The secret to making internal performance improvement groups succeed (part 1)

Observation #28

carpedia-observation-28These days we work with more and more companies that have their own internal performance improvement (PI) groups. Twenty years ago, these groups were more often quality or operational audit groups. Then they morphed into Six Sigma and its Lean variants. We are often asked to help either build these groups or work closely with them to help transfer some of our knowledge and methods. This may seem to create a bit of a conflict, as the more we build up internal teams the less a company needs us, but often this is the only way to make broad changes across an organization and for them to be sustainable. A large part of our business comes from referrals from satisfied clients, so helping them build internal capability is actually more self-serving than it appears.

The secret to making internal groups work is to make them accountable. Most PI groups are, somewhat paradoxically, a costly “free” service and would not survive long if they were a stand alone business. Some groups believe they are accountable, but accountability is not achieved by producing reports that claim “X” amount of benefit over the next few years. Results need to be actually measured in the financials and built into operating budgets. To make PI groups truly effective, there should be a financial charge for their services. Because of this, operating units need to be able to choose them or find alternatives (or do the job themselves). Although performance improvement targets can be mandated from above, the actual delivery and execution of those improvements have to be owned by operational managers. PI groups have many competitive advantages (lower cost and inside relationships, to name two) over other options. Creating a competitive environment forces them to focus on where they can be most effective in delivering services that create genuine value for operating groups.

Very few firms do much of this. PI groups rarely want this kind of real accountability because it puts their jobs at risk. Often these internal groups are initially set up to help implement a specific corporate objective (e.g., roll out Lean Six Sigma), so they are more like forced medicine for operational functions. Corporate executives are looking for a cohesive approach and do not want to fragment the execution or decision making by turning over control to operational groups. And lack of true accountability has a fairly predictable outcome. Over time, the size and cost of these groups tend to grow, and eventually a new CEO arrives and determines that the PI group is an overhead burden that can be shuttered relatively easily.