Flexibility, The Third Dimension to Performance

A year ago, businesses were planning for major expansion. Now, attention has turned to how to weather a recession. Soon, expansion plans will be back. It is difficult to keep up. Actually, it is impossible.

Is there better evidence that the key to survival is not in prediction or forecasting? After all, who do you know that saw this coming?

When the dust settles there will be plenty of folks using hindsight to say they knew the recession would hit. They will probably be selling software designed to predict business cycles. It will be good to ask them where they were at the beginning of 2008.

The key is not, has never been, in forecasting. Rather, success (and survival) belongs to those that are flexible and agile – that can adapt to changing circumstances. Flexibility has always been part of the thinking at Toyota and in organizations pursuing Lean. When we first published The Performance Improvement Toolkit back in 2001, Converge argued that there were three fundamental dimensions of process and organizational performance: effciency, effectiveness and flexibility.

The relationship between these three dimensions of process performance, as well as the foundation of standardization, is represented in the process performance dimenssions triangle below. The triangle effectively depicts the improvement directions an organization can take. For example, if efficiency appears to be the issue, organizations need to pursue stabilization, simplification or streamlining of the process.

Standardization

No improvement direction can be pursued, however, unless a foundation of standardization is in place.  This is because a process that isn’t standardized, isn’t a process – its chaos. There is no process, no routine way of doing the work. The work is done differently every time, people are running about, the workplace is a mess and confusion reigns supreme.

In such circumstances, the only course of action is to standardize the way the work happens. Don’t bother with efficiency, effectiveness or flexibility. Any efforts spent pursuing these directions  will be wasted. Standardize – decide upon a way of doing the work and do it the same way every time. The objective isn’t perfection, it isn’t even good performance – it is simply to create a way of doing the work that can then become the focus of an improvement effort.

The Efficiency and Effectiveness Cliche

Managers talk often about two dimensions of performance: efficiency and effectiveness. The two words are used together so often, they have become a management cliché or catchphrase. This in turn has biased how we think about performance  – we have come to believe that efficiency and effectiveness is all there is to performance.

The truth is, while efficiency and effectiveness are necessary dimensions to define performance, they are not sufficient  for long-term success. Without flexibility, processes become rigid to the time and place in which they operate. What is today, an effcient and effective process, can become stale and unproductive overnight. That’s bad news for those that plan to be in business for the long term.

Efficiency

There are three directions we can pursue when redesigning processes forefficiency  improvement. We can:

1. Stabilize the Process, which means removing unpredictable variation from the process behavoir. This requires the use of run and control charts, histograms, cause and effect diagrams and other statistical tools to identify and remove special causes of variation.
2. Simplify the Process, which means attempting to remove complexity. Simplification usually involves making use of flowcharts to identify non-value adding steps, time-consuming feedback loops, approvals and similar sources of waste.
3. Streamlining the process, which improve the flow of work. This includes shortening the cycle time for the overall process or the sub-processes that support it, reducing inventories or production lot size requirements, and reducing the variation inherent in the system. Streamlining too, tends to make use of the various statistical tools  to better understand the process, its operating characteristics and parameters, and the various sources or causes of common cause variation.

Effectiveness

As was the case with efficiency, we have three means of increasing effectiveness depending upon whose expectations we are trying to meet. They are:

1. Customer Fit, which is redesigning the product, service or process to better meet the requirements and expectations of the customer. Doing so is a principle source of competitive advantage for any organization. In fact, failing here means failing, period. Planning approaches such as quality function deployment can be used to link the customer requirements with the design specifications of the product or service being delivered, and with the process that delivers it. It embeds the “voice of the customer” into the process itself.
2. Corporate Fit, which means improving the effectiveness of the process relative to purpose or mission of the organization. Doing so is the process of organizational alignment. Processes in organizations exist because the organization needs to have the work done. Any moderate-sized organization will have literally hundreds of processes, sub-processes and tasks being conducted every day. Alignment or corporate fit is about ensuring these processes support one another and that, when taken together, they all work to support the overall aims or purposes of the organization.
3. Cost or Value-Added Alignment, which means examining the specific functions of each component of a product, service or process and determining the most economical way of providing that function. Cost or value analysis is concerned with the components or inputs to a process. Basically, value analysis asks a series of five fundamental questions:

