The Operations Management Dilemma

Having spent a large part of my career in developing and selling Operational Intelligence Systems, I am one of many businesspeople around the world -- Manufacturing Systems vendors, Business Intelligence providers, Lean Manufacturing consultants and Six Sigma Black Belts who make their money persuading corporations to focus senior management attention on how they operate, and to spend money on ways to improve it. After all, a company's operations are what deliver value to its Customers and Owners, so why wouldn't they want to invest effort and resources in making them better. Right?

A presentation by Eoin O'Driscoll, (chair of the Irish Government's Enterprise Strategy Review Group) at the 2009 Midwest Entrepreneur Showcase gave me pause. In discussing how to create value for Customers, he referred to Peter Drucker's assertion that "Because its purpose is to create a customer, the business enterprise has two—and only these two—basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs" (my italics). Therefore we in the "Operational Excellence" industry are trying to persuade corporations to spend scarce management time thinking about things that they do not consider core to their success, and then follow that up by asking them to invest even more money into an area of the business they already consider to be primarily a cost. What’s wrong with this picture?

While the issue is not quite as black and white as I describe above -- otherwise there would be no manufacturing software companies or Lean Six Sigma consultants at all -- it does jib to a startling degree with what we see in the market. In 2004, average western manufacturing efficiency was quoted as 45%, with world class companies at 85%. The figures have not changed that much since; the opportunity has been obvious for decades -- see the US vs. Japanese auto industry saga -- and yet many companies still at best reluctantly invest leadership time and effort into Operational Excellence as it's currently sold. They don't want what the industry is trying to sell them. Could they be right?

High Velocity Business

I had the pleasure to read Steven J. Spear's "Chasing the Rabbit" during my Summer vacation, in which he discusses the unique attributes of industry leading companies like Toyota and Alcoa. What Mr. Spears wanted to understand is why these companies have maintained and even extended their competitive advantage over their peers, even as these peers have learned from these leaders and themselves improved. Interestingly, what he singles out as unique about these companies is not that they apply methodologies such as Lean and Six Sigma, although they do, and very effectively, but the fact that they apply these methods in the context of a business culture which is focused on learning and improvement, from the 'highest' to the 'lowest', in everything they do.

What these companies do is simply to recognise that their businesses are complex systems which it is impossible to design perfectly from the outset. So instead of pretending that the system is perfect, and making do as best they can, they accept that there are going to be opportunities for improvement, and invest in their ability to spot, understand, address and learn from these opportunities. As a result, whereas their competitors come to work on a Tuesday at a similar level of performance as on Monday, and expecting to have to overcome most of the same problems as faced them on Monday, the High Velocity Business is coming to work having solved at least some of Mondays problems for ever, and therefore is starting the day at a higher level. These improvements quickly accumulate over time, propelling the High Velocity Business forward even as competitors repeatedly attempt to catch up.