It could be said, there are two ways to run your business. Focus on value, or focus on results (whether or not you’re supplying any real value to your customer). Interestingly, when you focus on value, good results typically follow. I want to talk about why, but first a bit of context.
Our current cost accounting systems don’t track what’s actually happening in our factories and organizations. Attempting to control operations with systems not structured to track actual operations frustrates operating managers who are trying to think critically about what they do and how they can improve performance. They can’t relate what they see with their own eyes to over-and-under absorptions and to variance reports that usually surface long after action has ended. Additionally, cost systems based on GAAP (Generally Accepted Accounting Principles) financial accounting vex lean thinkers by assuming that inventory is automatically an asset to be preserved, not an indicator of waste.
It might be said that lean accounting (and lean thinking really) developed to ease these frustrations.
Businesses that value results over process track quarterly earnings reports, for example. Earning reports, if you think about it, are disliked by almost everyone except Wall Street analysts. Fail to meet analysts’ expectations, and your stock price is whacked. So, was performance actually poor or was the expectation wacko in the first place? Were there no quarterly reports, managing a company to pump its short-term stock price would not be wise anyway.
But… Suppose we use lean accounting systems and KPIs to measure value streams in factories. Actual value provided not only to customers, but all stakeholders. There’s an idea.
Unfortunately, managers can still value results over process another way, which is just as short-signed. These managers demand that people hit targets with little regard for how they use their processes to create better long-term value for all stakeholders. This is essentially the same as regarding Lean as just cost cutting to improve position in commodity competition. Why? It’s still a short-term control of operations, but using less crude knobs. (Managerial attitudes and questions give this away.)
What you really want to be interested in is “total results.” Total results extend well outside hitting some numbers by any measurement model. Likewise, long-term value is poorly indicated by current sales prices or the value of a company’s stock cap. Financial valuations are based on predictions of future cash flow. Managing by results is directing operations to obtain the cash flows that we have predicted. But this approach does little to improve our current state or overall organizational capability, let alone our ability to deal with change. Bolts out of the blue remind us of the limits of our predictive powers.
Here’s the key idea to keep in mind. The social value of any work organization lies in what it can do, both as a routine and when pressed to modify and improvise. That depends on the processes which we develop in our organizations to create value – processes defined in a broad sense, including blending of human capabilities, emotional as well as operational. “Process value” you might call it is the ability to do what others cannot, resilience under stress, flexibility to innovate and change, developing people to their maximum capabilities (including ability to innovate), and creating trusting relationships among employees, customers, suppliers, and yep, even communities.
How do we assign numbers to this mishmash? The value of great processes is impossible to fully express in words, much less in meaningful numbers. Which is why lean thinking is all about doing. It’s about practice. Of course, my entire thinking here is a fuzzy ideal impossible to fully realize, but I offer it because it’s still useful for strategic direction.
In manufacturing, questions about lean thinking and valuing process over results start our thinking down this strategic trail, beginning with human development. Here are a few questions you might ask yourself about your organization or team:
- Are people cross-trained to work multiple positions in production, or even to switch between floor work, office work, and lab work?
- Do we have “playpen” areas to tinker with new ideas?
- Is time to think built into schedules and encouraged by the culture?
- Can people repair their own machines? Make and repair their own tools?
Of course, a company may not be able to muster the equipment and skills to make or repair everything. However, the strategy is to dig deeper than “rearrangement Lean,” by giving priority to process learning over short-term results and immediate costs. Taking this wider, long-term view is not easy, but ultimately, it will make your organization more successful and its impact on the community a better one.
What is the environment in which you work? Here are some questions you might ask there in order to mindful of process over results:
- In plants, are utilities easily hooked up almost anywhere, or if not, easy to move?
- Can the plant adapt to big swings in production mix and volume – while remaining fair to all stakeholders (notably suppliers and employees)?
- Are processes so flexible that the plant could adopt a different product line, or even a different business model?
Now, think the same way about other functions of a business – or any work organization:
- How many people can imaginatively talk with customers and actually help them?
- And if they do that, can they also be imaginative helping other stakeholders, including communities?
This may seem like “giving a lot away” in a sense, but in reality, it can lead to lots of ideas you and your team can use to improve – or even revolutionize – what a company can do.
This kind of thinking values process over results. It opens minds to overcoming challenges, including unanticipated ones. You may be aware of Peter Senge’s work on learning organizations; in my work at The Compression Institute we refer to any organization that does this well as a “Vigorous Learning Organization.” (Implied here is that much of the learning is by people who are do-ers, not specialized staff).
Let’s do one more mind stretch valuing process over results. Suppose you regard the global environment as a stakeholder. Well-known is that it’s a mess, and that we have to do something about it beyond just being more efficient with current operations: re-use, re-purpose, re-manufacture, recycle, and so on. That implies major changes in most manufacturers’ business models, which is risky to cash flow as we see it when we value results over process. But risks may turn to opportunities if you create a Vigorous Learning Organization able to deal with big changes – maybe even relishing them.
Valuing process over results leads to rethinking what an organization even is, as well as what it does. It prepares to actively deal with what we consider business risks.
Whatever kind of organization we are, however broadly we are thinking in terms of scope, actively working through change beats worrying about risks to our results predicted by maintaining our status quo.