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The origin of "R2"


Carpedia Required ResultsObservation #17

"Required Results" -- or "R2", as it's more commonly called by our clients -- is the tag name we use for objectives or goals or targets. It came about as a result of an observation we made in the first few years of the company. When we studied organizations and how management reacted to off-schedule conditions or variances from their plan, we noticed that results that came relatively close to an objective were generally considered "good enough." Coming in “pretty close” to the original goal meant they did not dwell on why they didn't actually hit it.

Jim Collins, the celebrated business author, was addressing this phenomenon when he wrote, "Good is the enemy of great."

The problem with rationalizing or even accepting results that are "good enough" is that it stops problem solving dead in its tracks and, over time, gradually erodes the performance of an organization. Companies have a way of embedding last year’s results in this year's plan, so if you accept “good enough” when you are close to plan, you can end up quietly lowering the bar every year. That is why we came up with the term "Required Results": it has a different meaning. Targets and goals tend to become ideals to strive for, whereas a requirement is a requirement. Managers respond better to the term and quickly come to understand that any result below the requirement is not OK. This helps to reinforce the discipline of problem solving for any and all variances -- a critical skill needed if organizations want to manage and drive their performance levels.

Changing management behavior is difficult


Observation #16

changing management behaviorChange management requires looking at processes, systems and behaviors together because they significantly influence each other. Analyzing processes and systems is largely academic. If you put some smart people in a room and ask them to look closely at your processes and systems, they will figure out better ways to do things. The hardest thing for organizations to change is behavior. The way that people do things and the way they interact are the result of years of patterning. Getting anyone to change doing things that they are comfortable and familiar with is very tough. It's where we spend the bulk of our time on projects.

One of the interesting things we do is to spend a “day in the life” of managers and categorize their time into activity buckets (actively managing, training, administration, firefighting, etc). At the end of the study, we carefully discuss  each “bucket” and then we ask the managers to estimate how they thought they spent their time. Then we go a little further and ask them: If you could control your environment, how would you now spend your time? What would you do more or less of during an ideal workday?

Most managers overestimate the time they spend actively managing others. Many also say that, in an ideal world, they would reduce the time they spend actively managing and shift it to training, for example. From a change-management perspective, these are very important facts to know. If managers start out by overestimating their actual active management time, and then conclude they should be doing less of it, you have a big gap between the direction they’re headed and the direction most performance- improvement projects need to go. Most improvement initiatives require managers to increase their active management, not decrease it. To help close this gap, managers first need to properly understand how and why they are spending their time the way they do. They then need to rethink how their time might be more effectively distributed and what their workday would look like. Then, they have to change what they actually do, which means consciously changing familiar patterns of behavior. So it's not surprising that organizational behavior change is difficult.



The art of seeing opportunity


Observation #15

how to find opportunity for improvementIt's hard for most people to see opportunity for improvement. Opportunity is rarely glaringly obvious. When we bring new consultants on board, they usually don’t see opportunity when we ask them to observe a functional process. We have to teach them what to look for -- and then train them how to watch the process objectively. When we work with client managers they often also struggle, at least at first, to see how a process might be improved.

Opportunity is often a subtlety, and it's frequently hidden from view. Finding opportunity is a skill and, like any skill, it takes technique and practice to become good at it. So, gleaned from over 20 years of observing processes to try to find opportunity, here are a few trade secrets to help you:

1. Know what you're looking for. Understand what "opportunity" actually means. In the simplest sense, it means doing something faster, cheaper, better. "Faster" could mean reducing the time it takes to do something. "Cheaper" might mean doing something at a lower cost by doing it using less expensive resources. "Better" could mean reducing the number of errors or cycle time. This is what you are trying to "see".

2. Mentally accept that most processes have 30% to 50% opportunity. If you can't find opportunity, it doesn't mean it isn't there. It just means you can't find it. Maybe you are watching a productive period:  think about if there are less productive times (e.g., start up, shut down, changeovers, etc.)

