Archive for the ‘Continual improvement’ Category

Risks and innovation

January 19, 2014

In 1979, Daniel Kahneman and Amos Tversky won the Nobel Prize for Economics for their “Prospect Theory: An Analysis of Decision under Risk”.

This theory shows that we prefer certainty to taking a risk. We see this on auction sites where the “Buy It Now” price is often much higher than the price of similar items sold by auctions. The BIN price may influence the bidding but it is for those of us who are willing to pay more for certainty.

Stable, well-established organizations tend to be risk averse. They place great value on their stability and choose continual improvement instead of innovating. Indeed, most organizations with process-based management systems continually improve their goods, services and processes. Some also go beyond development to design something entirely new.

Sustainable organizations do both; they continually improve and they innovate to find new ways of fulfilling their missions.

Successfully managing risk implies formal largely predicable processes. Being innovative tells us that selected team members interact in an informal free-thinking “sandbox” of collaborative effort. How do process-based organizational management systems help their leaders to manage innovation and the risks inherent to innovation?

First, let us never forget that effective process-based management systems deliver a valuable resource: time. By preventing problems, the management system substantially reduces time wasted on firefighting. The organization has time to innovate. Secondly, remember the leaders who serve to lead. Such leaders remove causes of fear from their systems. Their words and actions earn trust by selflessly taking responsibility for helping employees to understand and fulfill stakeholder needs. In this supportive environment, noble causes can stimulate innovation to find new ways of creating successful stakeholders.

The leader challenges and authorizes the special innovation team that comprises accomplished problem solvers. Unlike capable processes, innovating requires the leader’s patience and to expect to “fail” many times. Of course, knowing what does not work is not really a failure. And so-called failures may be successful in completely unexpected ways. Think Post It Note®.

Innovative teams comprise a mixture of different types of people with a wide variety of talents. Instead of endlessly talking, the team creates prototypes as soon as possible. Prototyping a new service may require a focus group. The team allows for the fact that focus groups usually comprise people who favor certainty. The prototype must impart value by solving a costly problem.

A shared understanding of the costly problem is a vital input to innovating. In bringing the innovation to market (internally or externally), successful organizations decide which innovations yield the greatest benefit to stakeholders. They determine which innovations have the greatest chance of success. The latter stages of innovating show that innovating is a process that really is design rather than development. It is a process that includes such risk assessment techniques as SMEA (Success Modes and Effects Analysis) and FMEA (Failure Modes and Effects Analysis) before verifying and then validating the design.

Of course, risk has an upside. Nevertheless, risk managers tend to manage risk to avoid loss instead of managing risk to add value. Prospect Theory can help them to understand this. By fully appreciating risk, we recognize and manage both the downside and the upside of our decisions including our decisions to innovate.

In responding to a recognized adverse risk or threat, we use our management system to avoid, accept, transfer and mitigate aspects of the threat. Similarly, we respond to a recognized positive risk or opportunity by using our management system to share, enhance, accept and realize the opportunity.

Knowing Kahneman and Tversky’s Prospect Theory, we can dissolve the fear that would otherwise stop us from making difficult investment decisions. Organizations can enjoy the thrill and rewards of innovation by recognizing the value of taking positive risks that are essential for sustainable organizations to create even more successful stakeholders.

Effectiveness, value then efficiency

December 10, 2013

All of us have a responsibility for achieving more with less. To be more efficient, we experiment to see what works for customers, what nearly works and what does not work.

Organizations should start by studying themselves as systems. Once their leaders understand how their system helps employees to fulfill their mission or not, they think and work differently. They start their efficiency improvement cycles by developing their management system to drive their processes through the walls of silos to focus on customers. Then they can focus on improving the system to deliver what customers value.

Given an environment that supports such thinking, together with our colleagues, we start the experiment by studying customer demand, what customers’ value and waste. We may then set ourselves a hypothesis to test the best way to satisfy value demand and reduce failure demand. We carefully work to our new or updated procedure to see if it is effective. We try again until successful. We institutionalize the successful new process so others in the system can depend on it. This also enables us to improve efficiency further with another cycle of improvement.

Improvement often starts by eliminating the local causes of problems from a process. Perhaps by mistake-proofing the riskiest processes too. But, after several improvement cycles, we find the wider system has the greatest impact, both adverse and beneficial, on our process. System-wide impacts come from other processes in the system. These impacts include the shared organizational beliefs (or culture) that leaders reinforce or weaken with their processes.

When the continual improvement cycle is effective it continues to make the system and its processes more efficient. The speed of this investment should be a result of the calculation of risk and reward on behalf of investors who share the mission for customer value. The management system should deliver the information needed for these risk-reward decisions from the data collected on what customers’ value.

Conformity is necessary for effectiveness and predictable effectiveness is necessary for delivering value and improving efficiency. Predictable outcomes are a mark of effective processes and systems. “Luck” best describes an organization happening to fulfill a requirement with an unknown process or system.

Start by understanding your organization as a system. How does it help your organization to fulfill your mission? What are the leadership processes? Be prepared to think and work differently. Start your efficiency improvement cycles by developing your management system so it is process-based leaving no silos. Then focus on improving your system and its processes to deliver what your current and future customers value.

How do I develop my organization’s management system?

August 5, 2013

As Quality Manager recognize that your organization already operates according to its management system. Recognize that quality is primarily the responsibility of the people doing the value adding work. Also recognize that an individual’s performance is largely determined by the system in which that individual works.

Understand the organization as a system. Define the scope of the system. Assess its strengths, weaknesses, opportunities and threats. Determine system objectives. Analyze what the organization does with its suppliers and customers to turn customer needs into cash in the bank. Determine the cross-functional key processes from the core process and as necessary to sustain and direct the core process. Assign and brief the process owners.

Analyze or design the key processes and their interactions. Obtain feedback (reality check or feasibility check) from the process teams. Incorporate feedback in the process descriptions (procedures). Correct minor nonconformities within two weeks (and issue corrective action requests for any remaining nonconformity). Train process teams in their new processes and in any new controls for existing processes.

Train leaders to run the management system awareness sessions so employees can see they are committed to requirements coming from customers, regulators and their management system. Have them promise management system performance reports.

Facilitate improvements of the system, its processes and products. Audit the management system for how well it helps employees to determine and meet requirements. Facilitate reviews of management system performance with top management so they initiate the changes necessary for their management system to improve the organization’s efficiency and effectiveness.

Monitor top management’s engagement of employees in the use and improvement of their process-based management system to fulfill the organization’s purpose or mission.

Who is responsible for quality?

June 17, 2012

The top manager is responsible for quality. He or she cannot effectively delegate this responsibility. Quality (good and bad) is the result of the organization working as a system.

The organizational management system exists to help the organization’s employees (and suppliers) to determine and fulfill requirements in creating more successful customers.

Some of the leader’s authority can be delegated to a competent manager who reports direct to them. This person can then:

– Ensure the processes necessary to fulfill requirements are in place

– Respond to suggested improvements to the system

– Ensure the system makes the team aware of customer requirements

– Facilitate actions to improve the system

– Run the internal audit programme to fulfill top management’s objectives

– Recommend system improvements to the leaders

– Report on the performance of the organizational management system

Making this person report to someone other than the top manager may remove the strategic focus on emerging and future customer needs.

Process improvement remains the primary responsibility of each process owner (or their boss). These process level improvements would be coordinated via this person who, instead of being called VP Quality, is the VP Management System.

Without this person the top manager has to do all this herself or himself.

This approach enables all of us to remain responsible for the quality of our work.