In many of the companies where I am involved as an advisor or consultant, managing improvement is an inherent part of running the business. A common mistake executives make while trying to manage improvement is that they localize their improvement focus and don’t connect their improvement efforts to the organization as a whole. The net effect of such an approach is that it lowers the performance of the organization as a whole.
Examples abound. Recently I came across a manager in a service organization who had received a cost reduction target for his department. He removed a return envelop from a standard mailing that another department is responsible for that goes to clients when they close on a contract. We are talking an annual volume here in the tens of thousands so a significant cost saving – or so he thought. However, the net effect was that many customers did not return a required form (which is why the return envelop was usually enclosed) that led to a downstream department getting into compliance problems. In the end thousands of customers needed to be called and some mailings needed to be redone. It cost the company more than it saved in out-of-pocket expenses without taking into account the employee and customer dissatisfaction that was caused as well. In another company the sales and marketing department decided to drop the price of a particular product to get more market share. This led to more sales and more sales bonuses, but they had failed to talk to the operations department who could not handle the extra volume. This led to all sorts of delivery problems, lower customer satisfaction for the organization and reputational damage in the market place. And to go back to the company that tried to order safety as if it was food on a menu in my previous contribution, the pressure on people to sell and produce more, sometimes led to postponement of preventive maintenance which in turn would lead to the breakdown of equipment which led to potentially unsafe situations and costly operational delays in serving the customer.
My approach to deal with these type of problems is to not only visualize the systemic nature of these problems with the managers involved – often I ask them to do this – but to also share with them the notion that an organization is a social system where the whole cannot be divided into independent parts. To show this I do a simple exercise where I ask the managers to choose an end-to-end process and to calculate the rolled-throughput-yield of the process. This demonstrates mathematically that, as Russel Ackoff so eloquently articulates, “an organization is as good as the product of its interactions.” From this follows that leadership must have a high priority focus on the interaction of the parts of an organization and that any local (departmental or functional) improvement will have a consequence for the whole of the organization. Local improvement must therefore be put into the context of the whole of the organization,
I find that the works of both Russel Ackoff and Peter Checkland help me in coaching my clients to a better understanding of these very basic organizational axioms. I particularly recommend Ackoff’s Idealized Design and Checkland’s “Systems Thinking, System Practice” and “Soft Systems Methodology in Action.” I believe that the Idealized Design concept from Ackoff and the soft systems methods from Checkland are useful for opening up the discussion in complex organizational contexts and are therefore consistent with the toolset that Cognitive-Edge is developing.