3. Figure out how to improve the process. If you are watching a process that requires four machines, try to figure out how you could reconfigure it with three machines. In the process you will see opportunity.

4. Don't rely on your experience. Being familiar with a process can actually make it harder to see opportunity, because familiarity often causes you to skip over the very things that you should be focusing on. It's critically important to break down tasks into time elements. A lot of opportunity is hidden. For example, if you watch the same task performed 20 times; the time to complete each task may vary substantially. Understanding why will lead you to see the opportunity.

Why better planning can sometimes hurt a good career


Observation #14

A basic objective of many improvement programs is to figure out how to improve planning. The idea is that if you can plan better, you won't end up scrambling as much when it comes to actually executing the plan. Ironically, some people are really good at scrambling -- so good, in fact, that they are recognized and praised for it.  It may even help them get promoted over the years. These are the people who can get things done when you need it.

process improvement program The trouble is that great scramblers -- or "firefighters" -- often fix an immediate problem, but their “solution” causes problems further down the line. A typical example occurs when there is a part shortage on a production line. There are always a few people who can "find" a part when there are no parts in the system. They find parts by taking them from other orders or by hoarding parts that are frequently in short supply. The part-stealing creates an obvious problem when the original order is finally processed, while the hoarding causes a problem by creating artificial inventory requirements.

At one aircraft manufacturer, we did a one-day blitz to retrieve hoarded parts and found millions of dollars of non-recorded inventory stashed throughout the plant. The actions weren’t malicious -- nobody personally wanted a stock of airplane parts. In fact, the intent was quite the opposite: people were hoarding in an effort to help the process by having parts available in times of shortage.

This kind of behaviour can, and does, happen in service environments as well. Decisions about work schedules and customer priorities can be made with good intentions, but have unintended negative consequences down the road.

The important point for people trying to change the way in which work is done in an organization is to understand the negative impacts of change on what are sometimes key people in the workforce. Great scramblers often have higher social influence, because they are outgoing and action-oriented by nature. They can be powerful allies in a change program, but they can also have a strong negative influence if they don't like where the changes are leading. Improving scheduling capability inevitably requires more discipline and accountability throughout the value stream. It is directly intended to reduce the dependency of off-plan scrambling. It will, in time, have an impact on the worker's environment and individual roles, so it's worth thinking about who might be negatively impacted by what, on the surface, looks like a positive change.

The complexity of simple workload analysis


Observation #13

workload analysisEvery manager needs to assess their resource requirements, so they can have the right number of people they need to get work done while also being as productive as possible.

One of the more difficult things about assessing workloads is trying to match static analysis with real-world requirements. For example, if you performed a workload analysis in an accounting area, for example, over the course of a month you would likely find that there were too many people employed, given the amount of work that needed to be done. That's what the static analysis usually tells you. Unfortunately, a lot of work tends to spike in accounting areas during one or two weeks of the month. So if you staffed the area based on the static analysis, work would never be completed on time, causing problems elsewhere in the organization.

So the problem changes from being a simple mathematical equation of calculating and balancing work volume to resources to a more complex problem of matching dynamic volume and resources over periods of time. This also changes the way you think about how to improve productivity. Rather than simply re-engineering process steps to reduce the aggregate amount of work in the area, you need to zero in on the work that is done specifically during these peak periods -- this is another form of constraint analysis, which we discussed in Observation #11, "Productivity Improvement with no benefit"). To improve productivity in an area like this, you could:

  • Lower the peak work requirements by eliminating waste
  • Move work to non-peak periods
  • Eliminate activities that aren't essential (through technology or other means)
  • Reduce staffing in non-peak periods

This dynamic complexity is very common in the workplace. Almost all service-based organizations (e.g., hospitals, restaurants, airlines, banks, hotels, etc.) have to manage this type of workload. So when trying to improve productivity in these environments, think analytically in terms of workloads during peak and non-peak periods.

