Business Performance Improvement Technologies - an Introduction

The Major Improvement Technologies

Process Improvement Technologies, Planning Tools, and Buy-In Procedures

The technologies behind business process improvement and business performance improvement (unfortunately, rarely the same thing!) naturally become the focal point of an organization's improvement efforts.

However, we see the biggest reason for failure in achieving the desired outcomes from business process improvement (which should be, business performance improvement) being outside the technologies themselves.

One is, not using formal and effecting analysis and planning tools to ensure that

a) the problem being attacked with a particular technology or methodology is genuinely the cause of the symptoms being experienced, and

b) the solution proposed will genuinely create the desired outcomes and no undesirable ones

Tools such as the Fish-bone diagram or "Ask why 5 times" while valuable, do not provide this, although managers often assume they do. It is of course important to plan effectively if the technology is to achieve the desired outcome. If this sounds like motherhood ... search the Internet for discussions on the failure rate of ERP systems, probably the single most common and most expensive improvement technology in the world..

Another major obstacle preventing business process improvement converting to business performance improvement is management's failure to use formal techniques or a formal strategy to get the buy-in of the people who are crucial to the success of the improvement initiative. In fact, most managers have no idea that such a strategy and procedures even exist. They "wing it" then experience months of frustration complaining about people's resistance to change, and fighting battles that can all be attributed to a single up-front strategic failure.

Effective change management demands the use of all three - the process improvement technologies and performance improvement technologies, the analytic and planning tools, and the buy-in strategies and procedures that help managers convert process improvement to performance improvement.

We also cannot stress enough that an effective business strategy "trumps" the use of many, if not all the improvement technologies, and effective deploymetn of an improvement technology, with great planning and a well-conducted buy-in, can be close to worthless if the company is pursuing an ineffective business strategy. That's one reason the Theory of Constraints technology heads our list of improvement technologies.

Theory of Constraints

Although many would claim this role for Lean Thinking, Theory of Constraints (TOC) is arguably the most comprehensive management philosophy associated with performance improvement; meaning, it offers complete and innovative "solutions" to almost every function of almost every type of organization. While it is far less popular than Lean or Six Sigma or ERP ... Theory of Constraints is in a league of its own as a tool for managers who want to see fast, direct, and usually massive performance improvement with a minimum of wasted time and expense; and for managers who want to see sustained, continual breakthrough performance.

Now, the same claim can be made for Lean - Lean can be applied to much more than poroduction, and it has the promise of improvements everywhere. Theory of Constraints wins our vote because it distinguishes clearly between localized improvement and global improvement, and it provides a model for an unrelenting focus on improving ONLY those things that connect directly to global business performance improvement.

The Theory of Constraints solution for production out-performs the Lean solution (which has a lot in common) according to almost every study. Search the 'Net and look for companies that implemented TOC having first implemented Lean. Then look for companies that moved from TOC to Lean. You won't find any ... with one exception: where a senior manager experienced in Lean and inexperienced in TOC moves to a company where TOC is the dominant improvement philosophy and methodology and sets out to replace what he doesn't know, with what he does.

However, TOC plus Lean is better than TOC. TOC, Lean and Six Sigma are better than TOC and Lean. Theory of Constraints works beautifully in association with other technologies; TOC provides a focusing tool that offers tremendous leverage, the other technologies provide tactical improvement technologies.

There's an interesting case study where a California corporation with 21 plants conducted a 2-year experiment where some plants implemented Lean, some Six Sigma and some implemented Theory of Constraints as the strategic technology with Lean and Six Sigma providing tactical support. On a plant by plant basis, those using TOC out-performed the Six Sigma-only plants by 23X and the Lean-only plants by 15X. Not trivial, but highly predictable.

Lean Thinking

Lean is the name attached by Westerners to a way of working ... and thinking ... that was already in place in Japan when the movement was introduced to North America.

The books that launched Lean in the West were attempts to describe what Toyota were doing; this has evolved into a management philosophy and a set of principles that, depending on which "flavor" you subscribe to, emphasizes smooth workfkow, or the elimination of waste to focus on value, or satisfying customers ... or all three.

Correctly implemented, Lean is highly effective in appropriate environments and not just in manufacturing operational areas. Unfortunately, most managers do not understand where the assumptions that underlie Lean success are not valid i.e. where Lean isn't a good "fit;" and the vast majority of implementations we see are implementations of only a very small part of the Lean body of knowledge, and often poorly done. For example, a company has performed Value Stream mapping, a useful technique, but changed nothing significant as a result. Or, they claim to have implemented 5S and show us their shadow boards ... with not a tool in sight on the boards.

