Category Archives: Organization Structure

The Danger of Missing Stratum IV

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From the Ask Tom mailbag –

We have silos. Everybody is in a power struggle. We used to have a great reputation, but I think we outgrew it. The company seems lopsided. Sometimes sales outstrips our ability to fill orders, so some of our sales orders turn into back orders, some of our back orders turn into canceled orders and some of our best customers defect to the competition. Other times, production outstrips our ability to sell, so our finished goods don’t get sold, they stack up in the warehouse. The warehouse gets full, so we rent another warehouse. We carry inventory so long it turns obsolete and costs to hold, eat up our profit. We are like a monster machine. Just read a book by Ken Blanchard Be a Silo Buster. Do we really have to bust up the company and start over?

With all due respect to Ken Blanchard, you created those silos for a reason. Do NOT bust them up. You need efficient, profitable internal systems. It is not a matter of busting up silos, it is a matter of integrating them together. This is a classic example of a company growing into Stratum IV. This is similar to the chaos we see in Stratum II companies, but on steroids. This is not a few individuals stepping over each other. This is whole departments, internally focused, head down, nose to the grind stone without care or consideration for the other functions in the company.

But, the fix is not to tear them down. The fix is integration and requires capability at S-IV. This is not finding the constraint in a single serial system (S-III), but understanding the impact of one system on another system (S-IV). This is not root-cause analysis, but systems analysis. We have reinforcing systems and balancing systems. This requires, not serial thinking, but parallel thinking.

This is not multi-tasking (because humans cannot multi-task), but truly seeing the dependency, inter-dependency, contingency, and bottle-necks that exist among out multiple systems and sub-systems. This requires a parallel state of thinking. Two specific things to look at –

  • Balance of each system output, optimized to its surrounding systems output.
  • Handoff of work product from one system to the next system as work output flows through the organization.

Sales has to be optimized to production. There is no sense selling inventory that cannot be produced timely to the sales order. There is no sense producing finished goods that cannot profitably be sold timely to the market. The output of both systems has to be optimized so they work in sync. Reinforcing systems and balancing systems.

A department, head down, will work to their own internal efficiency. The state of their work product may be incomplete or carry a defect for the next stage in the work flow. Work does not flow up and down in a department. Work flows horizontally through the organization, output handed off from one department to the next.

  • Marketing hands off to sales.
  • Sales hands off to estimating
  • Estimating hands off to contracting
  • Contracting hands off to project management
  • Project management hands off to operations
  • Operations hands off to QA/QC
  • QA/QC hands off to warranty
  • Warranty hands off to research and development
  • Research and development hands off to marketing, and so the cycle goes

Each handoff must be inspected and improved. This is the role at S-IV.
To read more on system constraints, theory of system constraints, The Goal by Eli Goldratt.
To read more about reinforcing and balancing systems, The Fifth Discipline by Peter Senge.

The Danger of Missing Stratum II

The Danger of Missing Stratum III
The Danger of Missing Stratum IV

The Danger of Missing Stratum III

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From the Ask Tom mailbag –

Our company somehow always manages to pull the rabbit out of the hat, put the fire out that saves the refrigerator, crosses the finish line crawling through glass. But, we can never relax. Every major project is drama. Every major project is the one that will put our company over the top, but we never quite make it. We are always in a state of overwhelmed. Don’t get me wrong, our customers are very happy and return to us, project after project, but it is such a struggle. We never get to breathe, we never finish in stride.

Your company is operating at S-II (implement), in a market that requires S-III (system). If your organization is completing one project well, what does it get? Another project.

If your organization is completing two projects well, what does it get? A third project. How does it do the third project? The same way it does projects one and two. So, what does your organization get? Another project.

But, what if your organization got fifty projects? How would it do fifty projects? Certainly, not the same way it did projects one and two. Most S-II companies would kill to get 50 projects, not realizing that the 50 projects will kill them. What’s missing? S-III (system) capability.

S-III stands back from the 50 projects and sees the common pattern, extracts that pattern into a system. The system optimizes resources, reduces waste and minimizes effort. The company that wins the race is the one that goes the fastest with the least amount of effort.

S-III (system) brings consistency of output, it’s always the same. Consistency of output yields predictability of output, so we can codify our system. This predictability helps us understand the real cost, now predictable, so we can build in reasonable profit.

