Tag Archives: systems

Beyond Limits

“So, you identified a situation that would stress-test your system. Your system is optimized at a certain volume with a standard lead time. Your team has the necessary skills, rhythm and practice to meet the expectations of sales. But, sometimes your system is stressed by the insertion of a large order, additional volume, at an expedited pace, tight timeframe. Your sales department has a sudden interest in this new customer, has overpromised and received your thumbs up, because even you don’t want to disappoint. Your apple cart is about to be turned over. You think if you work harder, dictate some unauthorized overtime, press your team to their limits of exhaustion, that you will be successful.”

Naomi quietly listened, picturing this chain of events. She had seen this before. The pictures in her mind created a simultaneous, imagined tension. Unfortunately, it was a familiar feeling. It was pressure, an undercurrent that occasionally erupted in short tempers, discourteous exchanges in her team, a contemptuous roll of the eyes.

“When all is within limits, things under control, your system within limits, tempers jovial, what could you do with your team, not to operate harder and longer, but differently and more effectively? How could prepare the team to add the occasional variable that leaves the apple cart firmly on its wheels? What can you do today that others won’t, so that tomorrow you can do things that others can’t?”

What Changed?

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“But, this has worked, over and over for the past ten years. I am not sure why this project failed,” Jordan explained.

“First of all, the idea that originated ten years ago is not the same idea that has worked all along,” I replied. “You have modified and tweaked that idea each time there was a subtle shift in its application.”

Jordan was complaining. In this case, at this time, he would rather complain than consider a new idea he didn’t like.

“Each time you tweaked the idea,” I continued, “the shift was so subtle that you hardly noticed. And, your idea worked until it didn’t. Something has changed. Something has changed internally, externally or both. What was it?”

It’s Not Working Harder

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“The difference in the two jobs was night and day,” Caitland explained. “The higher paying job had a better title. Managing Director, I think. The other company had lower pay, a lower title, but the work was more interesting, more challenging, in the end, more satisfying.”

“What was it about the work that made it more satisfying?” I asked.

“The Managing Director job was just that. I managed and I directed. Actually, it was a glorified supervisor position. Very frustrating. I was supposed to make sure the work got done, but I felt like I was putting my thumb in the dike. I could easily see better ways to achieve the goals, systems that we could create to more effectively solve the same problems over and over. But my boss was resistant. He said that creating those systems would be a waste of time, there were always too many exceptions.”

“And why was the other position more satisfying?” I repeated.

“A lot less stress, even though we produced more than double the output of the other company. It’s funny, I never fixed a problem while I was there. I only focused on systems. I would fix the system and the system would fix ten problems. We seldom worked overtime, but were much more productive.”
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As we wind into this holiday season, Management Blog is winding down its publishing year. We will see you in January 2024. Until then, have a Merry Christmas. Enjoy the time with family and friends. See you soon. -Tom

Where is Engineering?

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“Where is engineering?” Sam repeated.

“They never come to this meeting,” Mary replied. “They said it wasn’t a good use of their time, that all we ever talk about is production schedules and complain about the status of our catch levers. They do send someone to this meeting about once a month, but they never say anything, except that they are working on the catch levers.”

Mark, from marketing spoke up. “I do remember them saying they had just about fixed the problem with the catch levers and wanted to talk to marketing about some new packaging, because the new catch levers are going to require a bigger box.”

Larry, from legal, piped in. Larry was always playing on his iPhone during these meetings. “I think I found the name of the company that is competing with our unit. They are located on the west coast, with a distribution hub about 50 miles from here. The Google map of their distribution hub looks like a warehouse with some trucks in the yard. Big trucks. No wonder we didn’t know about them. But, here’s the thing, they have a patent filing on…it looks like our unit, but without catch levers. Their patent is on a sealed unit that doesn’t open.”

Sam surveyed the room. “Thirty days ago, this company was hitting on all cylinders. Every department was spinning perfect. Our marketing click rates were up, sales were increasing, production throughput was stellar, inventory was moving, returns were normal. Every silo in this company was performing as designed. Except for the catch levers. How did we miss that? Where is engineering?”

Excess Inventory

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The good news was that we stumbled on the problem early. Sam arrived in Corina’s office about two minutes after the phone call.

“I thought something was up when I saw the excess inventory down here a couple of weeks ago,” he reported. “I figured there must have been some snafu in shipping that was causing a bottleneck, and I had some fires somewhere else, so I hoped that shipping would figure it out on their own.”

“We figured it out,” Corina chimed in. “We put the over-production in the Fifth Street Warehouse, so we could keep working around here.”

“But, I thought we sold the Fifth Street Warehouse,” Sam interrupted.

“Almost. But I talked to the Real Estate Department and they hadn’t had any serious offers, the listing had just expired and they were actually glad that we needed the space to put the inventory.”

Sam looked especially troubled. “Corina, I need you to gather the data, the real data on what we have in the warehouse, and your current production rates. We need to do some thinking about this.”

It’s Not Your People

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It’s your structure. Peter Schutz (1930-2017), former CEO at Porsche quipped, “the successful companies are those that get extraordinary results from ordinary people.” It’s not your people, it’s your structure.

Structure is the way you think about your company. That includes your business model, who you think your customers are, how you think they use your product or service, why you think they use your company vs a competitor. It’s your structure.

Organizational structure is way we define the working relationships between people. The first level is every person playing their role. The second level is the way those roles work together. It’s your systems. The way we think about roles and the way those roles work together determines the effectiveness of the organization.