Now, this is not a fault of the technology; this is the fault of the managers. There's a cultural issue here. Where some North American companies (for example) are saying "Yep, we've done Lean, what's next?" Toyota is in it's 4th decade or so of applying these concepts ... so it's actually getting reasonably good at them, one might say.

When Lean concepts are implemented comprehensively in the right type of production environment Lean can generate whole-company improvements that are very impressive. (Hey, Toyota's not doing so bad). When you try to apply Lean Thinking to other environments than production, significant improvements can also be achieved. Lean has implications for engineering (and re-engineering), software development, new product development, etc that are far reaching and carry some serious strategic benefits.

And, any company believing it's doing a good job of training should invest in he book Toyota Talent and study the content. It's pretty mind-boggling.

Project Management

You can almost divide the world into three for this. Companies where projects are their lifeblood - in high-technology or biochemical areas for example - often practice conventional state-of-the-art project management. Sadly, it often doesn't work very well and projects are still prone to taking much longer than planned, consequently being very late relative to the promised data, over budget, and generating an outcome that is less than originally specified. Still, having some control is essential; certainly better than none; and a knowledge of formal project management technology is invaluable for anyone associated with projects.

Companies where projects are an unavoidable element in, but not the driving force of, the business, often use extremely poor project management practices. Extremely poor. Even, none. In part this is the result of a vicious circle; when managers torture themselves for dozens of hours building beautiful project networks using Microsoft's powerful but-oh-so-disdained MS Project software, only to see that the scope of the project changed overnight, and half the resources were taken off to be used to help in an emergency elsewhere, ... what's the point? Worse, when they DID use the software results were still lousy ... see above.

And finally, a handful of companies have caught on to the Critical Chain Project Management Approach, where projects are routinely being scheduled for 25% to 50% shorter durations than conventional project management practices would suggest ... and coming in on time (or early) more than 90% of the time, with no compromise in the deliverables.

The success of this methodology has been described as stunning; project durations reduced by 25% to 50%, on-time completion in the mid-90% range, and 100% or 200% more projects being completed by the same resources.

The project network model associated with CCPM leads to a project schedule remaining intact while Murphy does its damndest to mess things up. While it may be hard to believe (until you understand the technology), most Critical Chain Project Management project schedules, even for 12-month projects and more, never need to be rescheduled.

Information Technology

Information Technology is one of the most maligned functions in many organizations; they are held responsible for slow computer systems, software that doesn't "fit," taking too long to generate even the simplest of new reports, and more, ... while contributing nothing to the bottom line except a substantial expense.

In reality, Information Technology is finally becoming what it has always had the potential to be: the foundation for a competitive edge. Sadly, what we see in most organizations is NOT information Technology, it's DATA technology. Lots of data, reams and reams of it. The real issue is that few managers actually have a solid, principled and consistent basis for decision-making, and therefore no amount of data ever actually provides the information they need. So managers continue to make poor decisions and demand new reports to show the data in different ways. And the IT department continues to be flooded with work.

Information Technology CAN be used as a foundation for huge performance improvement when used correctly. I strongly recommend you read "Necessary but Not Sufficient" by Dr. Eliyahu Goldratt.

Enterprise Resource Planning - ERP

In various shapes and forms, ERP has been a dominant (read, multi-billion) segment of the IT industry, peaking with the buying frenzy at the millennium (remember Y2K? It was 8 years ago!).

ERP started in manufacturing businesses, where 30 years ago "Material Requirements Planning" was a revolutionary way of managing the flow of materials from planning, purchasing, receiving, issuing, production, and shipping. Now it's not just materials being planned, it's Enterprise-wide resources; and it's not just manufacturing businesses, it's organizations of all kinds.

When an ERP system is chosen for the right reasons, and implemented effectively, it can be a tremendous asset to a business. In some organizations it is simply a Necessary Condition for being in business; without the data and transaction management capability of an ERP system the company couldn't operate.

Unfortunately, some ERP "Best Practices" are actually not well-aligned with business performance improvement - simply with doing what everyone else thinks is correct.

Customer Relationship Management - CRM

CRM is another example where Information Technology has provided the opportunity to completely change a major element of an organization's operations. Essentially, Customer Relationship Management is designed to help an enterprise to manage customer relationships in an organized way; but there are a lot of different facets within this.