Whenever I hear about a profitability problem, I never look for what‘s causing the problem. I always look for a who. In this case, it is a who, with capability at Stratum III. -Tom

The Danger of Missing Stratum II

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From the Ask Tom mailbag –

We are small organization, but growing. We have a great CEO, with a smart executive team. Our engineering managers are really good at developing inventive systems. And we have a dedicated and loyal work force. We have a good reputation in the market with loyal customers (every one thinks they are special). Then why does our company struggle to make a profit? The CEO is open and honest about our situation. When we want to spend on new equipment or hire additional personnel, we can’t afford it. The profit we do make barely covers the debt service the CEO borrowed to start the company.

As I translate each element of your description into levels of work, I notice something very interesting.

  • We have a great CEO – S-V
  • Smart executive team – S-IV
  • Engineering managers, inventive systems – S-III
  • — – S-II
  • Dedicated work force – S-I

What’s missing?

When I describe levels of work based on the research of Elliott Jaques, often organizations make the mistake of thinking they have to beef up their hiring in the scarce talent pool at S-III and S-IV. They overlook the necessity at S-II. So what do they miss at S-II?

The work at S-II is typically an implementation role. This is where execution happens. While you may have a dedicated workforce at S-I, with highly skilled and effective technicians, the organization misses coordination of those efforts to these three outcomes –

  • Accurate (meets spec)
  • Complete
  • On-time

It is the role at S-II to make sure the entire project is complete, not just 90 percent. Major profit fade occurs in the last ten percent of the project. It is their accountability to make sure there are no gaps along the way. Hidden profit erosion occurs in these gaps. And, that, at the end of the day, our product or service meets the spec we promised to the customer. There is never enough time to do it right, but always enough time to do it twice.

I was told a story of a company running heavy equipment in a rural area on a distant continent. When I say, heavy equipment, I mean the driver had to climb a ladder to get in the cab of the truck. This was a large company, profitable everywhere else, but this remote location had not seen profit in the past ten years. They had a smart general manager with a brilliant team of engineers. They knew how to do what they were doing, they just could not execute. Their dedicated workforce was frustrated. Try as they might, they always missed their productivity targets, through no fault of their own.

What was missing was Stratum II. S-II is the land of checklists. What was NOT getting done? Think heavy equipment, checklists and preventive maintenance. What happens when you don’t change the oil on a preventive maintenance schedule (checklist)? How productive is a machine with a thrown rod? How long does it take to fly in a technician to troubleshoot the thrown rod? How long does it take to fly in the part to fix the machine?

Sometimes it is not a brilliant system (S-III). Sometimes, it is the implementation of that system (S-II), using a simple checklist. It’s all about the work. -Tom

Impact of HR at S-IV (Integration) Level of Work

From the Ask Tom mailbag –

I read, with interest, your post about the impact of HR at Stratum III level of work. What about Stratum IV?

When companies are able to pull the silent switch in HR from S-II to S-III, they shift HR from a cost center to a value add center. The shift in HR at S-III to S-IV drives HR from a value add center to a strategic center. Sounds glib and trite, but here is what that means.

Understanding tactical to strategic can be measured in time span. The shorter the time span, the more tactical, the longer the time span, more strategic. HR at S-III maintains a 12-24 month outlook, HR at S-IV maintains a 2-5 year outlook. We still call it HR, but the roles are very different. There are three challenges for the HR professional in search of the context for this S-IV role.

The first challenge is to get beyond the annual strategic planning retreat, because most annual strategic planning retreats are really tactical planning retreats. To prove this, look at any published action plan from any strategic planning retreat. No goal or objective is beyond 12 months time span.

The second challenge is that conversations have to happen at levels-of-work above S-III. Conversations with managers S-III and below still arrive at tactical issues less than two years time span. So, this conversation has to happen with S-IV managers and the S-V Business Unit President.

The third challenge is the futile reference to the company’s strategic documents, Mission and Vision statements. As they exist, they are rarely helpful, mostly filled with Pollyanna statements about premier providers and exceeding expectations. So, yes, we have a problem.

Most small to medium size companies don’t think out 2-5 years, at least, not very clearly. Specifically related to HR, here is a short list of S-IV workforce issues.

  • Aging of the workforce, succession planning at all levels of work, 2-5 years.
  • Workforce trends of generational transitions, boomers, Xers, millennials, 2-5 years.
  • Impact of technology on workforce, 2-5 years.
  • Market scarcity of workforce, 2-5 years.
  • Wage management, 2-5 years.
  • Skills training of workforce, 2-5 years.

