29 Leading the Team

Everything discussed up to this point is supportive of the manager’s main function, which is leading the organization in accomplishing its strategic objectives. I have discussed several times how implementing the methods discussed eventually frees the manager from daily firefighting activities thereby making time for more strategic work. An organization of highly motivated workers that are trained and empowered to control their processes will conduct the organization’s normal activities with little oversight from the manager. However, accomplishing an organization’s strategic objectives almost always involves doing some things differently or some new things. The success of the organization depends on accomplishing these different or new things successfully. Ensuring that the organization has the highest probability of success in achieving strategic objectives is the responsibility of the leader. In this lecture I describe a process that helps both the leader and the team achieve an objective involving change from normal practices.

The process was developed and widely used by IBM and others in the 1980s. (See the paper by Maurice Hardaker, and Bryan K. Ward, titled How to Make a Team Work in the journal Harvard Business Review, November 1987, page 112) IBM called the methodology Process Quality Management or PQM. It is fundamentally a planning process in which goals, business processes necessary to achieve the goals and measures to track progress toward goals are identified. What sets it apart and contributes to its usefulness is the focus on fundamentals of planning. Recall the Super Bowl metaphor I used earlier to guide you in developing your action plan. PQM follows a similar pattern.

PQM starts with the leader gathering all of his or her direct reports that are involved in achieving the intended goal in a one or two day planning session. If possible hold this session off site and forbid cell phones and PDAs during the session. The team is typically made up of up to a dozen people that are involved in the business processes associated with the goal. Hardaker and Ward advise not including more than a dozen as a larger team gets unwieldy to manage. It is essential to have all involved people in the planning session and allow no observers or hangers on. It is also preferable that someone other than the organization’s leader facilitate the process so that the team is not constrained by the leader’s preconceived beliefs. The following steps are carried out during the planning session:

1. The leader introduces the goal and explains why the organization must achieve the goal. The objectives are for the team to understand the goal, to convince the team that the goal is necessary and that they all are required to help achieve the goal. Then the facilitator takes over leadership of the process and the organization’s leader becomes a team member.
2. Brainstorm to identify possible measures of success. Then narrow the identified measures to six to eight that are both necessary and sufficient. These measures are called the critical success factors. One method for narrowing the list is to post the whole list and ask the team to privately rank them in importance. Comparing and discussing the team’s rankings allows the list to be thinned. Work on the list until all team members agree that the remaining measures are the necessary and sufficient measures. That is, if all measures are achieved then the goal will have been achieved and if any measure is not achieved then the goal will not be achieved.  Consensus is required before proceeding to the next step.
3. Brainstorm to define the business processes that must be carried out to achieve the measures of success. To avoid getting vague and useless descriptions of business processes follow these rules:
1. A business process is defined as a verb plus object, e.g. design products.
2. Each process should have an owner who is responsible for managing or carrying out the process.
3. The owner should be a member of the team.
4. No owner should have more than four processes to manage or carryout.
5. Following a similar process used to define the critical success factors develop a list of business processes that are necessary and sufficient to achieve all of the critical success factors. Again consensus is required from the entire team. Expect to have anywhere from 10 to 20 processes. The preferred approach to developing this list is to prepare a relationship matrix as described next.
4. Prepare a relationship matrix of critical success factors vs. business processes. An example matrix is shown in figure 30. The example has truncated the number of business processes and critical success factors but it illustrates the approach. Start with the first critical success factor and identify every business process that is necessary and sufficient to achieving this success factor. Work through each critical success factor in turn. Now the list of necessary and sufficient business processes is complete. Typically processes are added and deleted during the preparation of the relationship matrix.
5. Fill out the last two columns in the relationship matrix. These rank the organization’s capability for each process in the column labeled business process quality and count the number of business processes that apply to each critical success factor. The business process quality ranking are made subjectively as A = excellent, B = good, C = fair, D = poor and E is for processes that don’t currently exist or are embryonic and not enough experience is available to rank them.
6. The counts and business process quality columns assist in allocating resources for changes to business processes. There are rarely available resources to fully fund every desired change in business processes so some prioritization must be made. These columns are used to guide the assignment of resources to each process. Processes that have a high number of counts and rankings of D or E must have adequate resources. Processes that have counts of only two or three and rankings of B or C can be assigned fewer resources. Processes with A rankings and counts of only one or two may need little or no additional resources.
7. Affirm responsibility for each business process to its owner. The objective is to have every team member agree that they are responsible for one or more business processes and, most important, any necessary changes to the processes. Make sure team members understand their responsibility and know how they are going to approach any necessary changes.
8. Define and get agreement on a plan to monitor the status of work on the activities and progress on the critical success factors. Depending on how the new work relates to normal work monitoring may occur automatically via existing information systems or it may require special meetings or it may be done as part of normal staff meetings.
9. If it is not possible to get all team members comfortable with their next steps during the one or two day session then schedule follow up meetings with individual team members that might be needed to clarify details of their new assignment.

Figure 30 A simplified example relationship matrix of business processes vs. critical success factors.

Having a well-developed plan is only the beginning. Carrying out the plan is the real work and success is usually dependent on persistence in this work. It typically takes a year or more to achieve significant goals. If your plan is expected to take more than a year it is wise to review your plan after a year. Conditions may change and any pertinent changes need to be integrated into your plan. If achieving the goal is essential to the success of the organization then it is essential that the organization’s manager lead the team during work on achieving the goal. Don’t delegate this responsibility. Delegate other work to make time for this more important work. Recall the research of Gary Lynn and Richard Reilly cited in lecture 9. Successful developments are three and one-half times as likely to have senior management intensely involved as failed developments.