For some, it's simply a way to organize all activities relating to the customer more effectively. Having a central database with information on customers, contacts, products, preferences, all communications etc just makes sense. But CRM can also be used to reflect the changes in the marketplace ... the reality that on-line commerce is changing the face of business.

Regardless, as with all improvement technologies it's a reality that the majority of implementations do not provide the promised benefits. Effective planning for a CRM implementation is essential.

Simply determining the goals of a CRM acquisition and implementation is an interesting experience for a company; it it to help customer service? Or to help internal operations? What will "success" look like?

Outsourcing

Outsourcing is simply the delegation of tasks or jobs from the organization to some external organization. The majority of outsourcing today is still to companies or organizations in the country where the base organization is established, but outsourcing to countries such as China and India has of course become a massive trend, with some controversy attached.

Business performance improvement is of course the objective, although the specific form of this is usually an attempt to save money. Occasionally it can be to improve quality by handing over a specialist task to an organization that is a specialist in that task. And sometimes - rarely, but valid - it can be to free-up resources for other tasks. Observers report that many outsourcing targets are not met; so effective planning for outsourcing is essential.

Application development & maintenance is probably the most outsourced area, with HR, finance, call centers, help desks, and IT all being popular candidates. More and more manufacturing has been outsourced in recent years, much of it to China.

Of course, the issues of what should NOT be outsourced are not trivial. There have been a lot of lessons learned in recent years.

There are arguments pro and con, of course. In addition to the usual arguments against outsourcing (and especially offshore or foreign outsourcing), privacy issues associated with offshore outsourcing are receiving attention as examples emerge of individuals such as a recent manager in India, offering to sell personal credit card information on thousands of Britons to the highest bidder.

Offshoring

While "Offshoring" and "Outsourcing" are often used interchangeable, "Offshoring" is more accurately establishing operations in a different country, usually with the same objectives in mind - cost savings - but often in order to gain a marketing advantage into that country, too.It can be a very positive strategy for a company, but the connotations are still that jobs may be lost from the country where the organization is established, and the benefits are still primarily intended to be cost-savings by having low-paid foreign workers take-on the work. Cultural and geographical distance issues mean that there are even more stories of organizations failing to achieve their original business goals with offshoring; once again, extensive planning for offshoring simply makes sense.

Again, the issues of what should NOT be moved to an offshore operation is a non-trivial one. The assumptions underlying many attempts are often extremely flawed, and the effort and expense is frequently far more than anyone anticipated.

Quality Management

Quality Management encompasses Quality Assurance, Quality Control, and Quality Improvement, terms that are often used interchangeably but shouldn't be; they have very different meanings.

Some interesting background here. Deming, an American, taught Japanese managers an understanding of variability that has defined their quality practices since the 1960's. A new attention to Quality Management was then imported back into the USA in the early 80's with limited success (a 67% failure rate was reported in the early 90's) as Total Quality Management, or TQM. The ISO9000 certification began to embed some quality awareness a little more in the 90's; Six Sigma was a North American-grown approach to attacking variability using a methodical approach to improvement similar to that of TQM, one that has been taken beyond "just" quality. Along with all these have come an abundance of specific techniques and technologies; one of the most powerful and popular of these is Statistical Process Control, or SPC.

Six Sigma

In many organizations adopting Six Sigma, it is simply ... (but don't let that word imply a simplicity to the process or to the results) ...a measure of quality that strives for near perfection. Specifically, fewer than 3.4 defects per million (contrast that with the common Western Industry habit of measuring defects as a percentage!). On a slightly broader base, Six Sigma is a methodical, data-driven approach for eliminating defects. More broad yet ... it can be a disciplined approach to attacking a wide variety of performance problems. Techniques such as DMAIC and DMADV are becoming common parlance in improvement parlance; and almost everyone in industry has heard of the Green belt and Black belt "qualifications" of employees in organizations working with Six Sigma.

Total Quality Management, TQM

There has been a lot of discussion in Quality-oriented forums as to the differences between Six Sigma and Total Quality Management, TQM. Like the decades-later Six Sigma, TQM also brought a methodical approach to attacking quality problems, and also placed an emphasis on statistical techniques. One argument is that TQM was customer-centric, while Six Sigma is defect-centric. There's something in that. However, the biggest difference from my perspective is that the TQM approach tended to assume that with a few days of training, regular folk could go go off and successfully apply TQM; whereas Six Sigma puts Black Belts in place ... full time in many sizeable organizations, highly trained, it is probably the existence and the role of this entity that makes the largest difference in the techniques in practice.

