Tag Archives: systems

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.

Alligators Take Over

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From the Ask Tom Mailbag –

Question:
I would love to get more information on how to beat back those Alligators! What happens when the Alligators are taking over?

Response:
This is where the role of the Manager becomes truly important. The people who do production work (Strata I) can only work harder. The people who make sure production gets done (Supervisor, Strata II) can only organize the chaos (also known as straightening the deck chairs on the Titanic).

The role of the Manager (Strata III) is to analyze what is causing things to be overwhelming and out of control. This is system work.

Stop and think. What is the cause?

The most useful tool I know of is a long roll of butcher paper (available at any restaurant supply store). Roll it out and tape it on the wall. Create a flow chart of the essential steps necessary to do the work that is required. We are talking circles, boxes and triangles connected by arrows, cause and effect. Step One, Two, Three and Four. Then, for each step, ask why we are doing that? Is that in line with our senior purpose?

This exercise will expose unnecessary steps or activities that simply do not add value to the process. Get back to the fundamentals, do only those things that are truly essential.

Draw flames around the hotspots, the burning platforms. Are instructions clear, is there a hand-off missed? This is system work.

Whose System Is It?

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“You were right,” Byron admitted. “I took a look at the system. The ten percent reject rate was caused by a small burr on a threaded plastic part. The part didn’t seal right and the cylinder wouldn’t hold the pressure.”

“So, your team could have worked harder, stayed longer, given it all their might and the reject rate would have stayed at ten percent?” I floated.

Byron nodded. “I was sure it was the team. I am actually sorry I yelled at them. They just seemed down in the dumps, lackadaisical, you know, unmotivated.”

“Why do you think they were down in the dumps?” I pressed.

“Probably my fault. They were, in fact, doing their best. I thought their best wasn’t good enough. I was too quick to lay blame. In the end, it was my fault. I ordered some surplus parts from another vendor. Our original supplier was so good, we only sampled one in a hundred parts in receiving, they were always good. The new vendor parts had a 50 percent failure rate, but the samples we pulled, one in a hundred, didn’t pick up they were out of spec half the time. It was the system that allowed the failure rate.”

“And, whose system was that?”

Byron almost choked, but managed to get it out. “Mine.”

Somewhere in the System

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“I know I am accountable for the output of my team, but we still have a ten percent reject rate. If my team would just try harder, the reject rate would come down,” Byron protested.

“Really? Just try harder means what?” I asked. “You told me your team was doing their best. Are you telling me, now, that they are not doing their best?”

“They seem a little down, discouraged. I know I have been on them. We need a 100 units of production each day and with a ten percent failure rate, that means we have to run 115, on average, to get our 100. If they would just try harder, they would get there.”

“I am going to make an assumption,” I said. “I am going to assume that your team shows up every day to do their best. If your team is doing their best, then there is something else in your system that is causing the failure rate. You are a smart guy. Get a big white board, draw out your system, get your team together and find it.”

Operations and Command and Control

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“If only life and business were that simplistic,” Scott said. “If you work in operations then your job is about commanding and controlling the time, labor and technical resources towards an agreed output. For the jobs in operations, your vision makes sense. But, I think it is only a functional perspective, not a universal one.”

“You seem to think that operations is all about command and control,” I replied. “It sounds a bit mechanical. Tell me more.”

“Operations is operations. Pretty cut and dried. We have defined processes inside efficient systems. Line up the people, line up the machines, line up the materials. Pop, pop, pop. Predictable output. Yes, it is a bit cut and dried.”

“If that is all there is to it, then why don’t we have robots do all our work?” I probed.

“In some cases, we do,” Scott raised his eyebrows in a subtle challenge.

“Yet, even in the midst of defined processes and efficient systems, even in the midst of robotic welding machines, we still have people engaged in operational work. And in that work, as defined as it is, aren’t there still problems that have to be solved and decisions that have to be made?”

“Well, yes,” he nodded.

“So, inside a process you describe as command and control, there is still discretionary decision making?”

Scott continued to nod.

“So, it’s not all neat and pretty,” I said. “Not all tied with a bow. In fact, some days, the work gets downright messy. Even mature processes are subject to variations in material specs, worn machine parts, delays in pace. Command and control short-changes the discretionary judgement required to effectively operate a well-defined system.”

Inspired by a comment posted to Responsibility, Accountability and Authority

Not Enough Time

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“I gotta get something off my plate,” Adrian shook his head. “I am so busy, I just don’t have time to get everything done.”

