Three Absolutes of the New Management

Posted on Jan 15 in featured, OpX by

The practice of management is in the midst of a revolution. New thinking and new ways of doing things. Old assumptions concerning economies of scale, returns to specialization and centralization are falling away in the face of small, flexible organizations that compete on time and outperform their larger competitors.

In many ways, management hasn’t changed much over the years. The fundamentals of planning, organizing and controlling are still around. So are the day to day activities of managers and executives: attending meetings, supervising staff, preparing or reading reports, talking to customers and suppliers. Outside of responding to emails rather than phone calls, and reading things on-line rather than on paper, not much has changed.

And yet, management is in the midst of a revolution. Not a revolution of tasks or job function but a revolution in thinking.

Six Sigma, Lean Six Sigma, Lean Production, Lean Enterprise, Business Process Redesign, Business Process Re-Engineering, Quality Functional Deployment, Design for Six Sigma, Design for Manufacture, Design for Service, Rapid Cycle Improvement, Continuous Improvement, Accelerated Cycle Improvement, Hoshin Planning, Policy Deployment, Evolutionary Operations, Statistical Process Control, Competing on Time, Quality Management, Total Quality Management, Value Chain Analysis, Value Stream Analysis, Value Engineering and Reverse Engineering – all recent additions to the management lexicon and all concerned less with what management does and more with how management does it.

These technologies are all facets of the same thing–a change in the way executives and managers think about the business as well as a rethinking of how best to improve performance and competitive position.

There is no definitive starting point for this change in thinking. The work of Edwards Deming and Taiichi Ohno serves as a convenient place to begin because of their immense influence and impact today. Deming particularly, emphasized three fundamental points that serves as a foundation for everything that followed. These three serve as our absolutes of the new management and of the new management thinking.

1. Organizations are systems.

There are two ways to think about any organization, as a hierarchy of vertically aligned functions or as a system of horizontally aligned processes.

Hierarchy represents the management control strategy of the organization, how human and financial resources have been allocated and the accountability relationships that effect control.

Systems and processes represent the productive strategy of the organization. These describe how the work is organized focusing on the flow of work and seeking to reduce cycle times, increase throughput, reduce work in process, cost and waste while enhancing value and customer satisfaction.

Both hierarchy and systems thinking are required in organizations but the old way of thinking emphasized the hierarchical control aspects of the organization, often to the exclusion of the systems and processes. Systems thinking, in contrast, emphasizes the systems and processes (including hierarchical control processes) that actually create value for customers and for the business.  The systems thinking approach has some important implications:

  • The purpose of business is to create and serve customers because without customers, there is no business. The constant preoccupation of management, including the formulation of strategy and selection of business priorities, must be increasing the value delivered to customers.
  • The business is the sum of its systems and processes. Processes define how the business has organized the work. Systems define how the business has organized its processes. Together, they present a comprehensive picture of how the work actually gets done in the business.
  • The current set of systems and processes represent the collective know‐how of the business. How you do, what you do, is your current best practice and represents the state of knowledge or know‐how in the organization. To improve performance, you must increase your knowledge of your systems and processes and actually implement change.
  • Teamwork is required. Teamwork is not a nice nor a feel good exercise. It is a requirement of all organizations because systems and process flow across organizational boundaries. Hierarchical thinking creates silos which impede flow and destroy value.

2. Processes determine performance.

Performance, regardless of how it is defined, is primarily a function of the organization’s processes (including the value chain). Deming estimated that 94% of performance of the organization is attributable to the system of processes at work. Everything else, including the impact of people working in the process, amounts to the remaining 6%. The implications:

  • To improve performance you must improve the process. Because processes are the primary determinants of organizational performance, improving organizational performance means improving processes. This is true regardless of the form of the organization – from global enterprise to the HR department in a small company to the success of a not‐for‐profit. If you want to get better, improve the process.
  • Performance of any process is measured in terms of the value delivered to a customer. Value is what we aim to create but processes do not operate with 100% efficiency or effectiveness. Anything that doesn’t add value is waste. Eliminate waste and you improve the value‐add of the process and the business. That is why the elimination of waste must be the preoccupation of every employee.
  • Performance measurement measures processes. Performance is a characteristic of processes not of organizational hierarchies. Because of this, only the performance of a process (or system) can be measured. Performance of a hierarchical unit (organization, department, individual, etc.) cannot be measured directly, but only inferred from the measurement of various processes with which they are associated. This also means that performance measurement (and process management) requires an understanding of variation and the application of  statistical methods.

3. Improvement is a process, a scientific, evidenced-based process.

Performance improvement comes from a processes – a continuous process of improvement built on an evidenced‐based, scientific approach. Deming and Shewart captured the essence of the continuous improvement process in the: Plan, Do, Study, Act (PDSA) Cycle.  Ideas and theories (Plan) are put to the test through experiments and pilots projects (Do), the results are examined (Study) and changes are made (Act) that improve performance. What is critical is that it is experience that is used to evaluate ideas and theories and not the other way around. This is the basis of evidenced‐based management. All modern models of improvement, including the DMAIC model of Six Sigma, are based on this fundamental idea. Some implications:

  • Knowledge requires both theory and practice. It is not enough to examine an issue, conduct a study, draw conclusions or make recommendations. The only way an organization can claim to know something is if it has successfully married theory with actual experience. That is, implemented change and studied the results. This is the operationalized know-how.
  • Knowledge generation and improvement require that experiments be done. In practice, organizational experiments typically take the form of pilot projects, trials and testing different models.  Some of these will succeed and some will fail. Both will generate knowledge. Organizations that refuse to accept failure or acknowledge it in their experiments, will soon experience it in larger doses.

The three absolutes provide a foundation for a new way of thinking about management, about organizations and improving the performance the performance of both.

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