Total Quality Management (often labeled "post-modern TQM" to convey that it is not the TQM of the 80's) is still popular, still has a lot to offer, and effective planning is still the key to a successful TQM implementation.

Statistical Process Control - SPC

In contrast to the traditional Quality Control approach of inspecting to find defects, SPC is intended to monitor the consistency of the processes themselves - to measure and analyze the variation in processes and provide a solid statistical foundation for a process being "in control." Statistical Process Control (SPC) is most commonly used in manufacturing environments but actually has application beyond production processes; I recommend that every manager read Wheeler's books on the topic, for example.

The ISO9000 Family

ISO9000 is both a very common quality-related program, and quite possibly the most despised one, a common criticism being that it is 10% quality and 90% bureaucracy.

In fact, ISO9000 refers to a suite of three quality management standards, two of these being guidelines (9000:2000 and 9004:2000) and one (9001:2000) being requirements. The practical purpose of the ISO9000 standards is straightforward; to provide an international standard, to support international trade. In reality, getting certified to the level of ISO9000 is a chore, demanding a great deal of people's time over many months (typically) only to end up with a set of documents ... a company can in theory implement ISO9000 and never record a single significant improvement in any production processes or products. What they can claim is, that they have standards documented for the processes, and they do in fact work according to those standards.

Naturally, improvements DO emerge out of even a lip-service ISO9000 implementation; but managers need to understand fully what they are getting into, and plan accordingly; this site provides an ISO9000 planning approach, for example.

Distribution Management

Distribution Management (along with Logistics) is increasingly being overshadowed by the buzzword of the decade, Supply Chain Management; and indeed there is a great deal of overlap between the three. I've seen it argued that Supply Chain Management is the highest-level strategy. Distribution Management therefore becomes one major element of it, focusing on developing and implementing procedures, allocating inventory, conducting financial management, providing quality assurance and an effective information system to better manage the distribution aspects of the supply chain; and, Logistics focuses on the physical procurement, movement and storage of materials, parts and finished inventory both in the distribution and supply aspects of the Supply Chain.

Historically, this has been an ideal environment for support from Information Technology, and the sale and implementation of Distribution Software has represented a huge industry for more than 30 years. As with all the technologies, a methodical approach to planning for Distribution Software pays off.

Supply Chain Management

Becoming the 800lb gorilla in the business process improvement stakes, along with Lean and Six Sigma, Supply Chain Management is still talked about a lot, practiced very little.

Commonly, Supply Chain Management is discussed in terms of being applied to reduce inventories, costs, and lead times throughout an entire Supply Chain. In reality there are a lot of elements that have to come together to do a good job. One problem is that, from the perspective of conventional management techniques and conventional measurements, the nature of Supply Chains is that each link profits (to some extent) by reducing the profits of the other links; and unfortunately, the actions that are most conducive to individual link profit performance contradict the actions that will provide the best Supply Chain performance - unless the company understands the enlightened approach of the Theory of Constraints (TOC), where there is no conflict.

Another element is that a majority of the improvement can be driven by internal improvements in the links, rather than the between-links improvements; and this in turn calls for the adoption of some internal improvement approach such as Theory of Constraints (TOC) or Lean, in addition to the revisions to Distribution management and Logistics practices that go along with the full Supply Chain Management approach.

Logistics

Like Distribution Management, Logistics has been largely overshadowed - and to some, completely replaced - by Supply Chain management. Some logistics associations have even elected to re-define themselves as Supply Chain organizations.

However, regardless of the label the physical logistics management issues associated with procurement, transport, storage, and distribution remain processes which are both vital and open to significant performance improvement, with or without those improvements being in line with a Supply Chain Management solution.

A good logistics management function (person or department) has the opportunity to make a significant impact on the bottom line, and on customer service.

Radio Frequency Identification - RFID

Radio Frequency Identification (RFID) is a performance improvement technology that holds tremendous potential, but at the moment is largely being driven by a few large retail chains (800 lb gorillas in their world) who are demanding RFID be used by vendors ... if the vendor wants to remain a vendor. So rather than being welcomed for its potential value, many simply resent it as a technology that's being forced on them. (And there has also been a little controversy flying around on the basis of all the information that can be carried and transmitted with the automated identification technologies.)

Those businesses who plan an Radio Frequency Identification (RFID) implementation thoroughly, will do well with the technology. Those who plan it from a whole Supply Chain improvement perspective, for example taking advantage of the Theory of Constraints (TOC) approach to Distribution & Supply Chain Management, can use the RFID technology to great advantage.

 

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