Exercises

1.     Review the planning you did for your current efforts toward achieving the strategic objectives for your organization. Did you follow planning fundamentals similar to those outlined in the PQM process?

2.     Do you have a strategic objective or goal for your organization that would benefit from using the PQM process to achieve organizational alignment?

3.     Is your organization in the process of striving toward a major goal and having difficulties making progress? If so consider carrying out a PQM planning session.

4.     Are there barriers that prevent you and your reports from holding a PQM planning session for critical strategic objectives?

5.     What can you do to remove these barriers?

If you find that the pace of blog posts isn’t compatible with the pace you  would like to maintain in studying this material you can buy the book “The Manager’s Guide for Effective Leadership” in hard copy or for Kindle at:

http://www.amazon.com/Managers-Guide-Effective-Leadership-Organizations/dp/1449000673/ref=sr_1_2?ie=UTF8&qid=1346946310&sr=8-2&keywords=Joe+Jenney

or hard copy or for nook at:

http://www.barnesandnoble.com/s/Joe-Jenney?keyword=Joe+Jenney&store=book

or hard copy or E-book at:

http://bookstore.authorhouse.com/Products/SKU-000269270/The-Managers-Guide-for-Effective-Leadership.aspx

28 B Example: Improving the library process

In most cases the largest cause in a Pareto chart is the first target for improving a process. However, in this example the students aren’t complaining about the time they spend in the stacks. The students’ primary complaint is about the second shortest step in the overall process. Based on these observations the process improvement team decides to divide the problem into two pieces. First they will determine if they can reduce the amount of data required for the checkout process, thereby addressing the main complain of the students, and second they will analyze the process in more detail to see if the overall time can be shortened without major investments in new equipment or facilities.

Examining the rational for requiring the student’s local and home addresses for checking out books determined that this policy traces to the era before the college established computer databases of student information and the use of student ID numbers. It was incorporated into the checkout software just because it was part of the process at the time the software was introduced. Therefore the team checked to ensure they could get access to a student’s addresses if they had a student’s name and ID number. Confirming that they could they dropped this requirement from the checkout process and modified the library’s policy documentation to reflect this change. All librarians and assistant librarians were notified that student address data is no longer to be collected.

The team examined the raw data collected on the individuals using the library to see if any additional insight might be gained on the process. This led to discussions with the assistant librarian that collected the data.  The discussions revealed that if a student returned to the catalog after being in the stacks then each of the times the student spent waiting for the catalog computer, using the computer or searching the stacks were added together. For example, if a student returned to the catalog computer three times then the total time using the catalog computer is the sum of the three independent times. Examining the raw data indicates that about 50% of the students return to the catalog more than once and about 25% return three or more times. Discussions with students returning to the catalog computer more than once showed that these students were noting only one book at a time when doing a catalog search. They then go to the stacks, examine the book and if it doesn’t have the information they need they return to the catalog computer, repeat the search and examine the next most likely book.

Based on this new information the team concluded that the instructions for using the catalog are inadequate, possibly explaining why 81% of those surveyed found the instructions of little or no use. The team modified the instructions to include recommending that the students note several books from each search that might contain what they need before going to the stacks and examining any of the books. The modified instructions were posted beside the catalog computers and notices were posted reminding the library users that the instructions had changed.

Next the team prepared a work flow diagram and a deployment chart to see if any additional insight into improving the process is provided by either of these tools. Work flow diagrams and deployment charts are items that I have found useful that are not in my 1987 copy of the Memory Jogger. These are based on process flow charts and add information not usually associated with flow charts that helps identify process improvements. For our purposes the definitions of these items are:

•        Flowchart- A schematic step by step description of a process. It can be top level or very detailed.

•        Work flow diagram- A floor plan of the workspace that includes the movements of people and items involved with the process.

•        Deployment Chart- A matrix of process steps and workers showing who is responsible for each step.

Simple examples better explain why these diagrams and charts are useful. Important information for process improvement efforts not included on flow charts is the spatial relationships of steps in the process and who the primary and secondary workers are that are responsible for each step.  This information is provided in work flow diagrams and deployment charts. Examples of these are shown in figures 26 and 27 for the book checkout process.

 

Figure 26 Work flow diagram for checking out a book.

The work flow in figure 26 shows that this work space can be improved to make the student’s job easier by moving the card catalog closer to the stacks so that students that have to make a second and third trip to card catalog need to take fewer steps. The work space can be improved to make the librarian’s job easier by moving the librarian’s computer closer to where the students bring their books at the checkout station so the librarian doesn’t have to move back and forth to access the computer and work with the student. These improvements are not apparent from just the process flow chart illustrated in figure 21.

Figure 27 Deployment chart for finding and checking out a book. (The rectangles indicate a primary responsibility and the ovals a secondary responsibility for a given task)

The deployment chart shown in figure 27 adds new information to the process description, although in this simple case it doesn’t suggest any improvements to the process. An alternate version of the deployment chart lists process steps under columns labeled with the titles of individual workers involved in the process. In general it is good practice for process improvement teams to start by developing the process flow chart, the work flow diagram and the deployment chart as a first step and to try various forms of these charts and diagrams rather than just preparing a single flow chart before beginning analysis.