The problem and need for savings evaluations


Observation #12

Observation 12 resized 600

Financial managers are often skeptical when they hear people claim that their projects have generated, or will generate, substantial financial benefit. There is often a long legacy of projects or investments that were based on some type of ROI. Unfortunately, the ROI tends to be largely designed for the decision, not for ongoing management or accountability.

It's often hard to find a proper financial reconciliation of past investments. This is unfortunate, because savings evaluations are important. They are also very difficult. Savings evaluations, by necessity, attempt to demonstrate that relative performance has improved from one period over another. However, "relative" performance is difficult to define. There are many variables that can come into play that can both positively and negatively affect financial results. Here are just a few:

  • The seasonality of the business
  • The product or service "mix"
  • Wage increases
  • Supplier prices
  • Competitor actions

For savings evaluations to correlate with financial results, the baseline that’s being used must be correct. A baseline can be anything from year over year, month over month, or week over week. The more volumes fluctuate, the harder it is to create a useful baseline -- and the more important it is to find reasonably comparative periods. If you use an annual base in a highly variable environment, you look like a hero when the volumes are high, but if the volumes drop, which they inevitably do, you might see the financial manager quietly grinning.

Despite their inherent difficulties, savings evaluations are critically important for managing performance improvement. When done correctly, they create ongoing accountability -- and they force you to reconcile claimed improvement with actual financial improvement.


Help for Performance Improvement Teams

Productivity improvement with no benefit


Observation #11

productivity improvementOne of the great heartbreaks of performance improvement is to generate legitimate gains in productivity, but then discover that they had have no material impact on an organization's financial results. Often this happens because a productivity gain in one area is offset by a productivity loss in another. (The analogy often used is "squeezing the balloon.") Another common reason is that the improvement was achieved in part of the process that did not govern the output of the process. It's something like building a baseball team a larger changeroom because they aren’t winning any games.

All organizations are made up of processes. Processes tend to flow horizontally through an organization, whereas most organizations are structured into vertical functions. It’s hard to get around this. Some companies try matrix-type alignments, but they are difficult to make effective. So many performance initiatives are structured within vertical functions. Sometimes you can improve the productivity of a function, but all you really do is shift the cost to another department. For example:

  • You improve the productivity of a production department by having longer runs and fewer changeovers, but this negatively affects your procurement and warehousing departments.
  • You improve the productivity of a sales force in terms of number of calls per day, but  salespeople don't actually sell any more or start selling to the wrong types of customers, which causes havoc through your supply chain.
  • You can centralize activities, but sufficient costs don't come out of the decentralized locations because you can't eliminate full positions.

You can also improve the productivity of part of a function's process and still have no financial impact. In an overly simplistic example, it's like moving a printer closer to your desk. It may make you more productive (i.e., you don't lose time walking to the printer), but no actual cost has been removed.

When we look at any process, one of the things we need to uncover and understand is what we call the "key constraint." The key constraint is the part of the process that has the lowest processing capability, and it's usually where work tends to bottleneck. It's easier to find constraints in production plants than it is in office environments. In plants, you can actually see where work is backing up. In office environments, you need to analyze the flow of work digitally to determine where the backlogs are growing. Each group of activities within a process has its own processing capacity (or rate). If you determine the processing rate for each sub-process, you'll discover which one limits the others. It becomes more complicated if the mix of work changes frequently, but the concept remains the same.

The key constraint is critical is because it governs the processing rate of the entire process. If you can increase the flow of work through this limiting area, you can increase the capability of the process and you'll have a shot at generating tangible bottom-line results.

Why results don't always sustain


Observation #10

performance improvement to improve financial resultsTo meaningfully impact financial results, performance improvement needs to sustain. Performance improvement projects, by design, jump performance from one level to another. Unfortunately, it is very difficult to jump to a higher level of performance and stay there; there’s a powerful force that wants to return an operation to the old way of doing things.

There is one fundamental reason for results not sustaining: the integrity of the management system breaks down.

