Much has been written about operational improvement. Books, training courses, speeches, consulting firms; all created in the name of improving performance and creating a sustainable competitive advantage. Literally billions of dollars are spent annually in this quest. Even when management knows what to do, why are so many organizations unable to perform to their potential? What characteristics differentiate those companies that can assimilate knowledge and make progressive change from those that cannot? Why for so many companies, is knowing so easy, but doing so hard?
The relentless pressure for top- and bottom-line improvement coupled with more competitive, global markets has resulted in management focused in driving performance through the introduction of new programs and projects. Whether the focus is on quality by implementing TQM or Six Sigma, cost reduction through supply chain initiatives or improved operational processes by adopting Lean manufacturing methods, the goal is the same: to get ahead of (or sometimes to catch up to) those companies providing the same or similar products and services to the customer group your company has chosen to serve.
Lots of activity is generated in these programs. Employees are educated in new concepts and prompted to use new terms and methods. Despite the fanfare and time spent in training and management pronouncements, nothing changes. After a few months, the binders, tee shirts and plaques are just remnants of another failed program.
Is there really a gap between knowledge and performance? Overwhelming evidence suggests there is not a gap, but a chasm.
Over the last few decades single industry studies have been conducted demonstrating superior methods for organizing teams, creating processes, and managing tasks. For example, studies in the apparel industry showed that team-based production produced far superior economic performance compared with the traditional bundle system focused on individual piecework. Despite the fact that trade publications and industry associations had advanced the concept of modular production since the early 1980s, as late as 1992 fully 80% of all garments were made using the bundle system.
In the semiconductor industry, despite the presence of an active, influential, and widely acclaimed industry organization, SEMI, a large-scale study revealed significant differences in performance as measured by cycle times, first pass yield, and defect rates. Even when the industry was leading edge, high technology, geographically concentrated, and extremely competitive, recognized best management practices were not universally adopted.
Even more surprising, best practices were not even widely disseminated within the same company. Studies have routinely shown, and our experiences have borne out, that even within a single company, there is not much consistency in adopting best practices, metrics, or philosophies across multiple facilities in the same organization.
There are major large, profitable consulting firms that specialize in disseminating leading practices throughout specific industry segments. These firms, specializing in benchmarking, knowledge management, and world class business practices, generate their income by sharing with new clients the experiences and knowledge gained from working with their existing clients. While some of the practices may revolve around a new viewpoint or methodology (such as Lean, Six Sigma, or Kaizen), many of the Best Practices are far from rocket science, many are just applications of common sense. However, as sage businessmen have recognized for decades, common sense is not all that common.
So if leading business philosophies and tools are readily known or, at least, readily knowable, why are not more effective, profitable and productive measures spreading throughout business in America? Because, knowing is easy, doing is hard.
There are lots of books and consultants who will educate you on the latest and greatest business philosophies and practices. But there is, at best, an imperfect correlation between knowledge and practice. Sustainable competitive advantage comes from being able to do something your competitors can not, not knowing something they do not know.
The childhood riddle about five frogs illustrates a significant reason why American business falls short.
Five frogs are sitting on a log.
Four decide to jump off.
How many are left?
Answer: five, because deciding is not doing.
Talk often substitutes for action. Many organizations believe that by making a decision, kicking off a management initiative, or creating fanfare, slogans, tee shirts, and posters with a focus on business improvement is sufficient to make the desired improvement a reality. Nothing could be further from the truth. Without mechanisms to track implementation, without metrics that identify the current (baseline) state and targets that identify the desired state, and without personal accountability starting at the top of the organization, there is no true incentive to change.
Even in situations of financial extremis, where everyone can see and acknowledge a clear and present danger, companies often do not undertake meaningful change. Every organization has a culture: that set of values, behaviors, norms and beliefs, largely unspoken, that have developed over time. In it is embodied what is really valued, how people really get recognition and status, and how power and influence are wielded.
In situations where there is a defined external threat, organizations often cling more tightly to precedent dictated by culture. Stress seemingly results in an even greater reliance on rote memory, focusing on what was successful in the past, even if that is dysfunctional in the face of new perils. It is as though analysis and thoughtful reflection is trumped by the ingrained culture based on past success.
Studies have shown that individuals cannot tolerate for long dissonance between belief and behavior. In fact, the military has for centuries used that fundamental understanding in creating its own unique culture. A physically and mentally rigorous indoctrination period with rigidly prescribed behavior consistently develops new recruits capable of being absorbed into the fabric and culture of a military organization.
Throughout this process, the focus is on doing, changing and defining behavior, not talking abstract theoretical constructs. Over time not only does the individual behave as dictated by organizational norms, but the individual’s belief structure becomes aligned with organizational culture. The fact that behavior dominates belief shows that action defines belief, not beliefs (talking) defining action.
Last, but not least, we earlier stated that sustained competitive advantage is built upon doing things that your competitors have difficulty imitating. But one must differentiate between what is difficult to comprehend and what is difficult to implement. Most ideas upon which a sustainable competitive advantage is founded are easy to understand.
Dell Computer, for example, makes computers to order for each and every customer. Every customer gets exactly what they want, customized to their needs, within a few business days. With prices at or below competitors selling off-the-shelf computers, Dell not only leads in market share, but in profitability and margin in this highly competitive market. As a business model, make-to-order is not novel, nor is it technologically daunting. But Dell’s rigorous, disciplined execution of its business model has given it a significant competitive advantage, both from a marketing perspective and from its financial results.
The idea is not difficult, but the execution of this well-known concept is extremely demanding. None of Dell’s competitors, all large, well-financed corporations with vast economic resource, have been able to emulate Dell’s success. Again, the strategic differentiator is implementation not concept.
Thankfully, creating a culture focused on implementation is not impossible. But it does take discipline and follow-through. Creating a culture of discipline can be achieved by focusing on a few basic principles.
First and foremost, senior management has to walk the talk. Talking is easy, doing is hard. Employees at every level model their behavior on that of their supervisors. Without behavioral changes at the very top, any program desiring to implement significant change is doomed to failure.
Second, measurement systems must be created to reflect the desired outcome. That means senior management needs to understand what constitutes its competitive advantage. Those drivers of the competitive advantage (at the very least) need to be quantified, measured, and publicly embraced. Making those measurements very public and very visible, internally and externally, will reinforce their importance.
Third, the system of formal (and informal) rewards must be aligned with the metrics designed to drive business performance. When personal rewards (behavior-inducing) are aligned with corporate goals (desired outcomes) employees and management alike begin looking for ways to drive improved business outcomes. Bonuses, promotions, and other forms of recognition and performance inducements are powerful incentives to modify behavior. Several cycles of using these criteria to recognize and reward performance, properly publicized, will result in significant cultural change.
And it is only by changing the embedded culture that you can create an organization focused on implementation, doing the difficult things that create sustainable competitive advantage.
A manufacturer of specialty engines was suffering long development times, high inventory levels, excessive production lead times, and declining profits.
A leading European manufacturer of railway systems, locomotives, and rolling stock suffered from decreasing gross margins and it was losing contracts to its competition. It was suffering high engineering rework costs, increasing manufacturing lead-times, high inventory obsolescence, together with declining productivity, and worker satisfaction.
Below is a 30-year history of the results delivered to our clients. The black line is the average result across all industries and time.