“Busy?” I asked. For me, busy is a code word, a clue, that there is a mis-match in level of work.

“Yes. Busy. I get here early to catch things up from yesterday, make some headway on one of my projects, but about 7:30, the chaos begins.”

“Chaos?” I asked. For me, chaos is a code word, a clue, that there is a mis-match in level of work.

“Yes. Chaos,” Adrian replied. “Unsolved problems from yesterday. Yesterday’s decisions delayed until today. It hits my email, it hits my text messages, it hits my phone, it walks through my office door.”

“So, you think you have a problem?” I clarified. “And, if you could get something off your plate, you would have more time? And if you had more time, you wouldn’t be so busy? And if you weren’t so busy, there would be less chaos?”

“That’s it,” Adrian agreed.

“Then, why did you start coming to work so early?” I probed.

“Because I was too busy during the day. There was too much chaos during the day. I couldn’t get anything done,” Adrian was frustrated with his circular problem.

“So, you came to work early to get more time, but you are still too busy and there is still too much chaos? Do you think not-enough-time is really the problem.”

The Go-Go Stage

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“That which does not kill you, makes you stronger,” Jim Dunbar grinned. “Our momentum told us we were not likely to die, at least not in that fiscal year,” he said. “We were invincible. So, I signed a lease on the second plane.

“Passenger loads picked up, and I had to hire more people. And that led to a predictable stumble. There was no rhyme or reason for the way we did things. We survived on our tenacity, but our tenacity began to fail us. My wife described our behavior as improvisation. Invincibility and improvisation make for a toxic cocktail. We over-promised, extended our thin resources.

“I remember our first overbooking. We had more passengers than seats. I looked at my schedule, figured we could make the run to Denver, flip the aircraft around and come back for the other group. For some reason, we thought the stranded passengers would wait the four hours. But, a weather system moved in. In spite of our promises, we never made it back, and missed another flight leg with a scheduled full plane.

“To say we flew by the seat of our pants was an understatement. But, at the time, I figured that my team practiced for months. We successfully flew one plane, how difficult could it be with two planes?

Excerpt from Outbound Air, Levels of Work in Organizational Structure, by Tom Foster, now available on Kindle, soon to be released in softcover.

Outbound Air

Where’s the Problem?

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“I don’t understand,” Abby lamented. “I have been working with the sales team for the past six months. We had an increase in sales volume almost immediately. But, after three months, sales began to trail off. I have all the data, here in front of me. The team is making the calls, following the process, but we aren’t getting the orders we expected.”

“What feedback do you get from the sales team? What are their reasons?” I asked.

“That’s the worst part, they just want to blame someone else,” Abby was mildly irritated. “They are blaming the shipping department, of all things.”

“What about the shipping department?” I pressed.

“The sales team says the shipping department isn’t doing their job according to the delivery schedules.”

“And what does the shipping department say?”

“Seems like everyone is in blame-mode. The shipping department says they can’t get orders out of the production department. And the production department is blaming everything on a machine,” Abby replied.

“Tell me about the machine.”

“It’s old and only goes so fast. Work stacks up in front of it, but we can only get so-much output, and it’s running three (8) hour shifts. We would buy another machine, but we have no place to put one and it costs $250,000.”

“Let’s look at the sales orders placed in the first couple of months of your program. What is this list of back-orders?”

“That’s what the sales people are talking about. Their sales orders turned into back orders and their back orders turned into cancelled orders. Now they can’t seem to get new orders.”

“Tell me Abby, how might you be able to connect a slow machine to orders, back-orders and cancelled orders over a six month period? Think about how one system impacts another system.”

Working on the People System

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“You are right,” Kristen relented. “I really am too busy. My priorities are focused on short term fires. I feel like all I do, all day long, gets consumed with management issues and keeping people motivated. I don’t have time to work on basic stuff like writing role descriptions. When I look at doing that, it is so far down my urgency scale, I almost think writing a role description is silly.”

“What would be the payoff?” I asked.

“The payoff? I can’t even think about the payoff. I could write a role description and then I would have a role description, but I would be further behind dealing with all the crap,” she explained.

“Kristen, you are not unlike most managers,” I nodded. “If you could truly focus on getting the right people, most of the crap you deal with would largely go away. Stop working on crap and start working on systems. Your life will only improve when you start working on systems. And the most important system is the people system.”