A funny thing happened during the last recession in some construction markets. As constructions projects slowed and finished, with no new backlog, foreign workers returned home while others discovered air conditioning. Now, as construction resumes in a growing (albeit slowly) economy, there is a shortage of direct labor. Market scarcity of workforce is driving up wages for work inside fixed amount contracts. This is an S-IV HR issue.

Business models are shifting. McDonald’s built into their business model a young transient workforce. Using automation and with an emphasis on training, they were able to constantly recruit first-job employees with the knowledge that employee was going to leave in 1-2 years to their second job or college. Now, McDonald’s is faced with a work-force that chooses life-long employment in the fast-food industry, demanding a minimum wage of $15 per hour. This is an S-IV HR issue. McDonald’s is already testing self-serve kiosks to replace some of their fast-food workforce.

Technology is replacing labor. Robotics replace welders. BIM (Building Information Modeling) reduces labor hours, at the same time requiring new skills to run the software. This is an S-IV HR issue.

John Donovan, Chief Strategy Officer and Group President of AT&T Technology and Operations describes AT&T as a company with very little turnover, 3rd generation employees, now facing competition from Google and Amazon armed for war. Basic math tells them that “ten-thousand employees are behind the curve, about 50,000 are about to be behind the curve, and in the next 24 months another 20,000. 80,000 employees are in an alarm state of need to change.” That is an S-IV HR issue.

Greg Coppelli, CEO, Apollo Education Group says that most organizations who spend (billions) recruiting talent see an ROI on that effort less than 50 percent of the time. That is an S-IV HR issue.

Here are some HR S-IV questions to ask.

  • What do we see happening in our market over the next 2-5 years?
  • If we do nothing to respond in the next month, what will happen?
  • If we do nothing to respond in the next year, what will happen?
  • If we do nothing to respond in the next two years, what will happen?
  • If we do nothing to respond in the next five years, what will happen?

How to Spot Micro-Management

Joyce was thinking about her team. Things were not a disaster, but not running too smoothly. There was a friction in the team that was beginning to take a life of its own.

“I have been watching Phillip,” she started. “It seems he is struggling with his job as a supervisor, but it’s hard to tell. He has his good days, but not too often.”

“How would you rate his performance?” I asked.

“Well, that’s pretty easy to see. He is always late with stuff and it’s never completely done the way it should be. And then, when I go to talk to him about it, I can’t find him.”

“Is he in the building?”

“Oh, yeah, he will turn up, but it’s like, he was two hours down in receiving, he said he was organizing the place. Now, I know the place needs to be organized, but he was doing it all alone. He was not out here, supervising on the floor, where he really needed to be. The receiving guy should be doing the organizing in receiving.”

“What do you think the problem is?”

“Well, even though he is a supervisor, it seems he would rather be doing lower level-of-work stuff. Some of his team members even accuse him of micro-managing.”

“So, what do you think the problem is?” I repeated.

“It’s like he is in a role that he doesn’t even like, and probably in over his head,” Joyce concluded.

“And who put him in that spot?”

Joyce turned her head, looked at me sideways. A bit of a smile, a bit of a grimace.

How Big is Your Story?

Sitting across the table, I could tell Brett was thinking.

“Brett, let me ask you, how big is your story?”

“What?” he replied.

“How big is your story?” I repeated. “You are building a department inside this company. How big is your story?”

“Well, the company has been pretty successful, so far. We are holding our own against competitors. Lots of market opportunity.”

“So, how big is your story? You see, Brett, the bigger your story, the higher the level of work. The higher the level of work, the more you will depend on finding competent people. The most important decision you will make, as a manager, is who to hire. The people you hire will make you successful or will be the crucible of your downfall. The bigger your story, the more critical this decision.”

Brett continued to stare.

“As a manager in this organization, you are writing a story of the future. The people you cast into the roles of your story will determine its ending, intentional, or otherwise.”

Keep Them or Transition Them Out

From the Ask Tom mailbag –

In an attempt to retain their highest producers, a call center instituted an incentive plan that highly favored a group of seven. These “Magnificent Seven,” as the partners called them, did produce a high percentage of the revenues. But they were also highly dysfunctional as a group as each one was high maintenance with lots of personal baggage in his/her own right. While the reward system worked to retain these seven, the churn rate for the remaining 23 seats was over 400%. In effect, the incentives to retain seven people came at the expense of morale, work environment, job satisfaction and even the bottom line. The cost of continuously replacing the 23 employees far exceeded the benefit of retaining the seven. Your thoughts?