Often just putting charts and diagrams on paper suggests simple improvements, as the work flow diagram did for the book check out process. The observant student will have noticed that the description of the library processes is much simpler than what actually happens. For example, the flow chart, work flow diagram and deployment charts lack the loop back to the catalog if the student doesn’t find the information needed in the books examined from the first search of the catalog. If all three charts are developed at the beginning of a process improvement activity it is more likely that missing steps are identified.

Checking the effectiveness of candidate improvements

The process improvement team moved the catalog computer and the checkout computer as suggested by the work flow diagram. They then collected new data for a week to see if these changes and the changes they had made to the checkout process had any impact on the number of complaints received or on the time to find and check out books. The post improvement data is shown in figures 28 and 29.

Figure 28 Post improvement complaint check sheet.

Figure 29 Post improvement times for finding and checking out books.

The post improvement data shown in figures 28 and 29 indicate that the objective of reducing the number of complaints was met and some reduction in the average time to find and checkout books was achieved. Although only a small reduction in time the students spend in the stacks was achieved there is a significant reduction in all other times. The students spend less time in queues and less time providing data to the librarians. Note that the time the librarians spend in processing books is also cut in half. This is attributed to the reduction in time listening to students complaining. The time listening to complaints was also increasing the time students had to wait in the queue for checking out books. The librarians found that they had more time for other work and they were enjoying their jobs more without having to listen to so many complaints.

This example of process improvement contains several lessons learned that are worth listing. These include:

·       Processes are often much more complex in actuality than workers first perceive. This is usually because they think of how the process ought to work rather than how it actually does.

·       First attempts at collecting data often miss key data because of incomplete descriptions of processes.

·       Fixing a problem in one step can often have unexpected benefits in other steps in a process. In the library example eliminating the need for providing unnecessary data to the librarians not only reduced complaints it reduced the times librarians spent in listening to the complaints and the time students spent in queues waiting for free librarians.

·       Processes often contain unnecessary steps due to some past rational that no longer applies.

·       Improving processes almost always makes workers jobs easier and if continued over time can reduce the number of workers required to carry out processes.

Process improvement should be an ongoing effort and if it is the improvement teams build on past work so that their flow charts and data collection become refined with time. The fact that first efforts are not as complete as they might be isn’t important as long as improvement activities continue.

I hope that this example shows how continuous process improvement with trained and empowered workers contributes to higher quality work, more motivated and happier workers and a more effective organization. This is the type of organization that survives and thrives in today’s competitive global environment.

I also hope this example has convinced you to learn statistical process control in more depth. This example is only an introduction to statistical methods. There are different types of control charts that are used for different analyses. These include p charts, np charts, c charts and u charts in addition to the x-bar – R chart used in the library example. In addition to control charts you need to know about run charts and scatter diagrams. The Memory Jogger book recommend in an earlier lecture defines all of these methods.

You may try statistical methods on simple work processes based on what you have learned in this lecture. I must caution you that although that may work well you could cause more problems by trying to apply these simple methods to a process that demands more complex treatment or different analysis than described here. If you have access to someone versed in statistical techniques then go ahead and begin using these techniques but be sure to ask the expert to review your work to ensure the methods apply to the processes you intend to improve.

Exercise

Since some books and training courses on statistical process control do not discuss work flow diagrams and deployment charts you can learn to prepare these tools by practicing on processes around your home. Develop a flow chart, a work flow diagram and a deployment chart for the activities you engage in from the time you get up in the morning to the time you leave for work. If you are married I don’t recommend trying to get your spouse to change the morning routine based on any process improvement you identify from your charts. You may be judged as having gone a bit overboard.

If you find that the pace of blog posts isn’t compatible with the pace you  would like to maintain in studying this material you can buy the book “The Manager’s Guide for Effective Leadership” in hard copy or for Kindle at:

http://www.amazon.com/Managers-Guide-Effective-Leadership-Organizations/dp/1449000673/ref=sr_1_2?ie=UTF8&qid=1346946310&sr=8-2&keywords=Joe+Jenney

or hard copy or for nook at:

http://www.barnesandnoble.com/s/Joe-Jenney?keyword=Joe+Jenney&store=book

or hard copy or E-book at:

http://bookstore.authorhouse.com/Products/SKU-000269270/The-Managers-Guide-for-Effective-Leadership.aspx

28A Example Process Improvement Methods

It is the intent of this course to teach the student the value of learning and applying methods of statistical process control for process improvement and encourage the student either to learn these methods via self-study or from a training course. Although it is not the intent to teach these methods in this course giving examples may help the student understand the value of learning and applying them. Therefore this lecture provides simple examples of process improvement methods and tools to enable the student to get a feel for what is involved in process improvement and begin using these methods on simple processes. The lecture is a bit long and requires careful reading because there are a number of important concepts involved and simpler examples would not adequately present these concepts. Read this lecture when you are fresh and can devote time for a tedious but important read.

The example presented here is a college library’s book search and checkout process. Let’s assume that the librarians are receiving complaints that it takes too long to find and check out books. Process improvement shouldn’t have to wait until customers make complaints but complaints can help direct the improvement process. When the librarians first decided that they were getting so many complaints that they should try to fix the problems the head librarian wasn’t convinced that the complaints reflected any real problems. She felt that there might be just a few disgruntled students complaining. Therefore they decided to collect some data over the next week. They used a check sheet to collect the data. Check sheets are used to collect numerical data over a period of time. A check is made on a form or any sheet of paper each time an event of interest is observed. The check sheet resulting from the librarians monitoring of the fraction of library users complaining about any of the library's processes is shown in figure 20.

