In many companies where I am involved as an advisor or consultant, managing improvement is an inherent part of running the business. A common mistake executives make while trying to manage improvement is that they localize their improvement focus and don’t connect their improvement efforts to the organization as a whole. The net effect of such an approach is that it lowers the performance of the organization as a whole. Ironically, making improvements, makes things worse!
Isolated improvement makes things worse
Examples abound. A few years ago I came across a manager in a service organization who was punished because a colleague in another department had made an improvement. The manager who had made the offending improvement had received a cost reduction target for his department. He removed a return envelop from a standard mailing that another department is responsible for and that goes to clients when they close on a contract. We are talking an annual volume here in the tens of thousands so a significant cost saving was to be realized - or so he thought. This manager reached his cost reduction target! However, the net effect was that many customers did not return a required form (which is why the return envelop was usually enclosed) that led to a downstream department manager - the one who was punished - getting into compliance problems. In the end thousands of customers needed to be called and some mailings needed to be redone. Putting all this right ended up costing the company more than it saved in out-of-pocket expenses by removing the return envelop with a stamp. And we are not even taking into account the employee and customer dissatisfaction that was caused as well.
In another company the sales and marketing department decided to drop the price of a particular product to get more market share. This led to more sales and more sales bonuses, but they had failed to talk to the operations department who could not handle the extra volume. This led to all sorts of delivery problems, lower customer satisfaction for the organization and reputational damage in the market place.
And to go back to the company that tried to order safety as if it was food on a menu card in my previous contribution, the pressure on people to sell and produce more, sometimes led to postponement of preventive maintenance which in turn would lead to the breakdown of equipment which led to potentially unsafe situations and costly operational delays in serving the customer.
In all these cases a local improvement led to a lower performance of the company as a whole.
My approach to support my clients with these type of problems is to not only visualize the systemic nature of these problems with the managers involved - often I ask them to do this - but to also share with them the notion that:
"an organization is a social system where the whole cannot be divided into independent parts."
To show this I do a simple exercise where I ask the managers to choose an end-to-end process and to calculate the rolled-throughput-yield of the process. This demonstrates mathematically that, as Russel Ackoff so eloquently articulates,
“an organization is as good as the product of its interactions.”
From this follows that leadership must have a high priority focus on the interaction of the parts of an organization and that any local (departmental or functional) improvement will have a consequence for the whole of the organization. Local improvements must therefore be put into the context of the whole of the organization, and always be approached from the whole of the organization first before you do a local improvement next. Starting from the local perspective, as shown in the above examples, will make things worse.
A different version of this contribution was published on February 17, 2008 at Cognitive-Edge.