The Per­ils of In­ter­nal Dis­rup­tion

Rotman Management Magazine - - POINT OF VIEW -

if some­thing is said to be ‘dis­THESE DAYS, rup­tive’, we as­sume that it is highly in­no­va­tive and there­fore good — al­though in­dus­try in­cum­bents might dis­agree. But when it comes to an or­ga­ni­za­tion’s in­ter­nal op­er­a­tions, dis­rup­tion can be very bad, both for the busi­ness and for em­ploy­ees.

Tai­ichi Ohno, one of the fa­thers of the Toy­ota pro­duc­tion sys­tem, de­scribed three man­u­fac­tur­ing ‘evils’ that ev­ery com­pany should avoid: mura (un­even­ness), muri (over­bur­den) and muda (waste). Not sur­pris­ingly, the three are in­ter­re­lated: un­evennness is of­ten a cause of over­bur­den, which leads to much of the waste that com­pa­nies are so ea­ger to elim­i­nate.

Un­even­ness in any as­pect of a busi­ness — cus­tomer de­mand, process time, qual­ity of raw ma­te­ri­als, staffing, etc. — re­sults in over­bur­den­ing some re­sources at the ex­pense of oth­ers, or al­ter­nat­ing be­tween over­bur­den­ing and un­der­uti­liz­ing a re­source over time. For ex­am­ple, the spike in toy de­mand at Christ­mas puts enor­mous pres­sure on fac­to­ries, ware­houses and lo­gis­tics providers, to say noth­ing of front­line re­tail staff. Sim­i­larly, un­even­ness in ma­chine avail­abil­ity will cause work­ers and machines in down­stream pro­cesses to be al­ter­nately starved and over­bur­dened with work.

The wide­spread quest for in­no­va­tion across in­dus­tries is only mak­ing mat­ters worse: While pur­su­ing in­dus­try dis­rup­tion for a bet­ter share in their mar­ket, lead­ers are of­ten obliv­i­ous to the dis­rup­tions that their per­sonal ac­tions and busi­ness prac­tices are cre­at­ing for their or­ga­ni­za­tions. Th­ese dis­rup­tions gen­er­ate enor­mous un­even­ness for em­ploy­ees and pro­cesses, mak­ing it more dif­fi­cult for the or­ga­ni­za­tion to ex­cel.

Fol­low­ing are five types of in­ter­nal dis­rup­tion that can un­der­mine a com­pany’s per­for­mance.

In their sem­i­nal book In MAN­AGE­MENT BY WALK­ING AROUND.

Search of Ex­cel­lence, Tom Peters and Bob Water­man pop­u­lar­ized the con­cept of ‘man­age­ment by walk­ing around’ (MBWA), en­cour­ag­ing lead­ers to get out of their of­fices and ran­domly walk around the com­pany to see first­hand what’s go­ing on. They specif­i­cally ad­vise man­agers to make their walks un­pre­dictable, both in terms of where they go and when they go. Peters and Water­man be­lieve that if front­line work­ers are ex­pect­ing man­age­ment’s visit, they won’t see what’s re­ally hap­pen­ing on a reg­u­lar ba­sis. They ar­gue that front­line staff will work dif­fer­ently; they’ll clean up their work area; they’ll cover up small prob­lems. Lead­ers won’t get an ac­cu­rate pic­ture of how the pro­cesses are op­er­at­ing.

This kind of un­pre­dictabil­ity can be a pow­er­ful form of dis­rup­tion for the worker. If a se­nior leader ran­domly shows up, the work­ers will in­evitably be anx­ious and stressed. They’ll work dif­fer­ently un­der the watch­ful eye of the boss, pos­si­bly cre­at­ing vari­abil­ity in the qual­ity of their work. Or worse — they’ll stop work­ing while they an­swer ques­tions, af­fect­ing the tim­ing of a pro­duc­tion line, and cre­at­ing un­even­ness for down­stream work­ers.

In con­trast, or­ga­ni­za­tions that have em­braced lean think­ing, like JD Ma­chine, Stan­ford Med­i­cal Cen­tre and

Lan­tech, a sub­sti­tute stan­dard­ized ‘walks’ for ran­dom MBWA. At th­ese places, the lead­er­ship team has a reg­u­larly sched­uled walk through the var­i­ous de­part­ments to see first­hand what’s hap­pen­ing. There are no sur­prises for the staff—they know who’s com­ing and when, with the re­sult that th­ese visits are smoothly in­te­grated into daily work with­out dis­rup­tion. More­over, it’s both help­ful and re­ward­ing for front line staff to know that they’ll get to talk with the CEO or VP of Op­er­a­tions on a reg­u­lar ba­sis.

Lead­ers are of­ten obliv­i­ous to the dis­rup­tions that their per­sonal ac­tions and busi­ness prac­tices can cre­ate.

