Sticking vs Backsliding – It Is So Sad

October 16, 2012

Have you ever been frustrated by witnessing a good decision be reversed and falling back to old ways of doing things? I have. Allow me to share a couple of examples.

Unintended consequences

Have you ever been frustrated by witnessing a good decision be reversed and falling back to old ways of doing things? I have. Allow me to share a couple of examples.

Unintended consequences

A few years ago when I was with Deloitte’s consulting arm I helped a manufacturing company implement a progressive production scheduling system. It was based on the advanced thinking of Dr. Eli Goldratt and his theory of constraints (TOC) principles. The initial problem was the company’s traditional cost accounting practice reported the utilization of labor and equipment time at every machine and therefore all of its cost centers. This motivated each shop floor foreman to keep their machines busy so they would not have low utilization “scores.”

Theory of constraints, which adopts principles from fluid dynamics, revealed that in a complex parts manufacturing and assembly facility there can be a bottleneck work center. Just like in an hourglass, a bottleneck governs the rate of throughput for the entire production of finished products. Hence, increasing the production rate for manufacturing products in work centers located in front of the bottleneck serves little purpose.

Like a stopped-up drain, it simply results in unnecessary amounts of work-in-process inventories. And keeping work centers near 100% busy after the bottleneck creates the same result. The TOC scheduling software understood all of the production rates and due dates of the customer orders. It was magnificent at lowering the work-in-process inventories, and it accelerated the throughput time for all the orders.

As a bonus, workers not required to be “making parts” at their work center were trained on other equipment to flexibly move to where work was needed.This reduced the total labor costs. Well, a few months after the system stabilized and was better balanced, all of the work centers’ utilization rates which had properly and expectedly dipped began to inch back up. The facility was becoming more productive. Then a high level executive visited the operations and during his praise to the foremen and work force for their improved product throughput and increased profits added, “And good job in now increasing your equipment utilization!”

Bam. That was the wrong message. It revealed the executives lack of understanding and reinforced the old and flawed thinking about which measures really matter. The shop floor personnel reverted back to their rivalries to override the production scheduling system and bring forward upstream parts to “keep busy.” It was a classic sub-optimization result. Work-in-process inventories increased, product throughput slowed down, revenues declined, costs increased, and profits were reduced. They backslided.

The perils of a new leader

Another example involved applying activity-based costing (ABC) software at a military base. A commander wanted productivity of his work force to improve. He realized it would improve if everyone knew and tracked the true and accurate costs of their outputs. ABC accomplishes this. With ABC, not only would workers monitor the output costs, but they could also have visibility and transparency to the work activities and drivers that consumed the military base’s resource expenses. It worked.

Productivity improved. As is the usual practice, military base commanders periodically rotate and get new assignments. A new base commander arrived. New managers like to make their mark by changing things. He too was interested in cutting costs. He looked at the modest effort to collect and calculate the ABC costs and concluded it was a waste of time and effort. He figured it was a meaningless task for the accountants. The ABC system was abandoned.

When the next base commander arrived, one of his first questions was, “What do things cost?” Of course, without ABC calculations, no one could answer his question. (The ABC system was re-installed.)

Leadership – forward and backwards

Do you remember the Simon and Garfunkel song, “Slip Sliding Away?” Its lyric continues with, “You know the nearer your destination, the more you’re slip sliding away … We’re workin’ our jobs, collect our pay. Believe we’re gliding down the highway, when in fact we’re slip sliding away.”

What do we conclude from these anecdotes? Leaders have two primary roles – to provide vision and inspiration. In contrast, managers and the workforce have the role to answer, “How do we achieve our leaders’ vision?” Those leaders who perform their roles well advance their organization. Those not performing their roles don’t.