Figure 20 Check sheet recording the complaints about library service for one week.

Seeing that complaints were being received from an average of 17% of the library’s users the head librarian authorized the librarians to form a process improvement team to try to improve the library’s processes so that complaints would be reduced.

Flowcharting to define the process

The first step for the process improvement team is to conduct a brainstorming meeting to discuss the complaints and plan how to react to the complaints. To help guide the brainstorming meeting the team prepared a flow chart of the library’s process for finding and checking out books. The team’s flow chart is shown in figure 21.

Figure 21 The process improvement team’s flow chart for the process of finding and checking a book out of a library.

A flow chart diagrammatically lists each step in a process in a time ordered sequence. Flow charts establish ownership of process steps, establish boundaries, define key interfaces and define the overall process and thereby ensure that the team has a common understanding of the process in question. Flow charts are most helpful for complex processes where there a lot of decision points, inspection points and loop backs. The charts help clarify what is really happening in a process vs. what might have been planned and the charts are an excellent tool for helping a process improvement team focus its discussion and brainstorming sessions.

There are useful variations on flow charts including listing items under columns labeled Supplier, Input, Process, Output and Customer in the sequence of the processes forming an overall process. Examining a process several times using different format charts often reveals new insights into the process. Perhaps you can think of even more ways to define the flow of processes in your organization.

Analyzing the process

The team discussed each step in the flow chart to get ideas for what might be the source of the students' complaints. At a brainstorming meeting each attendee is allowed to offer any ideas for the cause of the problems and any ideas for developing solutions. All ideas are recorded first, and then they are discussed to select those that are most promising. Constructing a cause and effect diagram, often called a fishbone diagram, is a good tool for collecting and discussing ideas for the causes of the complaints. A final fishbone diagram for the library’s slow process might look like that shown in figure 22. It helps guide the brainstorming if the possible causes of problem are grouped in four categories. Use the four P’s of Procedures (including Processes), People, Policies and Plant (i.e. buildings and equipment) for four categories of problems in service organizations. Similarly, the four M’s of Material, Methods, Machines, and Man are helpful categories of problems in manufacturing or project organizations that deal with things rather than services. Over time your organization may find other categories that are more useful for your specific organization. A category that is often added is Environment.

Figure 22  Fishbone diagram of potential causes for slow library process.

The next step is to gather data to determine which of the potential causes are the biggest contributors to the students’ complaints. Two approaches are to gather data from the students that are complaining and to gather data on the process itself. Data can be gathered from the students by querying them during checkout and/or by asking them to participate in a survey. Let’s assume the librarians decide to use a survey. They design the survey based on the data in the fishbone diagram. The result is the following list of questions:

1. Do you think finding and checking out a book is?

Fast ____

Ok _____

Too slow ____

 2. Do you think the process is?

Easy ____

Too complex ____

If too complex, what part of the process do you find the most complex?__________________________________________

1.     Are the library’s instructions helpful?___ , Little help?____, No help?_____

2.     Are the librarians helpful?____, Little help?_____, No help_____?

3.     Which step takes you the most time?

a.      Finding desired books in the catalog______

b.     Finding books in the stacks_______

c.      Checking out the books you have found_______

4.     What changes would improve the process for you? __________________________________________________________________________________________________

5.     When you need help from a librarian is there usually one available?  Yes__,No__

6.     Is the library open when you need to get books? Yes____, No_____

Let’s assume that 100 surveys are collected and analyzed. The finding might look like the following: (Note numbers won’t add up as some students won’t answer all questions.)

1. Do you think finding and checking out a book is?

Fast __5

Ok __10

Too slow __85

 2. Do you think the process is?

Easy ____12

Too complex ____84

If too complex, what part of the process do you find the most complex? 65 said the having to give too much data to the librarians; 10 said finding books in the catalog and 4 said finding books in the stacks.

3. Are the library’s instructions helpful? __11, Little help? _73, No help? _8

4. Are the librarians helpful?__92, Little help?___6, No help___1?

5. Which step takes you the most time?

a. Finding desired books in the catalog___25

b. Finding books in the stacks_____40

c. Checking out the books you have found___32

6.What changes would improve the process for you?___74 said having to provide just student name or name and ID number to the checkout librarian, 10 said adding more catalog computers, 5 gave miscellaneous answers and 6 gave no answers.

 7. When you need help from a librarian is there usually one available? Yes_87, No_10

 8. Is the library open when you need to get books? Yes__86, No___12

It is clear from the results of the survey that the biggest source of complaints is having to give the student’s name, local address and home address each time a book is checked out, as required by the library’s policy and the checkout software. The students recommend having to provide only their name or their name and student ID number. The library is open when most students need it open and the librarians are available and helpful for most students. Similarly, finding books in the catalog and in the stacks take time but are not problems for most students.

The survey provides useful information but the librarians must analyze the process, implement candidate improvements and check the effectiveness of the candidate improvements. Analyzing the process means establishing measurement points, collecting data and checking the collected data to see if the actual time data correlates with the students’ complaints.