Th­ese prac­tices creSALES IN­CEN­TIVES AND VOL­UME DIS­COUNTS. ate tremen­dous dis­rup­tion in a com­pany’s busi­ness by dis­tort­ing both in­com­ing mar­ket sig­nals and out­go­ing or­ders to sup­pli­ers. Sales in­cen­tives — for ex­am­ple, bonuses to meet monthly or quar­terly rev­enue goals — cause sales­peo­ple to stuff the com­pany’s dis­tri­bu­tion chan­nels with in­ven­tory far in ex­cess of con­sumer de­mand. Vol­ume dis­counts have the same ef­fect, by en­cour­ag­ing cus­tomers to or­der more prod­uct than they need in or­der to get a larger dis­count. Both th­ese prac­tices wreak havoc on the sup­ply chain through the “bull­whip ef­fect.” Hau Lee, pro­fes­sor at the Stan­ford Grad­u­ate School of Busi­ness, il­lus­trates this prob­lem with a story about Volvo: in the mid-1990s, the Swedish car man­u­fac­turer found it­self with ex­cess in­ven­tory of green cars. The sales and mar­ket­ing de­part­ments be­gan of­fer­ing spe­cial deals to clear out the in­ven­tory, but no one told the man­u­fac­tur­ing depart­ment about the pro­mo­tions. It read the in­creased sales as a sign that con­sumers had started to like green cars, and ramped up pro­duc­tion.

The for­mer pres­i­dent of Wire­mold, Art Byrne, ex­plains in his book The Lean Turn­around that he elim­i­nated vol­ume dis­counts and in­cen­tives for sales to book the largest pos­si­ble or­ders. In­stead, he pushed his sales team and his cus­tomers to pro­vide a steady flow of small or­ders that would smooth de­mand and re­duce dis­rup­tions. Large cus­tomers re­ceived cash re­bates at the end of the year as a re­ward for their busi­ness, but with­out the sup­ply-dis­tort­ing in­cen­tives for large in­di­vid­ual or­ders.

It may be coun­ter­in­tu­itive, but long proBATCH PRO­CESS­ING. duc­tion runs and large batches cre­ate dis­rup­tions in the flow of work com­pared to one-piece flow or small batch sizes. Dur­ing the batch there’s lit­tle dis­rup­tion, of course. But at the changeover, ev­ery­thing and ev­ery­one stops to move machines, change out dies, put dif­fer­ent raw ma­te­ri­als in place, etc. And it’s not just an is­sue in man­u­fac­tur­ing — large batches cre­ate dis­rup­tion in of­fice and ad­min­is­tra­tive pro­cesses as well. Shut­ting down a ware­house for two days to do phys­i­cal in­ven­tory, for ex­am­ple, is in­cred­i­bly dis­rup­tive, with rip­ple ef­fects through­out the busi­ness, from sup­plier to cus­tomer. Sim­i­larly, most fi­nance de­part­ments in large com­pa­nies cut their ac­tiv­i­ties to a bare min­i­mum dur­ing the month-end close of the books, which of­ten can take up well over a week.

Toy­ota, most no­tably, has demon­strated the fi­nan­cial and qual­ity ben­e­fits of one-piece flow over large batch pro­cess­ing in man­u­fac­tur­ing. But work­ing in smaller batches and avoid­ing dis­rup­tion in of­fice pro­cesses yields sig­nif­i­cant ben­e­fits as well. For ex­am­ple, many dis­tri­bu­tion cen­tres use cy­cle count­ing to man­age their in­ven­tory, avoid­ing the need to shut down the fa­cil­ity. Boe­ing’s fi­nance depart­ment pro­cesses some of their fi­nan­cial in­for­ma­tion on a daily ba­sis, rather than wait­ing to process a large batch at the end of the month. They look at what shipped each day, what ma­te­ri­als were re­ceived ev­ery sin­gle day, and what bills were paid ev­ery sin­gle day. As a re­sult of this (and other) changes, they re­duced the time re­quired to close the quar­terly books from nearly one month to five days. In HR, too, many com­pa­nies are get­ting rid of the an­nual per­for­mance re­view in favour of shorter, more fre­quent dis­cus­sions as of­ten as once per month. This not only pro­vides more timely and ef­fec­tive feed­back for em­ploy­ees, but it elim­i­nates the mas­sive time com­mit­ment im­posed on man­agers in Novem­ber and De­cem­ber.

What com­pany wouldn’t want to reap the KAIZEN EVENTS. ben­e­fits of process im­prove­ments? Yet, kaizen events — in which em­ploy­ees in a given area stop their reg­u­lar work for a full week in or­der to im­prove a given process — are the epit­ome of dis­rup­tion. Kaizen events were in­vented by the orig­i­nal Ja­panese con­sul­tants who came from Ja­pan to work with U.S. com­pa­nies in the late 1980s. It made no sense for con­sul­tants trav­el­ing all the way from Ja­pan to the United States to work with a com­pany for just a half-day or a full

day. In­stead, the con­sul­tant stayed for a full five days. To be sure, the ben­e­fits are real (if of­ten un­sus­tained). But kaizen events over­load peo­ple in the week or two be­fore the event by re­quir­ing them to pro­duce ex­tra in com­pen­sa­tion for the up­com­ing down­time. Iron­i­cally, a week­long event im­plic­itly sends the sig­nal that kaizen, which means ‘con­tin­u­ous im­prove­ment’ in Ja­panese, is ac­tu­ally dis­con­tin­u­ous. (‘We’re do­ing im­prove­ment this week. Next week it’s back to busi­ness as usual.’)