Management systems give managers the tools to affect performance. It's how they forecast work, plan it, resource it, execute it and report on it. It is the primary driver of the management behaviors that every organization wants: planning, communicating, problem solving and innovating.

Unfortunately, management systems can become disconnected quickly. Some of the most common problems include:

  • Managers play games with budgets, because they know their first set of numbers will be rejected. Budgets are usually numbers-oriented and often don't effectively account for the impact on key performance indicators (KPIs). The budget numbers are also often connected to management compensation, so they become the focus of management attention, rather than the underlying drivers that managers actually have to manage.
  • Forecasts are inaccurate or not trusted, so managers of different functions develop their own versions.
  • Planning standards become outdated. Last years "actuals" can become this year's "plan," effectively building in any problems that were experienced the previous year.
  • Schedules get changed too frequently, which results in excessive work changeovers and imbalances.
  • Performance feedback boards are not kept up to date, and reporting doesn't tie back to planning.

Managing at a higher performance level is also simply more demanding. Managers sometimes stop doing the very things that moved them to the higher level of performance. Seemingly basic tasks like setting clear expectations, scheduling work by time, and following up on schedule attainment all require management-system integrity, and a genuine and ongoing diligence and commitment. People can tire of that kind of diligence, especially if the system tools are not trusted and it's not reinforced from above.

How to keep management systems effective -- and front-line managers energized and inspired -- is ultimately the difficult task of senior management.

But where are the actual savings?


Observation #9

Internal improvement projectsOne of the more common complaints we hear about consultants and internal improvement projects is that the savings that are promised or reported never really hit the financial statements. People may be complimentary about the consulting work that’s been done, and the consultants (or internal teams) may claim real savings in their reports, but no one can analytically identify the savings in the P&L or balance sheet. (This is also a common complaint about IT systems that get purchased with lofty ROIs.) So what actually happens?

For those situations where results simply don't hit the bottom line, there are three main reasons:

  1. The improvement didn't sustain long enough to impact the financials.
  2. There may be an improvement in productivity, but no actual financial savings.
  3. Savings are measured against an incorrect performance baseline.

In the next three Observations blog posts, we will explore each of these reasons for “nonsavings” and why they commonly occur.

Incidentally, there is one "legitimate" scenario in which improvements may not be visible in the financial statements, i.e., when steps are taken to avoid costs that likely would have occurred in the future, either capital costs or operating costs.

The three perspectives of sustainable improvement


Observation #8

sustainable business improvementWhen we look at organizations to understand where they might be able to make improvements, we do so from three different, but related perspectives: the process; the management system; and management behaviors. This turns out to be a critically important way to ensure that improvements actually sustain over a period of time. Problems are often more multi-dimensional than they first appear. To borrow the slightly over-used three-legged-stool analogy, solutions that only address one or two of the legs are inherently unstable.

Some years ago we were working for an injection-molding company and noticed that the crew shut down their machines 10 minutes before the end of each shift in order to wash up. Then the next crew arrived and spent the first 15 minutes of their shift cleaning out the machines because the plastic had congealed. Our simple solution was to do a hand-off at the shift transition to keep the machines running and eliminate the downtime and waste.

That simple solution took two full months to implement. Changing the process affected the way crews were scheduled (it also appeared to ask people to work more than they had previously): the way machines and work-in-process inventories were scheduled (planning standards and staging areas needed to be changed to reflect the new output expectations); and the way managers behaved (they now needed to be physically on the floor at shift change to make sure the transition ran smoothly). Co-ordinating all of the above between different shifts and different departments was more complicated than it looked on paper.

Therefore we always try to always keep the three perspectives of sustainable improvement in mind when analyzing problems and developing solutions. From our experience, when you are considering changing methods, we recommend you think about the following:

  • How and where will the process physically change?
  • How does the change impact the way managers plan, execute or report on the process?
  • What new or different behaviors do you need from management to reinforce these changes?
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