Performance improvement requires a change in management behavior at all levels. Changes in management behavior are the most difficult to achieve and often the hardest to sustain. With behavioral change, there is usually a high degree of elasticity, and it is very common for managers to want to revert to the way things were done before. When a performance-improvement project is underway, there is a heightened intensity and expectation that managers will change their patterns of behavior. When the project ends, there is a degree of relief at all levels, and some of the intensity naturally dissipates.
The simple truth is that it is more difficult to operate at a higher level of performance. It requires more planning and more active management. As a common adage says, "Lowering the water level exposes the rocks," meaning managers must actively problem solve as they no longer have a resource buffer.
The real responsibility for sustainability always falls on executive leadership, because of the need for continual reinforcement. Although most system and process changes directly affect front line levels, front line managers simply do not have sufficient authority to sustain the integrity of the changes. The key red flag to watch for is a systematic decline in accountability. Plans are consistently missed and poor performance is rationalized. The fact that plans are missed is not nearly as much of a concern as rationalizing poor performance. Highly competitive companies are very serious about the plans they set and go to great lengths to understand and scrutinize variances. It may be that the plans were flawed or that there were operating problems, but the key is to dig to uncover them. Organizations that grow accustomed to accepting rationalizations without uncovering the root cause of variances have a difficult time performing at increasingly competitive levels. You can observe how variances are handled by different levels of management in many common situations (e.g., through daily, weekly or monthly performance reviews).
Another critical area to watch, when reviewing management behavior, is the budgeting process. Negotiating budget levels can become more of an exercise in managing compensation expectations, rather than keeping an organization’s financial and operating worlds in sync. Budgets and operating plans can quickly lose their alignment, which throws out the integrity of the underlying management tools.
Management system changes often entail tightening up the planning standards that are used to schedule the operations, and then providing managers with tools to control, monitor and report on attainment to the plan. The efficacy of management systems depends on the integrity of the numbers placed into the system, and the use of the system information to make decisions about the business. Most system problems stem from inaccurate planning parameters, late scheduling changes of one kind or another, and the resulting tendency of management to disregard or somewhat arbitrarily modify the schedules that are produced.
The red flags we look for when reviewing how effectively changes in the management system have stayed in place include:
- Forecasts are considered inaccurate and do not directly feed the resource plan.
- Managers stop using the resource plan to determine resource levels (e.g., they disregard recommended staffing levels).
- The planning parameters within the resource plan (e.g., expected performance) no longer match the business-plan assumptions.
- New activities change the business process, but the planning standards are not updated and become obsolete.
- New managers are hired or promoted, but are not trained to manage with the system.
- Daily performance reviews do not have an agenda, become irregular or do not discuss specific performance by area and causes of variances.
- Visual performance charts are kept not up to date.
- Performance targets are not updated in operating reports and/or do not reflect the resource plan.
The management system is arguably the most important tool that executives have to hold onto improvement gains and to build on those higher levels of performance. Executives play a very important role in making sure that management systems keep their integrity. Unfortunately, they are often part of the problem, intentionally or not, as we discuss in the next Observation. Stay tuned!
Implementing change requires reconfiguring processes - and modifying the management systems and behaviors that need to accompany them. But as anyone who has ever tried to instill change knows, maintaining those gains can be very difficult. There is always a natural tendency to revert to the way things were. After the completion of a project, we go back to the organization and review how well the changes have sustained. We've learned that there are some signals that can indicate that improvements are starting to erode. We call these signals "red flags."
It is critical to watch for red flags, because performance improvements are always made up of many small changes, not just one large change. If you let the small changes gradually fall away, a cascading affect can gradually erase the overall gains that were achieved. In the next few Observations, we highlight some of the tell-tale signs we look for when reviewing the sustainability of changes.
Process changes refer to some type of modification of how work is processed from input to an output. Examples include changing the sequence of the process, removing steps that are deemed unnecessary, combining work functions, changing equipment or modifying speeds. The more concrete the process change, the easier it is to sustain. For example, physically changing the layout of equipment (and order of operations) is something of an all-or-nothing proposition. Once in place, it is likely to sustain because of the difficulty of reverting back to old methods. The more complex and difficult process changes to sustain are the ones that require management intervention.
Many process changes require monitoring and compliance, e.g., increasing speeds on a line operation, or staggering shift starts or working through breaks. These types of changes require management follow up to ensure they remain in place. The red flags associated with these kinds of changes are usually simple noncompliance.
In the case of the examples above, red flags would be:
- Speeds begin to return to former levels
- Shift starts slowly lose their staggering
- Machines are shut down more frequently during breaks
It's fairly easy to see these red flags after the fact, but sometimes the seepage is gradual and more difficult to notice than you might think. One of the difficulties is that there are always good reasons why process changes gradually erode. It takes perseverance to "stay the course” and it often requires active problem solving.