Every company has people. Every company thinks their people are special (and they are). It’s the structure that determines the company’s success. Extraordinary results from ordinary people. It’s your structure.

The Necessity of Management

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“Everything seems to change, every day,” Charlotte whispered. She felt the change, but had never said the words.

“Think about this,” I suggested, “if nothing changed in your company, what would your team members do every day?”

The anticipated blank stare pierced the silence.

“That’s right!” I exclaimed. “If nothing changed, they would never do anything different. They would continue to do the same thing they did the day before. And life would be good.

“But things do change, and that is why you have a job as a manager. Think of change as your job security. As long as there is change, you will have a job to do.

“As your customers change, as specifications change, as technologies change, as we find better ways to do things, your job, your role as a manager is to modify your systems and processes to accommodate those changes.

“The more things change, the more your company needs competent managers. Lecture over, last one through the door, turn out the lights.”

Take Your Company to the Next Level – System Platform

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Business platforms help us understand the condition of our business model, its requirements, characteristics, competitive edge.

S-V – Industry platform, where our enterprise competes using industry standard practices.
S-IV – Market platform, where our multiple systems integrate with market systems.
S-III – Single serial system platform, where we see the introduction of warranties as a competitive edge.
S-II – Process implementation platform (of someone else’s system, like a franchisee).
S-I – Product or service platform, where it’s all about the product.

Bob’s Burger was all about the product. Assuming Bob’s Burger is the best burger around, how do you beat Bob? You get more trucks, geographic expansion. And, geographic expansion (more trucks) comes with its own set of problems. The quality of the burger begins to suffer. Raw ingredients scream for a supply chain where there is none, several trucks run out of lettuce. One truck runs its griddle too hot, the burger tastes like shoe leather. Customers expecting Bob’s Truckburger to be as good as the original Bob’s Burger are disappointed. Worse, Bob is in no-man’s (no-person’s) land. Expansion costs money. The unit cost for more trucks and more people are driving up overhead. A little bit of success can create a whole lot of overhead. Bob is everywhere with his new trucks, and, he is struggling. Bob has plenty of revenue coming in, and, profitability is elusive.

How do you beat Bob’s Truckburgers? Move to the next level, the system level. Bob had trucks, but no system. Bob could have purchased a system from McDonalds, Burger King, Wendy’s. If Bob had, he would never run out of lettuce, because the supply chain would be a system with ordering min/max’s. The griddle in each truck would always be the same temperature, calibrated on a monthly basis. Every burger would always taste the same. This is scaling. Scaling requires a system. Scaling without a system is a disaster.

Outside the burger world, you will notice a business model with a system frequently offers a warranty, a promise. A warranty promise without a system is a disaster. A warranty promise with a system yields predictable results. And, for the first time, profitability emerges. If you want to improve your profit, improve your system.

The Second Sea Change

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As the organization moves from Startup to Go-Go, the second sea change occurs. The Startup always struggles with revenue. “Please find a customer to buy my product or service.” And, these first sales don’t even have to be profitable sales, because all the expenses go on a credit card, line of credit, whatever it takes to get the organization out of ground zero.

Every sale for the Startup is a one-off, tweaking the product or service to each individual customer. Those Startups that survive (make enough sales) find that as volume increases, they can no longer treat every sale from scratch, they must institute methods and processes. The struggle shifts from a revenue problem to a profit problem. The shear volume of the successful Startup becomes its biggest problem. A few unprofitable sales for the Startup becomes a staggering amount of red-ink for Go-Go.

And, profit becomes elusive.

The first sea change was a shift from organizing the work around the people to organizing the people around the work. The second sea change is a shift from organizing the work around methods and processes to organizing methods and processes into a system. It is only this second sea change where the organization begins to see its first signs of sustained profitability.

Impact of External Systems

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By the time an organization reaches S-III maturity, its core system is maturing and provides for eventual profitability. At S-IV, the organization sees the emergence of multiple systems and sub-systems (marketing, sales, account management, operations, quality control, research and development, HR, accounting).

At S-V, with maturing multiple systems and sub-systems, the organization has to look outward, to external systems. No matter how well the company is organized internally, it is external systems that impact success (or failure).

Market (External System)
Markets organically shift related to demographics, trends, economic growth or contraction. These organic shifts are sometimes subtle and relatively slow. The relative slow speed allows companies to respond (market response).

Regulation (External System)
Most companies are financially regulated (taxes), some are subject to stringent environmental regulation. During COVID-19, regulation dramatically clamped market demand, by defining essential vs non-essential companies.

Labor (External System)
The US went from record low unemployment to depression level unemployment in a matter of 60 days. Labor is an external system that impacts the way we internally organize.

Finance (External System)
Finance includes institutional debt, credit lines, owner investment, private equity investment. The company believes it should be able to borrow as much money as it has the ability to repay. Banks, on the other hand have these concepts called covenants which require certain internal ratios. Finance, as an external system has an impact on the way we internally organize. COVID-19 shifted credit in some cases to forgivable debt guaranteed by government.

Most of these external systems stand alone, but COVID-19 has brought together a not-so-subtle interplay. The organizations who survive are those who are mature in their internal systems, but also understand the interplay and impact of external systems. Those companies funded in the first tranche of stimulus were those who kicked in applications immediately. Most smaller companies, with immature systems, without awareness of external systems were brushed to the second tranche or left in the cold.

It is the role of the CEO at S-V to ensure both, maturity of internal systems and skilled experience in external systems.