Observation #11
One of the great heartbreaks of performance improvement is to generate legitimate gains in productivity, but then discover that they have had 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 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.