During the time the surveys were being collected an assistant librarian timed students as they performed the different tasks involved. These times were collected for 85 students. The total times were analyzed in 15 samples of 5 students each and the average total times of each sample of 5 were plotted in a control chart called an “X bar- R” chart. (There are mathematical reasons for working with averages of subgroups, which you will learn in your more comprehensive studies of statistical methods.) X-bar stands for the average of each sample group and R stands for the range in value of the sample. The resulting chart is shown in figure 23.

Figure 23 X bar-R chart for total process times for 15 sample groups of 5 students each.

The upper control limit is calculated from the equation UCL= X bar + 0.577R bar and the lower control limit from LCL= X bar- 0.577R bar. (The parameter 0.577 is specific to sample averages of 5 items per sample group and would be different if more or less than 5 items are in the sample group. Books on statistical process control, like the Memory Jogger, list the equations and parameters needed to develop control charts.)

The control chart in figure 23 tells the librarians that the overall process is stable, i.e. it exhibits only common cause variation. Therefore they can make changes to the process and be assured that changes in the average times are due to their changes and not something else going wrong. Had there been points above the UCL and/or below the LCL the process would have special cause variation and the effect of any changes couldn’t be reliably attributed to the change.

Knowing they have a stable overall process the process improvement team examined the average times of the various steps in the overall process. The results are shown in table provided in figure 24. Note that before making any changes to any step in the process it is necessary to examine the control chart for that step to ensure the step is stable as well as the overall process. For this example we assume each step is stable.

Figure 24 Table of average times for each step in finding and checking out a book

The timed process data provides further insight into the students’ complaints. They complain that the process is too slow and complex and they identify having to provide too much data to the checkout librarian as their biggest contributor to their complaints. The data suggests that having to supply the personal data is irritating rather than taking too much time. The largest contributor to the total average time is the time spent in the stacks and the students did not complain about this time.

Exercise

A Pareto chart is a bar graph with the data ordered from left to right so that the largest is on the left, the second largest next, etc. This chart helps a process improvement team focus on the problem to solve first. Using the data table in figure 24 prepare a Pareto chart of the data. Your result should look like figure 25.

Figure 25 A Pareto chart for the times of each step in the overall process.

If you find that the pace of blog posts isn’t compatible with the pace you  would like to maintain in studying this material you can buy the book “The Manager’s Guide for Effective Leadership” in hard copy or for Kindle at:

http://www.amazon.com/Managers-Guide-Effective-Leadership-Organizations/dp/1449000673/ref=sr_1_2?ie=UTF8&qid=1346946310&sr=8-2&keywords=Joe+Jenney

or hard copy or for nook at:

http://www.barnesandnoble.com/s/Joe-Jenney?keyword=Joe+Jenney&store=book

or hard copy or E-book at:

http://bookstore.authorhouse.com/Products/SKU-000269270/The-Managers-Guide-for-Effective-Leadership.aspx

26 Introduction to Variation

W. Edwards Deming, the famous quality improvement guru, claimed that the two most important things for managers to understand are:

1.     Variation and how to deal with it

2.     The forces that motivate and demotivate people

The subjects of the first 21 lectures, motivating, staffing and communicating, address the forces that motivate and demotivate people, i.e. the Theory Z portion of effective leadership. Forces mean the collection of perceptions, understandings and misunderstandings that influence the attitude and behavior of people. Lectures 23 – 25 introduced management of processes, part of the control function of managers, and treated the stand alone topics of managing risk and theory of constraints. Now we turn to variation and how to deal with it, the central theme of process improvement and process control. Managing in the presence of variation is also part of the control function of managers.

W. Edwards Deming claimed that the inability to interpret and use the information in variation is the main problem for managers and leaders. (See the book Out of the Crisis by W. Edwards Deming) When there is a problem with any work process the manager and the employees both must understand when the manager must act and when employees must act. It is through an understanding of variation and the measurement of variation that they understand when and who should take action and, just as importantly, when not to take action. Thus variation is involved in both improving poor processes and maintaining good processes.

Variation is just the reality that actual values of parameters, physical or financial, have some statistical spread rather than being exactly what we expect, specify or desire. For example, we may have a budget for supplies of $1000 per month. When we look at spending for each month it is typically close to but not exactly $1000. Over time the spending might look like that shown in figure 15.

Figure 15. An example of variation from planned budget by actual spending.

For our purposes the definition of variation is deviation from planned, expected or predicted values of any parameter. The parameter might be financial, as in the example shown in figure 15, it might be in units of production per day or minutes per service, or it might be a physical parameter, such as the dimension of a machined part. Thus variation occurs in all the work processes of any kind of organization. Therefore, as Deming implied, the effective leader must understand the information in variation and how to properly manage in the presence of variation.

Let’s start by returning to the work process illustrated in figure 12, the SIPOC diagram.  Where might we expect to see variation in a work process? The answer is everywhere. Deviations from ideal inputs are variation. Deviations from ideal outputs are variation. Deviations from expectations in use are variation. Variation in use can be due to either hidden variation in outputs or unexpected variation in the use environment or the use process.

Let’s define an effective process from a customer’s point of view. It is a process that produces outputs that meet or exceed the customer’s expectations for quality and cost. Customers can be internal or external to the enterprise or the organization that owns the process. Customers have stated and unstated expectations. Specifications, requirements, standards, and contract items are examples of customer’s stated expectations. Customer’s unstated expectations are typically suitability for all conditions of use and affordability. Therefore, for the purposes of process improvement discussions, we can say that an organization’s effectiveness is determined by the effectiveness of its processes in satisfying its customer’s expectations. (In general the effective organization must satisfy all its stake holders’ expectations, including managers, workers, owners and the community as well as the customers.)

