Monday, April 17, 2020

The Ultimate Enemy

Most organizations are focused on increasing efficiency through the elimination of cost. That’s why so many people have lost their jobs and so much work is being outsourced to low-wage countries. Such a focus is understandable, but it’s fundamentally flawed. As so often in modern management thinking, it puts the cart before the horse. What leaders should be concentrating on is the elimination of waste and purposeless activity, not simply cost or people.

Taiichi Ohno, the father of the Toyota Production System, defined waste as “any human activity which absorbs resources but creates no value.” Organizations are riddled with it: completing returns and reports nobody reads, creating statistics no one understands, attending meetings with no purpose beyond protecting your butt, dealing with mountains of copied e-mails that aren’t your concern anyway. One of the major reasons people have so little time for important issues—like thinking, being creative or recovering energy—is the amount of time they’re forced to waste on activities with no purpose or useful outcome.

Focusing just on getting the maximum output from anything—machines, people, processes—is nearly always a mistake. It encourages managers to over-produce, so inventories pile up and excess goods have to be sold-off at huge discounts later. The American motor industry is a prime example: parking lots stacked with vehicles, produced with great numerical efficiency, that far outnumber the customers willing to buy them. Simply getting the biggest output isn't efficiency, unless that output matches actual demand. Running a machine, a process or a person too hard typically leads to waste, as well as increasing breakdowns and problems.

The Optimum Rate For Progress

There’s an optimum rate for everything. If you fall short, you don't perform as well as you could, but that's all. Exceed it and you pay a serious penalty.

It's that misunderstanding which persuades organizations to cut employee numbers to the point where good people leave and the rest are so exhausted they can’t do more than pull the levers and hope. Customer service becomes a joke and quality is compromised, yet still the organization can’t meet Wall Street’s inflated profit expectations. Why? Because the penalty they pay for exceeding the optimum use of their resources is greater than the "benefits" they gain through the increased output in numerical terms.

That would be bad enough if so much haste and scrimping didn’t also often end in long periods waiting for the next step in the process. Any journey by air these days contains waiting and flying in a ratio of at least two to one in favor of waiting. The “efficient” hub and spoke system, beloved of major airlines, flies passengers where they don’t want to go, makes them wait for periods they don’t want to waste, then eventually flies them on to their destination—often without their baggage. On a recent flight to Mexico (I live about 60 miles north of the US/Mexico border) I was forced to fly first to Dallas, Texas (a two hour flight to the east), wait three hours and then fly the same distance back to the west as part of my journey southwards. A friend coming from New York State flew west to Chicago, then back east to Atlanta, then west to Dallas, then joined the same flight as I did. It took her 12 hours to travel less than 1000 miles in the air. Most of that time was spent waiting in airports.

The Curse of the Audit Mentality

In today’s world, we rarely need huge batches of uniform products or services. Consumers demand choice, flexibility and responsiveness to their needs. The days are long gone when companies could offer a standard product with a “take or leave it” attitude. Yet that’s exactly what’s needed to justify traditional ideas of efficient operation. The audit mentality in many companies, backed up by mountains of figures none of the top people have time to read or understand, measures “efficiency” in simplistic ways. True efficiency only happens when there’s no waste and every action has a definite purpose that results in increasing value: more responsiveness; better service; providing customers exactly what (and how much) they want, when they want it; all using no more resources than necessary to produce the desired outcome.

It’s fatally easy to focus on a single aspect of a business and make it “better,” only to make everything else worse. To ignore the complex interactions that control the operation as a whole and focus on a simplistic measure like output per person. In our haste and superficiality, people are encouraged to use the simplest, most obvious action. That’s very often the one that’s guaranteed to cause the greatest long-term waste and ineffectiveness.

Take cutting costs. The conventional approach is childishly simple: the biggest bill in most companies is the wage bill—therefore cutting people (or wages or both) is the easiest way to reduce costs, quickly and “efficiently.”

Wrong. Removing waste in the form of unnecessary jobs makes sense. But most of those people are there because they are the organization; they make, deliver, service, support or invent what the organization does. Firing them is like deciding to cut off your left hand because you’re right-handed and do things better with the other one. Sure, you could manage with one hand, but you have two because you need two to function best (sometimes I think four would be even better).

Finding True Efficiency

To be truly efficient—in the sense of providing their customers with the right service, at the right price, in the right way, exactly when and how they want it most—many organizations would be better advised to increase staffing; and pay for it by cutting out wasteful meetings, excessive perks for the top echelons, pointless reports and data collection, and grandiose buildings and furnishings. They could also sell the Old Masters in the boardroom and the corporate jet.

We’ve had decades of a mindless belief in so-called economies of scale. This pernicious doctrine has been used to justify every mega-merger and support the ego-driven fantasies of executives drunk with the idea of presiding over some corporate behemoth. How many of these over-inflated businesses have failed? How much money have shareholders lost through indulging the foolish urge of directors to equate growth with size? There’s a correct scale for everything too. Being too small limits what you can achieve; becoming too large instead produces waste, over-expenditure and lumbering inflexibility. Yet corporations persist in trying to add to their size, instead of adding to their ability to fulfill their purpose; becoming stronger, not simply larger.

It’s time to slow down and take a long, hard look at reality. Most people don’t truly grasp what it means to be efficient. An organization has more than a single purpose. Profit isn't the only measure of success, and never was. Maximizing shareholder value may mean minimizing every other kind the organization provides to its members, its community and the country as a whole.

Nature is often described as profligate and wasteful with resources: an oak tree may produce tens of thousands of acorns, yet only a handful become seedlings and perhaps just one will grow into a new tree. Yet the abundance feeds innumerable insects, birds and animals. If you take the oak tree in isolation, and assume the only purpose of an acorn is to grow a new tree, it’s hugely wasteful. Put it in context and you get a smoothly efficient, complex relationship between the tree and all the creatures that depend on it. Nature has spent millions of years slowly perfecting what it does. We could start by absorbing the lessons it offers.

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Kathleen Fasanella said...

You're finally writing about lean! I think you're the perfect person to disseminate the information. It just fits so well with your general philosophy and everybody wins -customers, producers, the's sustainable and healthy both psychologically and for profit.
(doing a happy-dance)
ps, a good intro for neophytes is chapter seven of natural capitalism, read it free online (pdf).

7:58 AM  

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