On Management and Execution

One would think we have the idea by now…

A recent study done by the London School of Economics and Stanford University shows that a standard of management practice is linked to the favorable financial performance of the business. The way an organization is managed has a strong effect on its performance. It also states that “Management excellence is a matter of internal policy and not just the business environment”

The study cites practices such as:

The study shows that practical management techniques actually do deliver financial results for the company, yet many organizations do not even attempt to implement such practices. “For companies, the research is good news, suggesting that they access to dramatic improvements simply by adopting good practices used elsewhere.”, says the authors.

The study of 4,600 factories in 12 countries, referenced in the September 8 issue of The Wall Street Journal, found that, “a one-point increase in a factory’s management rating (on a one-to-five scale) translated to a 25% increase in labor productivity and a 65% increase in return on invested capital.”

These results, which Harvard Business School said are, “pioneering work,” and, “a real innovation in the study of management,” led experts to conclude that, “common management techniques such as setting targets, monitoring performance and ‘lean’ manufacturing actually help companies become more productive and profitable.”

Another convicting - and humbling - finding in this research relates to the apparent inability of factory managers to accurately assess the strengths or weaknesses of their own leadership skills.

“Good management appears to be so strongly linked with good performance that it might be reasonable to expect all firms to make better practices a priority,” shares a Stanford University report about this research. “The techniques of good practice are, after all, available in the public domain in a wide range of easily accessible forms. Yet many firms are still poorly managed…The majority of firms are making no attempt to compare their own management behaviour with accepted practices or even with that of other firms in their sector. As a consequence, many organizations are probably missing out on an opportunity for significant improvement because they simply do not recognize that their own management practices are so poor.”

The authors also note a disparity between family run organizations and those that are not: “Family-run and government-run businesses are less well managed and less productive than similar plants with professional managers. Promoting successive generations of family management “significantly damages company performance,”

Remember the London School of Economics research finding above that, “a one-point increase in a factory’s management rating can translate to a 25% increase in labor productivity and a 65% increase in return on invested capital,”

You can read the article here

You can download a copy of the study here

It’s that time of the year; review your past successes and update your plans for the coming year or so…

I was doing some research on selling professional services, and ran accross the “best business brochure ever written”. It was a brochure written by Arthur D. Little for his fledgling consulting firm. In it, he describes how his team literally converted sows ears into a silk purse!

The purpose of the article? To demonstrate that the commonly accepted wisdom is not “true”, merely difficult. Secondly, along the same lines, the firm sought to make lead balloons fly. Quite successfully, too!

Here’s some insight into the process.

Here is the actual brochure

So often, when faced with a difficult situation, we accept the conventional wisdom as being “true”, when really, we haven’t looked deeply enough into the situation, challenging ourselves to find the essence of the problem.

I find the more problems I solve, the less willing I am to accept the conventional solutions. In fact, the more publicity a solution recieves as being “correct”, the more skeptical I become!

“Things that everybody thinks he knows only because he has learned the words that say it, are poisons to progress. The only way to get ahead is to dig in, to study, to find out, to reason our theories, to test them - and then hold fast to what is good”

This is probably old news, but I just came across an article citing the 2007 Industry Week/MPS Survey of Manufacturers, saying that less than 2% of Lean Manufacturing initiatives achieve their objectives, and less than a quarter achieve significant results. Over 70% of US manufacturers have adopted Lean.

“Just because something is popular, doesn’t mean it’s working according to plan…” cites the author.

Managers seem to employing these techniques for the wrong reasons. The survey shows that market strategies are build around quality and service. Most of the lean tools are geared towards driving time from the system.

The Theory of Constraints continues to demonstrate superior performance in dimensions the customers care about; lead time and reliability. As a method of continuous improvement, it has no peer. A study by Mabin and Balderstone report that using ToC, organizations achieved a mean lead time reduction of 70% and an improvement to on time delivery performance by over 40%. Coupled with short implementation times, often less than 90 days, dramatic results are reported over and over and over.

Moreover, Theory of Constraints implementations actually improve the bottom line performance, doubling profitability in many implementations.

The article also cites that 14% of manufacturers are implementing ToC, up from 3% in 2007. Managers are starting to wake up to the power of the theory of constraints. Are those managers working for your competitor?

What is excellence? Dictionary.com provides two:

1. The fact or state of excelling; superiority; eminence: his excellence in mathematics.
2. An excellent quality or feature: Use of herbs is one of the excellences of French cuisine.