Variation Drives Process Effectiveness

We can see the effects of variation by examining an ideal business process (figure 12, an ideal process is repeated in the top half of figure 16) and a typical process as shown in the bottom half of figure 16.

 

Figure 16. Comparison of a typical process to an ideal business process.

An ideal process converts all of the supplier’s inputs to outputs that satisfy the customer’s expectations. A typical process includes inspection steps to ensure that a defective input is not sent to the process or a defective output is not sent to the customer. The customer also adds an inspection step because of receiving defective outputs in the past. If outputs fail any of these inspections the failed item is scrap or must be reworked. It’s easy to see that the typical process is more expensive, and therefore less effective, than an ideal process because inspections cost money and scrap or rework cost money. In a typical chain of processes costs of failing inspection increases as the work progresses along the chain because more rework is required if an inspection is failed at processes near the end of the chain. Thus often the largest cost to the organization is warranty costs from customer returns. That is the reason for the inspection of the outputs before they are sent to the customers. The reason these inspection steps are added is the presence of variation. If there was no variation in the inputs or the outputs then there would be no need for inspection to find those items whose variation from ideal is larger than acceptable.

Notice that even the ideal process has inputs and outputs that exhibit variation but for the ideal process this variation is within acceptable limits most of the time. We need to define what we mean by “most of the time”. If there is variation then sooner or later a product will fail to meet customer expectations if there is no inspection. (Actually it will happen even with inspection since no inspection is perfect, i.e. inspection is a process that also has variation.) If the variation is small enough so that only rarely is there a customer return and the cost of correcting this return plus the cost of the disgruntled customer is less than the cost of including inspection then it makes business sense to not have inspection.

Now I hope the student is thinking that to make a valid decision to not include inspection takes data to establish that the variation is sufficiently low. The astute student is also thinking that collecting such data costs money also, perhaps as much as the inspection. This is an example of what is meant by a manager needing to know how to manage in the presence of variation. Next we examine how a manager can achieve such understanding and make good decisions in the presence of variation.

Variation is a Statistical Phenomenon

To understand managing in the presence of variation we must answer the questions how can the manager decide:

·       when to take action,

·       what action to take and

·       who should take the action?

Managing correctly in the presence of variation requires the use of methods based on statistics since variation is a statistical phenomenon. The statistics needed for 85% or so of a manager’s work is relatively simple and easily learned. The effective leader and all workers must understand and use these simple methods. However, there are situations that require more elaborate statistics. Every organization should have access to at least one person well versed in statistical methods so that managers and process improvement teams have a resource to check their work and assist on complex problems. This statistical expert can be a consultant or a worker that is well trained in statistics.

Here we are going to briefly look at some of the most important simple methods. As an example, figure 17 illustrates the daily averages of phone expenses for an organization plotted for each month of a year.

Figure 17 A graph of an organization’s daily phone expenses averaged for each month of a year.

Should the manger take action in response to the March expenses? The June expenses? If action is necessary in response to the March expenses, whose action is it? The manager’s? The workers? If the manager is expected to discuss unusual expenses in a weekly or monthly report what should the manager say about the March and June expenses?

Control charts are a visual method of answering the questions posed about the phone bills. A control chart for the phone expenses data from figure 17 is shown in figure 18. You can learn how to generate control charts later. For now I only partially describe how to interpret the data in a control chart.

Figure 18 A control chart for the example phone expense data.

The line with diamond markers is the same data shown in figure 17. The line with the square markers results from averaging the data over a whole year. The line with the triangle markers shows the range of variation of daily expenses for a given month. The two lines labeled Upper CL and Lower CL are upper and lower control limits, which are statistically determined from the data set. For the purposes of this introduction it isn’t necessary to know how to calculate the control limits. The control chart tells us that, with the exception of the March data point, the phone expenses are stable, that is they exhibit variation about a stable sample average, which is not steadily increasing or decreasing. A stable process is predictable, e.g. frequency of errors, efficiency, process capability and process cost are predictable. Deliberate changes to a stable process can be evaluated.  Note that some process improvement literature refers to a stable process as being “in control”.

Variation exhibiting a stable statistical distribution is due to the summation of many small factors and is called common cause variation. Changes to a stable process, i.e. one with common cause variation is typically the manager’s responsibility but can be the responsibility of trained and empowered workers. Knowledge workers should be responsible for common cause variation because they are usually more expert with respect to their processes than their managers. However, as is described in the next lecture, even knowledge workers should not be empowered to control their processes before they have been trained in statistical methods because mistakes can make processes worse.

Only the data point for one month, March, falls above or below the two control limit lines. Variation that is outside the stable statistical distribution, i.e. above the upper control limit or below the lower control limit, is special cause variation.  The point for March falls below the lower control limit. This means that the March data is special cause variation. Special cause variation is the workers responsibility; they typically know more about possible causes than the manager because they are closer to the process. But the workers need training in problem solving to fix special cause variation and they need to be empowered to make fixes to their processes.

The workers should review the data for March and examine the phone system to see if they can determine the reason the daily averages were so low. For example, the phones may have been out of order for a week, which would have lowered the daily expenses but require no action other than getting the system operating again. Properly trained and motivated workers can handle special cause problems, usually without any management involvement.