Com­pa­nies that re­al­ize the great­est ben­e­fits from lean think­ing don’t do kaizen events. Rather, they make kaizen a daily ac­tiv­ity. Cam­bridge En­gi­neer­ing, an HVAC man­u­fac­turer near St. Louis, for ex­am­ple, has ex­plic­itly carved out 30 min­utes ev­ery­day for em­ploy­ees to do “lean and clean.” Other com­pa­nies are less struc­tured about it, but still ben­e­fit from em­bed­ding im­prove­ment ef­forts into the fab­ric of daily ac­tiv­i­ties with­out dis­rupt­ing the over­all flow of work.

A fi­nal cause of in­ter­nal dis-RE­ACT­ING TO NOISE IN THE DATA. rup­tion is man­age­ment’s over­re­ac­tion to ‘noise’ in the data it mea­sures. Man­agers can now cap­ture all kinds of met­rics, from the num­ber of pa­tient falls in a hos­pi­tal ward, to the first pass yield in a pro­duc­tion line, to the num­ber of hits on a web­site, to the time it takes to re­pair a bi­cy­cle. They cover walls with graphs and launch in­ves­ti­ga­tions when a num­ber turns red or a trend turns down­wards. How­ever, not ev­ery change is mean­ing­ful. Too of­ten, lead­ers re­act to ev­ery up and down in the met­rics, ask­ing for ex­pla­na­tions and root causes that don’t ac­tu­ally ex­ist. This kind of over­re­ac­tion dis­rupts the or­ga­ni­za­tion and leads to ac­tiv­ity that is more ‘busy’ than use­ful.

The fact is, some changes in met­rics are just noise in an oth­er­wise sta­ble sys­tem. Mark Gra­ban, in his book Mea­sures of Suc­cess, makes a com­pelling ar­gu­ment for more use of Process Be­hav­iour Charts (PBC) rather than bowl­ing charts, bar graphs or a ta­ble of num­bers. PBCS (also known as sta­tis­ti­cal process con­trol charts) pro­vide a holis­tic view of a sys­tem’s per­for­mance over time, al­low­ing us to hear the ‘voice of the process’. This con­text en­ables man­age­ment and front­line work­ers to de­ter­mine whether a change is sig­nif­i­cant, in­di­cat­ing that some­thing has fun­da­men­tally shifted in the sys­tem and is worth in­ves­ti­gat­ing.

As Gra­ban writes, us­ing PBCS pre­vents lead­ers from ob­sess­ing over ev­ery up and down in the data (no mat­ter how in­signif­i­cant), and in­stead leads them to ask, “What was dif­fer­ent?” when there are ac­tu­ally mean­ing­ful sig­nals in the data. The re­sult is less dis­rup­tive over­re­ac­tion and empty ex­pla­na­tions (what Dr. Don Wheeler calls ‘writ­ing fic­tion’) and more time spent on value-cre­at­ing work.

In clos­ing

Com­pa­nies that cre­ate truly valu­able dis­rup­tive prod­ucts and ser­vices rightly reap out­size eco­nomic re­wards. How­ever, the head­long pur­suit of ex­ter­nal mar­ket dis­rup­tion can blind lead­ers to the ex­is­tence — and the cost — of in­ter­nal dis­rup­tions caused by their own busi­ness prac­tices.

To be sure, some in­ter­nal dis­rup­tions can be ben­e­fi­cial to a com­pany and can sig­nif­i­cantly stream­line pro­cesses. But when the dis­rup­tions lead to ex­ces­sive un­even­ness in daily op­er­a­tions, they cre­ate dis­tor­tions that stress em­ploy­ees, sys­tems and sup­ply chain net­works. So, by all means, pur­sue dis­rup­tion for com­pet­i­tive ad­van­tage. Just be care­ful not to dis­rupt your­self. Daniel Markovitz is the au­thor of Build­ing the Fit Or­ga­ni­za­tion and

A Fac­tory of One. He founded Markovitz Con­sult­ing to help or­ga­ni­za­tions be­come more ag­ile through the ap­pli­ca­tion of lean prin­ci­ples to knowl­edge work. He has taught at the Lean En­ter­prise In­sti­tute, Stan­ford Univer­sity and Ohio State Univer­sity’s Fisher School of Busi­ness.

Un­pre­dictabil­ity is a pow­er­ful form of dis­rup­tion for em­ploy­ees.

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