• What are the specific functions of a particular component of the product or process? Are they necessary? What are the alternatives to delivering this function?
• How does this component contribute to value added? What precisely does it provide to the customer? Why does the customer want this?
• What are the inputs used by this function or component? Are there alternatives? Can we standardize any parts of the product or process design to reduce input variation?
• Where is the waste in what we are doing now? How can this be reduced?
• Can changes in the process or product design influence the amount of waste produced or reduce the value or number of inputs?

Improving Adaptability & Flexibility

Effectiveness and efficiency characteristics are sufficient if the rest of the world stands still for us. It would be nice if it did so, but this is not a realistic expectation. Many organizations are experiencing the downside of having made just this assumption. They had efficient and effective processes for the level of demand experienced two years ago. Now, those same processes are unable to cope with new, reduced production levels.

This is often the way change happens. The world changes and we are compelled to respond. A rise in the world price for oil produces increased demand for fuel-efficient cars. Collapse of the former Soviet Union shifts the Pentagon’s demand for strategic weapons to more tactical systems. Changes in the world price of lumber tilts the balance of American home builders in favor of those using steel-frame versus wood-frame construction. All of these changes are beyond the control of the organizations affected. But the organization must respond to the change nevertheless.

And now, a world wide recession reduces the demand for products and places new and more demanding requirements for cost-effective production techniques.

There are three basic ways to improve process response to change:

1. Resiliency, which means absorbing the impact of changes in demand volume. Here, the process is able to adapt to changes in the levels of demand. Basically, resilient processes are capable of handling a large variation in demand while maintaining performance levels. When demand increases, the process can pick it up and respond quickly. When it falls off, the process responds accordingly and operates efficiently despite the decline in throughput. Keeping inventories small or working on lot reduction are two methods of increasing resilience. Having flexible processes that emphasize work cells are another.
2. Responsiveness, which means processes that change with changing customer requirements. Responsive processes are sensitive to changes in what is being demanded. Such processes respond to the changing needs of the market or of the corporation seemingly by themselves. Of course, nothing happens by itself. Strategies such as decentralizing decision making, empowering teams and employees, and establishing self-managing or directed teams all help improve the responsiveness of a process as does the use of work cells, keeping inventories to a minimum and rapid changeover. Such strategies allow those most familiar and experienced with the process to make the changes required and to do so quickly.
3. Robustness, which means the capability of adapting to unanticipated change that goes beyond demand parameters or volumes. Robust processes can undergo significant environmental change with minimal effort. Modularized process design is a strategy commonly employed to make processes more robust. Keeping away from monuments (big heavy things that are difficult to move) is another key strategy here.

In Summary

When organizations talk performance, they typically speak of efficiency and effectiveness. Experienced managers know better. The challenge is never preparing for what you do know, it is preparing for what you don’t. Building processes and organizations that are resilient, responsive and robust is at least as important as pursuing efficiency and effectiveness.

As organizations redesign their systems and processes to perform better in this new economic reality, they may be repeating the same mistakes all over again. Building effecient and effective processes suitable to the new economic climate, with its reduced levels of demand, makes sense only in the short term. When things turn around, as they always do, these new effcient, effective and inflexible processes will mean the organization will be slow in taking advantage of the recovery.

Management needs to change our thinking if  organizations are going to survive. Efficient, effective processes are necessary, but not sufficient.  Flexibility is needed for long term survival.

Of course, as Edwards Deming pointed out, “It is not necessary to change. Survival is not mandatory.”