It's not easy for any operation to go through a performance improvement change. Consultants love to say that people should: "Work smarter, not harder," but that can be a false dichotomy. We aren't big fans of the expression because we think it subtly implies that you can get something for nothing. Sometimes working smarter does mean working harder. It certainly means you're working differently.
Take the analogy of losing weight to explain performance improvement. Part of the equation for losing weight is to stop eating foods that aren't healthy for you (that’s the “work smarter” part), but another key is to be more active and get some exercise, so you burn more calories than you take in (that’s the “work harder” part). If you streamline a process by removing recurring daily obstacles, it can be misleading to suggest that working harder isn't also sometimes necessary. If a process constantly breaks down leaving a person with little to do, fixing the problem may result in that person working more. The majority of people we observe have no objection to putting in a fair day's work for a fair day's pay; it's the recurring problems that frustrate them and that make work tedious. Fixing those problems creates a better environment and may also help foster more employee engagement.
"Working smarter" for a front line manager often means becoming more involved in the scheduling of work and following up on the process. It may be a matter of semantics whether or not this is technically "harder" than previous behaviors. In our experience it usually means a more focused committed diligence is required. To return to the weight-loss analogy, it usually takes more discipline to stick to a healthier regimen. At least initially, managers may find these new requirements "harder" because they aren't familiar with them and because they change their patterns of behavior. The object is to be a healthier, lean organization, but it's a mistake to underestimate the actual change required for many people.
A better expression might be: "Work smarter to be more productive." It's just not very catchy.
We've written frequently about the need to look at operating problems from three vantage points: the actual process of how things get done; the management system that is used to control the process; and actual management behaviors (what people do to control the process). So if you're presenting your findings to an executive group, where do you actually start? What is the right order or sequence to make your points?
There are different schools of thought on this. Historically we’ve always started with a detailed study of the process, showing where problems manifest. Executives tend to find this very interesting because it depicts reality -- and deeply resonates with anyone who’s worked within the process before. Following this, we’ve presented a study of what managers were doing while these problems were occurring. Finally we’ve recapped by illustrating the gaps in the management system that helped create the management behaviors we observed.
A more recent school of thought is that you should start with the management system, because it is effectively the intelligence of the operation. If the management system is broken or "disconnected," as we often find, it's virtually impossible for a manager to actually manage a process. All they can do is follow up and provide oversight or some type of after-the-fact quality control. They can't identify when a process is off-plan in real time. Therefore problems like rework and "workarounds" can become the norm and eventually become part of the actual process. So, from this angle, it becomes clear that the management system allows problems to reside in the process and gives no support or direction to guide management behavior.
The two camps remain somewhat divided. Process studies are generally more interesting, whereas management system studies tend to be a little more academic. Both camps will advise, however, that whatever order you settle on, the first study you discuss needs to grab people's attention -- or you may spend the rest of the meeting watching people checking their email.
Being analytical by nature, we sometimes struggle to get a handle on the fuzzy logic behind planned sales growth. One of the things we often find lacking (and sometimes missing entirely) is the logic as to why sales will improve. No, not the forecasts and budgets, broken down by customer and region -- there’s often no shortage of those. What's lacking are the changes in actual sales activity that will create the increased volumes.
Sales growth comes from some very specific sources (e.g., price increases, new customers or distributors, new products or markets, increased volumes from existing customers, better retention of base customers). But P&L statements -- or even sales reports for that matter -- are rarely explicit about the source of growth. They tend to highlight markets or customers or product types, so they link to the original budget forecasts. But planned sales growth implies specific activity required on the part of the sales organization related to where the growth is intended to come from. For example, new customer growth would imply new leads and conversion rates on the part of salespeople. New distributor growth would similarly require a specific series of actions to achieve.
But if the planned sources of growth are not made explicit, you can't translate anticipated volume into the required sales activities. If the required sales activity is not explicit, it's very hard for a sales manager to provide any meaningful direction, beyond basic coaching. The fate of the growth plan reverts mostly to the sales force, who also may not know which specific actions are required to achieve the plan put forward. Achieving the sales plan becomes driven by fate and market conditions.
Sales is one of those areas that’s really part science and part art. As consultants, we tend to overplay the science part, while sales professionals have a tendency to overplay the art aspect. But there needs to be some movement toward the middle ground if a company wants to actually manage its growth.
Jim Collins’ belief that "good is the enemy of great" is a brilliant insight, and it applies to pretty much everything. Essentially, he means that if people get in the habit of accepting things as "good enough," it inevitably leads to marginalization and mediocrity. He’s observed that a common trait of great companies is that they hold themselves to very high standards. We believe he is right – and that a key distinction between the good and the great companies we work for is their disciplined insistence on excellence. But we also have come to recognize a practical reality, which is that you simply can't be great at everything. There are not enough hours in the day, and companies would come to a grinding halt if they managed entirely by this edict. So how do you apply Collins’ mantra?