These are two very different things. Typically, we think in general terms of business excellence in the terms of superiority, but in practice, it is often translated into the second term, to the features of the business; its products and services, its profitability, its customer relationships, or even its employee relationships. The generally accepted definition of business excellence is the use of quality management principles and tools in business management, It is the systematic improvement of business performance based on the principles of customer focus, stakeholder value, and process management.

Business excellence, as described by the European Foundation for Quality Management (EFQM), refers to “outstanding practices in managing the organization and achieving results, all based on a set of eight fundamental concepts”, these being “results orientation, customer focus, leadership and constancy of purpose, management by processes and facts, people development and involvement, continuous learning, innovation and improvement; partnership development, and public responsibility”.

In general, business excellence models have been developed by national bodies as a basis for award programs. For most of these bodies, the awards themselves are secondary in importance to the widespread adoption of the concepts of business excellence, which they believe ultimately leads to improved national economic performance. By far the majority of organizations that use these models do so for self-assessment, through which they may identify improvement opportunities, areas of strength, and ideas for developing percieved weaknesses.

“Business Excellence” is traditionally defined by tools, not the outcome of being excellent. This is the wrong approach. It’s like saying, “I’ve purchased a very good set of tools at Home Depot. Now, I’m going to build a fabulous building.” The assumption is that the adoption of tools will yield good economic results for companies and economies. This is not necessarily a valid assumption.

Business excellence is best defined by its outcome, not its process. The Malcolm Baldrige award now weights more the 50% of its award criteria on business results, not product quality. Therefore, business excellence can be better described as excelling in the important dimensions of the business: financial performance, customer relationships, product / service value, and employee relationships, over time.

None is more important than the others, no organization can be thought of as “excellent” without superior performance in all four dimensions. Moreover, when one dimension is sacrificed at the expense of another, overall performance suffers. So, the term, “business excellence” must be defined as excelling in the dimensions of its customers, employees, products/services, and profit / return on shareholder equity, over time. An “excellent” organization remains so as its environmental conditions change.

Who sets the standard for excellence? Excellence is a yardstick, against which, you can measure your organization. But who’s to say that one yardstick is better than another? Against whom or what do you compare your performance? Industry benchmarking can be misleading. You may be an excellent performer in an industry that generally does poorly in one or more of the dimensions. One executive told me, “You may be at the top of the worm pile, but you’re still a worm.” So what is the measure? Other industries? This seems like a better approach, but gathering accurate benchmarking data is a signficant obstacle.

I propose that rather benchmarking performance, excellence is a value. A culture. A tradition. A way of life. There is no single standard of excellence except what you say it is. It must be this way, because the drive for excellence must come from within – not imposed from the outside. At best, only the consequences of mediocrity can be imposed from the outside (as reality constantly reminds us). Excellence is a shared value. The entire organization knows who they are and where they’re going.

For those who would like to see their organizations become excellent, the nature of excellence says something about how to achieve it. Achieving excellence is something to be led from the top, not something organic that bubbles up from the bottom. However, a leader cannot impose excellence; he can only create the conditions under which it can develop.

The leader must create a compelling vision for excellence. The organization must have a clear understanding of why it exists. What is the value it creates in the community? Why do customers value their relationship? Why are people so important? What do we do that others do not? This vision precedes process creation and skill development, because the answers to these questions dictate the nature of the processes and the types of skills required.

In the end, excellence comes from leadership, not competition. Like a winning football team, excellence is displayed in competition. The competition doesn’t create excellence, only the results of leading with excellence as a value.

You may already know this, but a CCPM implementation is not much to fear.  Think of it this way: “CCPM is a disciplined approach to managing the work we already do.”  The reality is, that the work of your firm does not change.

CCPM is simply addition and subtraction.

You’re adding some new behaviors:

• Planning with different task estimates

• A slightly different approach to planning your projects (moving the buffer)

• Focusing execution effort on buffer penetration, instead of the telephone

You’re stopping others:

• Multi-tasking

• Expediting

• Planning without considering resource capacity

It seems more daunting than it really is.  The risk of failure is very low.  Even if you do a little or partial implementation, you get results.

The most significant thing in these implementations is not the technology, but managing the change; dealing with changing behavior in the face of an uncertain (in the minds of your team, anyway) outcome.

The technology is well understood, you can use a simple tool like CCPM+ to get moving and make the move to a more robust software solution later.

The culture change for your business is moving to one where managers quickly respond to problems that may occur.  It’s primarily a leadership challenge, rather than a technical one.  So if you feel you have a handle on this, you can implement quite easily.  If not, that’s the biggest battle you’ll fight.