A stable process is a good candidate for process improvement. The goal of process improvement for a stable process is to reduce the variation and/or change the mean. Process improvement should not be attempted on a process that is unstable until the process is brought to a stable condition because changes in data taken on an unstable process cannot be uniquely attributed to the action of the process improvement. The special cause variation that makes the process unstable must be removed before beginning process improvement.

Note that the control chart also provides the manager information useful in considering process improvement. In the example shown in figure 18 the yearly average phone expenses are about $21 per day. A manager can evaluate the cost benefit of making a change to the phone service based on this data since it is stable over a year. If the manager can make a change without investment that promises a 10% reduction in phone expenses the manager can see that data will have to be monitored for about four to six months to determine if the mean daily expenses do indeed drop from $21 to $19 because the normal range of variation in monthly averages is larger than the expected change. However, if the change really works as promised then in about four to six months the monthly averages should begin to vary about a new long term average and the control chart will show this change.

Exercise

1.     Go to “Control Charts” in Wikipedia (http://en.wikipedia.org/wiki/Control_) and read the article. This material expands upon the introduction given in this lecture.

2.    Go to http://www.goalqpc.com/shop_products.cfm and buy yourself a copy of Memory Jogger II. This handy book teaches everything you need to know about problem identification and problem analysis. It is small enough to carry in your pocket and it is your guide to the details of process improvement. If you prefer a spiral bound version it is available from Amazon.com (Michael Brassard, and Diane Ritter, The Memory Jogger II: A Pocket Guide of Tools for Continuous Improvement and Effective Planning) There is also a Six Sigma Memory Jogger available.

The Memory Jogger book recommended here is so widely used and so effective for the practical user that there is no point in repeating the material in this course. The student is expected to study the Memory Jogger and put the techniques into practice. This means that the student and all the people reporting to the student are to have the Memory Jogger book , or an equivalent, be trained in the techniques summarized in the book and put these techniques into practice. This is essential if an effective organization is expected. The exception is if your organization is following the Six Sigma approach where only selected people are highly trained.

If you prefer not having to learn statistical techniques yourself you can attend training if your budget and schedule permits. One example workshop in statistical process control is offered by the American Supplier Institute. See: http://www.amsup.com/spc/1.htm. This workshop focuses on manufacturing but the techniques work for any type of organization. A web search reveals many other training organization offering similar programs. I have found it more cost effective when training all workers to bring the trainer to the organization rather than sending workers to outside training.

If you find that the pace of blog posts isn’t compatible with the pace you  would like to maintain in studying this material you can buy the book “The Manager’s Guide for Effective Leadership” in hard copy or for Kindle at:

http://www.amazon.com/Managers-Guide-Effective-Leadership-Organizations/dp/1449000673/ref=sr_1_2?ie=UTF8&qid=1346946310&sr=8-2&keywords=Joe+Jenney

or hard copy or for nook at:

http://www.barnesandnoble.com/s/Joe-Jenney?keyword=Joe+Jenney&store=book

or hard copy or E-book at:

http://bookstore.authorhouse.com/Products/SKU-000269270/The-Managers-Guide-for-Effective-Leadership.aspx

25 Overview of Theory of Constraints

The theory of constraints involves techniques for improving processes that have to be learned independently of the material we address in subsequent lectures. This theory should be applied to business processes before beginning the process improvement methods that are discussed in the following lectures. If the student understands the theory of constraints and if this theory is being applied to the business processes the student is concerned with then this lecture can be skipped. If not, this overview introduces the theory and gives the student some feeling for the necessity for learning and using this theory.

Theory of constraints deals with aspects of control often neglected or wrongly presented in standard texts. I suspect the likely reason is that theory of constraints as applied to business organizations was made popular outside of business schools by a physicist, Eliyahu M. Goldratt. Theory of constraints is described by Goldratt via his books The Goal, The Race, Critical Chain & other process oriented management books. These books are “business novels” and enjoyable reads as well as being excellent self-training books. Theory of constraints is appropriate to processes associated with manufacturing operations, back and front office service operations and projects. I distinguish between back and front office service operations because although theory of constraints applies to front office service operations it shouldn’t be the main focus when dealing directly with customers. This is because it is better to be effective with customers than to be highly efficient at the expense of some effectiveness.

Theory of constraints is based on the fact that the throughput of a process can be no greater than the throughput of the slowest step in the process, i.e. the constraint. It is a simple and seemingly obvious concept but having seen many offices with desk after desk stacked with paper work waiting to be processed and many factories with work in process stacked around machine after machine I can tell you that it isn’t obvious to many managers in spite of the fact that violating this theory leads to inefficient operations and excessive costs.

A basic work process, applicable to any organization, is shown in figure 12.

Figure 12 A basic work process has suppliers, inputs, outputs and customers.

This chain is often called SIPOC after the initials of each element in the chain. Manufacturing, project and back office service processes are typically many step processes, each with suppliers, inputs, outputs, & customers. A simple example with ten steps is shown figure 13. Each circle with an S is a SIPOC chain in which the preceding S is the supplier of inputs to the S and the following S is the customer for its outputs. Note that a process can have more than one supplier, as S4 is supplied by S3 and S8 in this figure. Similarly a process can have more than one customer. A more complex, but typical process might have loop backs where material or paperwork not meeting standards is sent back to an earlier process for rework.