The really good companies we work for are skilled at choosing where they should focus and where they shouldn't. They consciously select what they need to be great at, and then aggressively focus on those items. That's a lot harder than it sounds. It requires an obsession for simplicity, which most companies don't have. Most companies become more complicated over time, and if they aren't very careful the complexity feeds on itself (we argue internally that we repeatedly fall into this same trap). Complexity spreads through organizations like a cancer. Each new management level adds information filters; each new manager adds reports and distribution lists and meetings each new market or product variation adds requirements throughout the supply chain; and on it goes. Success may seem to breed success, but often it just creates an appetite for more complexity.
We gain some insight on how well a company is focused by looking at C-level reporting and having executives explain to us what is most important, what issues they commonly drill down on, and how they manage others. At the mid-level, we also look at management reporting and meetings. Meetings are a surprisingly rich source of insight on complexity. Frequency of meetings, stated purpose, who attends and what actually gets accomplished can speak volumes about the culture of an organization. Complexity is insidious. To keep it in check requires leaders to be relentless in making sure the organization stays focused on where it needs to be great.
There’s a Latin expression that will resonate with anyone who has struggled to implement change in an organization: "Cui bono?" Commonly attributed to the Latin orator Cicero, it means "To whose benefit?" In a legal context, it insinuates that the guilty party can usually be found among the individuals who have something to gain from the crime. The adage speaks to understanding people's motivations, which is obviously very important when trying to implement change in an organization.
In change-management vernacular, the expression that managers are more familiar with is "What's in it for me?" (or WIIFM, as it’s usually written on management-training posters). "What's in it for me?" implies that people naturally have their own best interests in mind, so when you’re trying to sell them on the virtues of changing what they do, you need to articulate why the change will be better for them. But it's a mistake to stop there.
"What's in it for me?" is similar but not the same as "To whose benefit?" -- and the distinction is important. “What's in it for me?” is asked by individuals trying to determine if the changes will either make them better or worse off personally. "To whose benefit" stems from individuals trying to determine who the changes are really going to benefit. Many people become cynical if a change is oversold as something that is designed to make them personally better off. It insults their intelligence if it isn't at least balanced with how the change will also help the company, and perhaps leave them worse off in some ways. Many changes are not "win-win." Often, something must be given up in exchange for something else that is hopefully better. So the key is to try to show why the net balance is better, recognizing the losses as well as trumpeting the gains. It's more honest and, in our experience, it's a more successful approach for most organizations.
We've mentioned before that of the four perspectives we study when we analyze a business (product, process, system and behavior), one is significantly more complex than the others and subsequently takes much more time to change. That one is behavior.
We tend to zero in on management behavior, as opposed to employee behavior, because we find that management behavior is critical to a well-run organization and, in turn, significantly influences employee behavior. Management behavior is, very simply, what managers do during the course of the day. In a broad sense, they actively manage others, train staff, do administration and some in-process work and, of course, fix problems as they come up. But until they actually spend some time observing and categorizing these activities, most managers don't have a very good sense of how their time is divvied up.
Therefore it's very helpful to have a proper analysis of how your time is spent -- and then to have a model that prescribes how that time might be spent more effectively. This takes the generally vague notion of "behavior" and gives it some analytical structure.
The tricky part about this is how behavior profiles (and models) change by industry and company, and within companies by their organizational hierarchy. How front line managers allocate their time is naturally significantly different from how corporate executives allocate theirs. But understanding the current and desired profile at each organizational level can be very helpful in making sure that your organization is aligned and optimizing its valuable management resources.
One of things that we find paralyzes some managers and prevents them from fixing operating problems is something one of our healthcare clients termed the “X- Factor." The X-Factor means problems that were initiated externally (i.e., outside the department) and were therefore difficult, if not impossible, to fix because local managers had no authority.
It's not surprising that external factors can, and do, routinely affect performance simply because organizations are made up of processes that run horizontally through vertically organized functions. And functions within organizations are often in conflict with one another. For example, a company’s procurement department wants to purchase supplies in large quantities so it can negotiate the best price, but the people managing inventories want it to buy in small lot sizes to keep inventory levels down. Organizations are a complex web of compromises and trade-offs.
The X-Factor is alive and well in most companies -- and it impacts the performance of one department over another. However, we find that it is rarely as significant as managers think. Often there is not enough effort spent separating the myth from the reality. One of the first things we do when we encounter a problem that is deemed “unfixable,” due to X-Factor conditions, is simply quantify the source causes. What we are trying to determine is how much of the problem is caused by external factors versus those factors that are within the control of local management. Often we will find that there is plenty of scope to incrementally improve a process quite independent of the X-Factor issues.
Then we also look more closely at the underlying external factors and further break them down into specific issues. Here we often find that there is more ability to influence external departments than local managers realize. Sometimes just educating external groups about the specific issues and quantifying the impact can influence what they do, when they do it and/or how often they do it -- whatever it is that’s actually creating the problem.