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Purpose, measures and behavior, how it can support or destroy Lean journey?

23-01-2018

 'Tell me how you measure me and I will tell you how I will behave' 

It is easy to select a performance measure that generates the behavior you don’t want, i.e. behavior that subverts the system as the whole.

Traditional measures are hard wired in the company‘s underlying management beliefs and its management infrastructure.

Therefore, managers need to have some knowledge of psychology so they may understand why people behave as they do, what makes them behave as they do, and that people learn in different speeds and in different ways.

As John Seddon said ‘There is a systemic relationship between purpose (what we are here to do), measures (how we know how we are doing) and method (how we do it).

‘How an organization defines its purpose and defines and articulates its goals influences how its people think, behave, and act in any given situation’ (J. Hope, S. Player 2011). 

WHY SO MANY COMPANIES DESPITE THAT KEEP CONTROLLING THEIR PROCESSES AND PEOPLE BY WRONG MEASURES?

Budget-management – the cascading of financial targets down divisions and hierarchies – was invented by James McKinsey in the 1920’s. DuPont and General Motors were the first companies to introduce government budgeting into corporations. Budget management of that time can be described as “financial resources planning and control budget”.

The concept of Multi-divisional form of organization (M-form) has been introduced with the work of Alfred Chandler (1962) on the divisional structure of the firm. According to Chandler, the M-form facilitates growth through diversification across products, industries and markets and includes the notion of delegation of power and authority to divisional managers. It is contrasted with the ‘corrupt M-form’ (Williamson, 1975), where CEOs retain control within multi-divisional organization of operations.

In a type M-form organization the vision was translated into the strategic plan by the planners and handed down the hierarchy to operational managers who prepared their budgets.

Once these were accepted, all that the company demanded the adherence to budget plan. The head office judged the operational functions performance based whether it have adhered to the budget plan or experienced variation in the budget plan. Therefore, control reports were constantly fed back up the hierarchy line. If the adherence to budget plan was veering off track, the head office would issue new directives.

The illustration below explains it.

 

 

 

That type of management is top-down driven, detached from the operations, with remote management engagement through targets.  Where customer's purpose is neglected or maybe serves a purpose of 'slogan', rather than the fundament for management system.

The Board and CEO simply followed the traditional logic: ‘If every function meets its goals, if every function hits its budget, if every project is completed on time and budget, organization will win’.

'Actions applied to individual functions without the guidance of profound knowledge works against the system even when best efforts are made.  In this scenario, decisions are usually made in a reactionary manner which leads to other reactionary behavior which serves as a misbalancing force on the system', Dr. Barbara Berry. 

Every company has a purpose. A purpose of each copmany's existence is to solve problems for the customers. The result of it is of course revenue.

Normally the purpose in traditional management companies is defined inside out, rather than outside in. The primary focus is revenue, rather then satisfied customers.

The main consequence of the measurement structure is that it does not reflect the external and internal customers purposes. Measures are normally conflicting with the customer's purpose.

Individual functions see the world through their own glasses, and the more they do so, the further they walk away from its purpose of serving the customer. Senior management observes KPI‘s inherited from traditional management, judge the system‘s performance and people based on it. 

The whole organization must be aligned, and it takes real leadership to integrate the organization. 

Therefore, managers need to have some knowledge of psychology so they may understand why people behave as they do, what makes them behave as they do, and that people learn in different speeds and in different ways.

‘When people are pressured to meet a target there are three ways they can proceed: 

1. They can work to improve the system. 

2. They can distort the system. 

3. Or they can distort the target’. – D. J. Wheeler.

Enlightened leaders like Southwest Airlines, American Express, AL gore, Norwegian oil company Statoil no longer accept the view of the traditional management model, the model of command and control. ‘Instead of the traditional pyramid with the CEO at the apex, they turn the organization on its side, facing the customer’ (Jeremy Hope, Steve Player, 2012).

At its heart, the systems archetype is concerned to be designed towards the customer demand, managing value rather than cost.

When the purpose is expressed as ‘serve customers,’ a completely different set of measures can be developed that help managers and people to understand and improve performance.

I believe, this management model would support companies to focus all their value or service streams on a constancy of purpose; for only with the purpose everyone benefits-become possible and the system can then succeed. 

By integrating strategy deployment with improved budgeting process there will be a link between to processes, a link which enables more agile and more holistic management and leadership model.


‘Value streams would act as self-managed teams accountable for continuously improving their performance based on customer’s purpose’.

HOW TO REDESIGN THE MANAGEMENT ARCHETYPE SO IT SUPPORTS YOUR LEAN JOURNEY?

  • Firsty, strategy deployment process should be soundly “knitted” horizontally addressing interdependencies between value service streams and supportive teams. The company needs to focus on its constancy of purpose and communicate to their employees.
  • Secondly, budgeting process should follow strategy deployment process. Budgeting conflict can be solved by separating its three purposes targets, forecasts and resource allocation and then improve each of them (Bjarte Bogsnes, Beyond budgeting 2010).  
  • Introduce new set of end-to-end measures which are based on customer's purpose.

Studying value and failure demand and its variation would connect service or value streams and supportive teams horizontally.

Management would clearly signal the emphasis of understanding the demand and improving the processes, rather than spending so much time on static budgetting process. It would encourage people to talk across value chain and become more proud of their job.

The role of the CEO then would be to support front line service streams that sit in the value zone between customer and the company to act upon the system by understanding common and special causes emerging from customers’ demand.

I BELIEVE, IT TAKES REAL LEADERSHIP TO ADMIT THE UNDERLYING MANAGEMENT BELIEFS AND CHANGE THE MANAGEMENT INFRUSTRUCE SO IT SUPPORT LEAN JOURNEY! 

By Laura Gerrits-Gedvile, Holistic Lean Management Coach



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