improvement initiative, from the smallest improvement on the factory floor to the drivers of strategic success. The scientific method prevails and requires the stability of good data on which to work.
What data is needed to answer these questions.
Data needs will evolve over time as objectives and progress toward them evolve, and is highly context sensitive.
Danger signals: there are two of them.
- Too many metrics. The dashboard should be three, up to five at a stretch, certainly no more. Data is only as good as the decisions and behaviour they drive, and the more there are, the less motivating they become. Ideally the three are: rolling current, next period, progress towards the objective.
- Vanity metrics. I see these all the time, they are easy, may look nice, but are functionally useless. The obvious example is Likes on a social media platform.
The cadence of an organisation is one of the defining factors of success. The frequency and relevance of the dashboards at every level, the way they make outcomes transparent is a key to performance improvement.
