I spoke to a good friend of mine who runs one of the largest plants for a very large chemical company. This guy has done everything, chemical engineering, project management, SAP implementation, asset management. We were talking shop and he suddenly said...
'The senior guys don't want to do the heavy lifting when it comes to measurement'.
I have been thinking about that comment all day. Why? and then it came to me. To quote Michael Hammer from 'The Agenda' ....
A company's measurement systems typically deliver a blizzard of nearly meaningless data, that quantifies everything insight, no matter...
These people have been brought up in Hammer's system. They don't believe the data so why lift?
- that it is devoid of any particular rhyme or reason;
- that it is so voluminous that it is to be deemed unusable;
- that is delivered so late that it is to be virtually useless;...
In short measurement is a mess.
My blog presents a story of discovery. How I have been able to create feedback models that power decision analysis.
For some strange reason I see things in mathematical terms. So a beautiful woman jogging...just about math. As my kids were growing up I drove them nuts trying to make a point.
All my consulting experience has been with companies whose data systems do not properly power decision analysis.
I will leave you tonight with this thought that Goldratt immortalized...
'If I know how you are rewarded, I almost certainly know how you will behave'This weekend I will post on looking at the implications ...
Chapter 2 - The Measurement Dilemma
Writing this piece is part of my struggle with why using proper performance metrics is such a problem for most organizations and why it creates such aberrant behavior.
Let me give you a short case study of an extreme example of the kind of crazy behavior I have seen. A few years ago I worked for a company, that made plastic colored balls that would then be used as the color base for injection molding. The process was fairly simple, batches were scheduled for the color to be added to product in relation to the color wheel, from light to dark. When this was accomplished the blender would only have to be fully cleaned after the darkest color was added. A batch of color would take 20 minutes and to fully clean the blender took about 90 minutes. It was clear that breaking into the schedule was a significant issue. Yet, almost every day the schedule was broken into at least once 'for an emergency order'. When this occurred a batch would take the 20 minutes plus the 90 for the cleanout. The result was that instead of producing 4.5 batches in this time frame only one was produced. Of course the batch that broke in was not charged a higher cost, the lost production and increased cost was divided across all products.
Let me give you a short case study of an extreme example of the kind of crazy behavior I have seen. A few years ago I worked for a company, that made plastic colored balls that would then be used as the color base for injection molding. The process was fairly simple, batches were scheduled for the color to be added to product in relation to the color wheel, from light to dark. When this was accomplished the blender would only have to be fully cleaned after the darkest color was added. A batch of color would take 20 minutes and to fully clean the blender took about 90 minutes. It was clear that breaking into the schedule was a significant issue. Yet, almost every day the schedule was broken into at least once 'for an emergency order'. When this occurred a batch would take the 20 minutes plus the 90 for the cleanout. The result was that instead of producing 4.5 batches in this time frame only one was produced. Of course the batch that broke in was not charged a higher cost, the lost production and increased cost was divided across all products.
The organization refused to implement a policy of not allowing the schedule to be broken even though it was commonly known that this was causing problems and maybe costing them money. The reason for the vast majority of the panic orders was as a result of the compensation policy of the marketing executives who were bonus-ed on volume.
This process plays out everywhere we look. We now realize that the recent melt down in the financial system was not just a random affair. Many key players in the banking system understood the risks they were taking. They even had a term for the impending disaster. But, it wasn’t their problem. The rewards were so substantial that they were driven to take on more and more risk. By the time things got bad they would take their money and run.
In most organizations the measurement systems for the sub-units are out of alignment with the overall profit goals of the company. To understand the problem, one has to take into account how organizations are built.
To cope with the complexity of organizational life functions are divided into divisions such as manufacturing, marketing, R&D, purchasing etc. For each of these functions performance measures are created, supported by key performance indicators.
The people in each function are rewarded or punished for how effectively they attain those goals. When all the functions achieve their goals the organization will prosper, or, so the theory goes.
In fact, in most organizations this isn’t true and it underlies one of the biggest problems we as consultants face in trying to effect change.
It is also why we meet significant resistance to change from some parts of the organization. We are trying to change 'to something better', but the resistors often see their positive reward system stripped away and not replaced. From their perspective this means that the change will have a significant negative impact on their bonus system, on the satisfaction of their job and ultimately on their life.
In fact, in most organizations this isn’t true and it underlies one of the biggest problems we as consultants face in trying to effect change.
It is also why we meet significant resistance to change from some parts of the organization. We are trying to change 'to something better', but the resistors often see their positive reward system stripped away and not replaced. From their perspective this means that the change will have a significant negative impact on their bonus system, on the satisfaction of their job and ultimately on their life.
If that were the end of it. It would never the less still be terrible but unfortunately, it gets worse.
But here is the other problem. In the final analysis when strategic decisions are made the linkages of the separate data flow together - everything is hooked to everything else.