So, if I was a direct manager and needed high volume sales for only the next three months, I would go the M-7 every time. But, that is not the way most organizations work. Most organizations need sustained revenue over years and decades. Most organizations need a sustainable system of sales which contemplates sales methodology, recruiting, orientation, portfolio growth, levels of work, promotion and retirement. This goes back to time span.

Three months time span – Magnificent Seven
Ten year time span – Not the Magnificent Seven

Difference Between S-II and S-III Problem Solving

From the Ask Tom mailbag –

The manager understands he is accountable. The result he achieves on a key metric is well below the expectation which he or she clearly understood. They have achieved success before on this same metric but are now way off acceptable performance. What now?

Indeed, what now? Embedded in your question are stratum II descriptions of problem solving.

  • Solve problems based on experience.
  • Solve problems based on documented experience.
  • Solve problems based on best practices.
  • Solve problems according to standard operating procedures.

All of these methods have delivered output according to the metric before. They achieved success before on this same metric, but now, are way off acceptable performance. What now?

They now face a problem they have not faced before and their stratum II problem solving methods fail them. Understand this team can solve all the routine problems, but now faced with this problem, they struggle, even the supervisor. This is where the stratum III manager must step in. This problem requires a stratum III solution.

  • Solve problems through root cause analysis.
  • Solve problems through A-B testing.
  • Solve problems through comparative analysis.
  • Solve problems through what-if?

Solving problems with these methods requires a higher level of capability on the part of the manager. And that’s what a manager is for, to bring value to the problem solving and decision making of the team.

Team members can solve the routine problems and make the routine decisions, it’s when they struggle, they need the active support and coaching from their manager. This is the critical nature of managerial accountability and the building block of organizational structure.

How HR Can Help Resolve a Conflict

From the Ask Tom mailbag –

I have a question about how to resolve conflicts between a manager and a team member. Is this a role that is appropriate for HR, or should the conflict be resolved by the MOR (Manager Once Removed)?

I am a big fan of the HR role. HR roles help bring discipline to all those functions that involve humans. And, many times, our problems are created by a lack of discipline.

  • Lack of discipline in the hiring process
  • Lack of discipline in context setting
  • Lack of discipline in the delegation process
  • Lack of discipline in the planning process
  • Lack of discipline in project reviews
  • Lack of discipline in effectiveness reviews

And, where HR can help in discipline, accountability still rests with the manager and the MOR.

You asked about a conflict between the manager and the team member. In all situations, I need more detail, but I assume most conflicts would be about work method or priority conflict. In some cases, there may be a conflict related to underperformance or misbehavior. In all cases, it is still the manager and the MOR who are accountable for resolving the conflict.

If the conflict is about work method or priority conflict, the team member is accountable for giving best advice. The manager is accountable to consider the advice and make an appropriate decision. If the two are still at loggerheads, the manager should seek advice and coaching from their manager (the MOR). Either manager can seek advice from the HR professional, but the manager and MOR are accountable for the decision and the consequence of that decision.

If the conflict is about underperformance or misbehavior, the discussion is different, but the accountability is the same. Elliott Jaques always traced underperformance or misbehavior to one of these four absolutes –

  • Capability
  • Skill (technical knowledge and practice)
  • Interest or passion for the work, value for the work
  • Required behaviors (contracted behaviors, habits or culture)

Elliott would also expect the manager to know which of these four absolutes contributed to the underperformance or misbehavior. The underlying cause might lead to more training, coaching or de-selection.

No matter the resolution, while HR can assist in the discipline of the process, the accountability remains with the manager and the MOR.

Twelve Months From Now

I repeated my question. “What things do you need to pay attention to, that will have an impact one year from now?”

“This company is pretty stable in what it does,” she replied. “We may replace a machine or our volume might go up or down. But what really changes, is the people. You never know what is going to happen with the people.” Melanie’s mind began to race like she had just discovered uranium.

“You’re right,” she continued. “The biggest thing that always changes, is the people.”

“And even if the people don’t change, the people change. Even if it’s still the same people, they are not the same people.”

Melanie’s discovery of uranium was shifting to panic. This new world that opened up just a few seconds ago, suddenly got very scary.

“So, I am responsible for knowing that, a year into the future?” she asked.

I nodded.

Watch for the release of our online program – Hiring Talent 2016, scheduled for Jan 15, 2016.