Figure 13 Typical business processes integrate many individual SIPOC processes.

If we assume that each of the steps shown in figure 13 has a different through put then the theory of constraints states that the through put of the overall process cannot be any larger than the through put of the slowest step. If the manager in charge of an overall process like that illustrated in figure 13, with each step having a different through put, expects the workers to stay busy you can imagine what results. Work in process (WIP) builds up in from of all steps that are slower than the previous step. This excess WIP can lead to several problems, including:

·       In manufacturing operations and in some project operations the WIP leads to excess inventory costs.

·       Associated with excess WIP is excess cycle time, i.e. the time from the first step to the final step in the overall process.

·       If a worker at one of the non-constraining step begins to make errors in paperwork or if a machine at a non-constraining step begins to produce defective parts then excess costs result from the extra rework required on all the defective material produced before the problem is detected at some subsequent step

·       Eventually expediters and/or overtime are added to ensure that time critical work is located and processed at the expense of other less critical work, leading to excess labor costs.

A second, and again often overlooked, result of the theory of constraints is that there are no additional costs incurred if workers at non-constraining steps are idle as long as there is material available for the worker or machine at the next step. This means that if such workers are cross trained then they can do other productive work when there is a buffer of output work after their step. The value of workers doing other work justifies paying premium wages to workers that are cross trained and the cost of cross training.

Most important is that workers at non-constraining processes have time to spend on process improvement and, since total productivity is not reduced, there is no additional cost for the process improvement labor. This is one reason theory of constraints should be applied to work processes before initiating other process improvement activities.

Figure 14 illustrates how to control processes with a constraining step.

Figure 14 Adding buffer inventories and controlling work material release controls work in process for processes with constraining steps.

In the example shown in figure 14 step 3 is assumed to be the constraining step. Buffer inventory is maintained in front of step 3, indicated by the small rectangle, so that it can never be idle due to lack of input. The size of the buffer in front of step 3 is controlled by the rate of work material released to the input of step 1, indicated by the dotted line from the input of step 1 to the buffer inventory at the input to step 3. It is also correct practice to add a buffer in front of step 4 and regulate the input to step 5 to control the size of this second buffer. The reason for the second buffer is to ensure that step 4 does not become the constraining step due to material not being available from step 8. Note that this process control approach applies to any type of business that involves material, i.e. paper, electronic media or parts, moving from step to step to accomplish an overall work objective.

A personal experience is a good illustration of the problems caused by not applying the theory of constraints. I was asked to consult for a factory that was in danger of being shut down and the work moved out of the country because the corporate office was not satisfied with the factory’s performance. A quick tour showed that there was excess WIP nearly everywhere. In fact a special material handling system had been installed just to deal with the partially finished goods throughout the factory. A few questions revealed that the constraining process was the final process before the products were boxed and shipped.

I held a Saturday training system for the managers. I asked them what the cycle time was for their products. They answered that it was about 35 days from first material release to shipping products made with that material. I then asked what the cycle time would be if material moved from process to process with no waiting time in front of each process. They thought awhile and answered that it would be 7 days. A few more leading questions and I could see light bulbs coming on in a few minds and excited expressions on faces. Incidentally, the first person that comprehended what they had been doing wrong was a woman doing administrative work in the front office. By Monday they had plans worked out to change their methods and were starting to implement the plans.

I called the general manager a couple of months later and asked if the cycle time had changed. They had two products going through the same production line. He said the cycle time for one product had been reduced to the ideal 7 days by applying theory of constraints. They began releasing material into the line at the rate of the final constraining process and maintained buffer work in process only in front of the constraining process. Unfortunately, he was not allowed to control the release of material for the second product and its cycle time was still about 35 days. Corporate marketing people controlled the release of material for the second product and they released it according to their sales instead of the factory capabilities. I never learned if the general manager was able to convince corporate management that marketing’s control of material release for the second product was the cause of the factory’s excess cycle time, excess WIP and associated excess costs.

This short introduction to the Theory of Constraints illustrates the principle. Managers of manufacturing or back office service operations should study Theory of Constraints, just in time (JIT) inventory control and Lean techniques and understand the value of small lot size in controlling the cost of poor quality. Project managers should study critical path scheduling as well as the theory of constraints. I recommend project managers read Goldratt’s book Critical Chain, which addresses scheduling for projects.

Exercise

Like lecture 23 this lecture is only an introduction and no exercises are required unless the student isn’t familiar with the theory of constraints and using it already. If the student isn’t knowledgeable in these techniques and isn’t already using them then additional self-study is necessary to learn how to put them into practice for real business processes, which tend to be more complex than the simple example used here to illustrate the principles involved. I recommend reading Goldratt’s books because they are fun reads as well as excellent for self-training.

If you find that the pace of blog posts isn’t compatible with the pace you  would like to maintain in studying this material you can buy the book “The Manager’s Guide for Effective Leadership” in hard copy or for Kindle at:

http://www.amazon.com/Managers-Guide-Effective-Leadership-Organizations/dp/1449000673/ref=sr_1_2?ie=UTF8&qid=1346946310&sr=8-2&keywords=Joe+Jenney

or hard copy or for nook at:

http://www.barnesandnoble.com/s/Joe-Jenney?keyword=Joe+Jenney&store=book

or hard copy or E-book at:

http://bookstore.authorhouse.com/Products/SKU-000269270/The-Managers-Guide-for-Effective-Leadership.aspx