It doesn't matter that the measurement systems used by each function poorly measure outcomes that drive the real financial throughput and are not interconnected, never the less the outcome is what drives the organization to make or not make decisions.
How many times have you heard the story of purchasing managers making decisions that impact quality negatively, even when quality is a primary goal for everyone in the management team.
How do you make good decisions with bad data?
In a recent article in Fortune, they commented that of the Fortune 500 today, less than 60 organizations are the same ones that existed when the magazine started to analyze this data.
As a pilot I have been trained to create knowledge from the data coming from the various instruments and to have a sense when one of the instruments may be producing erroneous data. We are the taught to integrate that data and then make appropriate decisions. When a pilot is unable to do this the results can be catastrophic.
I have seen examples where organizations started here and moved to clearly and competently functioning in an environment powered by good data and good decisions.
I have seen examples where organizations started here and moved to clearly and competently functioning in an environment powered by good data and good decisions.
So where do you begin?
Chapter 3 - "Don't focus on the numbers"...Jack Welch
My goal in writing this blog is to present a perspective on root drivers for organization change and support these strategies with effective transformation processes. Theory is interesting and talk is cheap. To best understand this phenomenon my experience is to use real examples and case studies of change drivers. Some will be my examples and some will be from the public domain.
Jack Welch, the infamous CEO and Chairman of GE for more than 20 years led a series of revolutions at GE, seeking to recast a highly bureaucratic, labor-intensive corporate giant into a highly productive machine that would function with the speed and simplicity of a series of small entrepreneurial companies. Welch was all about measurement, yet one of his more famous quotes...
To me this statement perfectly articulates the what and why of measurement and some of the current problems with organizational measures."Don't focus on the numbers, numbers aren't the vision, numbers are the product."
You will hear me say over and over again, there has been a drive in organizations to create better and more copious measurements, which is obviously a very good thing. Unfortunately, too often this has translated into... 'surely if we measure everything, we will find an abundance of important data that will help to drive productivity and profitability.' Nope!
I was working in a large rolling mill that had poor productivity which we were trying to improve. I sat down with the plant manager for a briefing and he produced what seemed like a hundred different analytical spread sheets that seemed to analyze the process down to the minutia, but all it did was confuse me. His presentation was designed to convince the consultant that they had analyzed this problem to death and I could not possibly add anything to the equation. He was partly right. The data showed an organization working very hard at process improvement with little to show for it.
Everyone has heard the statement...
"There are three kinds of lies: lies, damned lies, and statistics." This phrase describing the persuasive power of numbers is attributed to the 19th Century British Prime Minister Benjamin Disraeli (1804–1881).To return back to the rolling mill example, the problem was that they were so focused on measuring the sub-systems in the mill that they were not measuring true system outputs, which brings me back to Jack Welch. If we look at Welch's career at GE, he made at least 5 major interventions. For each of those interventions measures were both the product and the steering mechanism for the change process.
The following are his major change strategy interventions...
- Being Number One or Two in the Market Place...search out and participate in the real growth industries and insist on being number one or number two in every business that they were in - to become the leanest, lowest-cost, world wide producers of quality goods and services;
- People Differentiation, Creating the Vitality Curve... this was a process to differentiate management into 3 groups, A - the top 20% performers, B - the vital 70%, C - the problem 10%;
- Work Out...taking unnecessary work out of the system and measuring the impact;
- Boundary-less...the concept of removing boundaries both inside the organization, between manufacturing, marketing, finance, engineering, etc (measure the impact) and outside the organization to create a single process from supplier to customer (measure the impact);
- Six Sigma Quality...driving productivity, reducing variance span and measure the impact.
Too many managers are afraid to change. They believe that standing still is the safest business strategy. The problem with that approach is that the world is changing. In fact it seems to be changing at an ever increasing rate. Therefore to stand still is to meet yesterday's demands, with yesterdays products and yesterday's organization. The U.S. Marine Corp teaches what they call the 70-percent solution—It's better to decide quickly on an imperfect plan than to spend time considering every angle and roll out a perfect plan when it's too late. Learn to move fast, change on the fly, and inspire employees—or die.
The Art of the Bull's Eye
The Art of the Bull's Eye is a 7 step structured process that helps manufacturing organization's create an effective measurement system that evaluates customer profitability and customer value.
We chose the metaphor of a Bull's Eye since the process of becoming a marksman requires...
- both the perspectives of art and science;
- finesse and strength;
- the capability to both adapt to various conditions and yet be extremely decisive;
- the practical applications of mathematics through the understanding of wind, barometric pressure and heat;
- the discipline to keep refining the process and a feedback mechanism to drive the refinements.
Jack Welch for me is an example of a manager with a continuous compulsive drive for perfection. Did it work? First quarter profits in 1996 reached $1.67 Billion more than the company earned during all of 1981, the year Jack took over.
