Archive for the ‘Economic impact’ Category

Is quality the cheapest option?

November 1, 2013

Some of us instinctively think quality products should cost more. But by removing the costs of nonconformity, quality products actually cost less to produce. Nonconformity, by the way, is a failure to meet the requirements including the requirements of customers. Some managers pay the price of nonconformity instead of making quality a reality for employees and customers.

At the normal 2 or 3 sigma, the price of nonconformity is 40% of turnover. Many times the level of profit for most organizations. Leaders may not need to measure these avoidable costs to eliminate the causes of failures to meet requirements from their systems. They may even help their suppliers to remove these avoidable costs too.

But more product verification will not help because it is too late. Inspection or testing merely sorts bad product from good product. Therefore, verification of the product is part of the price paid for failing to design capable processes. Capable processes are validated to result in products that need no inspection or testing.

Accordingly, we work to make sure our organizational management systems help employees and suppliers to add value for each customer. Adding value faster while preventing loss sooner. Having prevented nonconformity in our goods, we should also design the service part of our products so we avoid paying the price of service nonconformity too.

Leaders, who choose to avoid paying the price of nonconformity, invest in their process-based organizational management systems so more work is right the first time. They discover that buying and delivering quality costs a lot less than the alternatives. What’s more, in markets, where quality rarely is delivered, customers may be willing to pay a little more to have their requirements fulfilled exactly.

Even so, “quality is free” because it is cheaper to buy and deliver quality than not. Here we see the cost of quality at its lowest when the product exactly meets the requirements of the customer:

Earlier versions of these cost of quality curves mistakenly showed costs tending to infinity with perfection. The old curves showed perfection is not quality. Thankfully, in 1999, these curves were corrected to accord with reality and Crosby’s 1979 definition of quality. Of course, by then Taguchi had also showed that any deviation from the requirement increases costs to society.

In summary, managers of quality prevent nonconforming products to assure quality and satisfy customers. They govern their organizational management systems for creating more successful customers by making and keeping more competitive promises. Tomorrow’s managers of quality will also be focused on sustainability for all by creating more successful stakeholders.

As we can see, designing and producing quality remains the cheapest sustainable option.

Sustainable Efficiency

October 8, 2013

“Designed in California and Made in China” or “Designed in Cambridge and Made in China”.

What do these source declarations reveal? Do they show the companies optimized their inputs for sustainable outcomes to create stakeholder success?

Efficiency can be shortsighted and remorseless. Since the 1980s, developed economies have exported jobs to take advantage of much lower wages. Outsourcing to factories based thousands of miles from customers in the name of efficiency. Considering only the wage costs and the transportation costs can result in half-baked decisions to offshore manufacturing.

What could go wrong? Chasing efficiency with incomplete reasoning is not true efficiency. Sustainable efficiency is much more complicated. Sustainable organizations work to ensure their business networks to address the needs of all stakeholders.

The Raspberry Pi Foundation soon found their costs were higher than they had hoped. Their shoestring venture had to make and sell 10,000 computers at $50 each before ordering another 10,000 units. So many units had failed to meet requirements that the Foundation had to pay for quality control oversight in China to get computers as designed. Nonconformity costs had threatened to sink the fledgling venture.

The Cambridge-based Foundation went back to the drawing board to continue their reasoning and costing including the nonconformity costs. They then opened a Raspberry Pi factory in Britain. Run by Sony, British workers are expertly baking these tiny educational computers in Wales.

The Foundation has now sold 1.75 million basic little computers but it cannot stop improving. The educational computer outstrips the computing and programming skills of their teachers. Many of whom have not ventured far beyond their tablets or packaged software programs.

By engaging more stakeholders to understand their needs, we may see a sustainable future for the Raspberry Pi enthusing future engineers of computers, software and the web. Moreover, failing to recognize and meet stakeholder requirements the first time will probably decrease overall efficiency.

Thriving instead of just surviving

July 4, 2013

Thriving companies make effective use of resources to create successful customers. Zombie companies earn just enough to pay the interest on their debts. Low interest rates allow zombie companies to exist without investing in new products, processes and their management systems. As interest rates rise, the zombie companies will disappear unless they act now.

How do companies stop surviving and start thriving in this economy?

Refocus on your mission:

Your company’s mission is the reason your company exists. It is the system’s purpose. Cutting everything by 20% or more may be instinctive but without regard for the mission, it will put the system, your company, into a death spiral.

Instead, be creative. Your core process (from customer needs to cash in the bank) is mission critical. Determine the vital few changes that will yield most of the efficiency improvements.

Study your marketing and selling process. Perhaps you can go viral via social networks to explain clearly how your company creates successful customers. Study your innovation process. Do you fully understand, from the customer’s point of view, each of their objectives? Then design creative solutions with superlative service (see below) to help each customer to fulfill their objectives. Sell the value as seen by each customer but do not cut prices. Use your management system to improve efficiency and reduce costs but do not offer discounts.

Superlative customer service:

Companies often focus their management systems on tangible goods. Indeed, for nearly three decades, accredited registrars have encouraged their system certification clients to ignore their service design processes!

Leaders know that superlative customer service can influence each customer to buy on value instead of price.

Study your product design process. Ensure it designs the whole experience the customer has with your company. Engage your employees in the redesign of their interactions with customers by analyzing the customer’s experiences as they are. Agree upon the service changes so they are as they should be from the customer’s perspective. Make this new process part of your management system by changing the affected processes such as training, selling and maintaining the computer network. Continually improve the customer experience with your management system.

By engaging your employees in the redesign of their interactions with customers, you inspire them so they help your company to thrive again.

Playing our part in value networks

December 22, 2012

Stakeholders may dream of having their requirements satisfied by the organizations that affect them. Some politicians and NGOs say the stakeholders have the right to have their requirements fulfilled. Others say that stakeholders, who can, should earn that right. It is intensely political as the forces for “equal opportunities” fight the forces for “equal outcomes”.

Organizations can understand themselves as systems and then develop their process-based organizational management systems to enable workers to add value faster and prevent loss sooner to benefit all stakeholders. They reward employees for working to benefit customers so employees can look after their families, their communities and themselves.

Businesses network and these networks comprise many different organizations so they are complex. Members may organize themselves to become a value network. Organizations are the nodes in the value network. Each node interfaces with other nodes that use contracts to govern their relationships as customers and as suppliers. Building, supporting and running a value network requires transparent, voluntary, consensus standards. Some of these standards specify more reliable management systems. Organizations develop and use their management systems to govern their work. They may even show they are ethical and competent enough to join and remain members of the value network. Once a supplier promises a standard, customers may use contracts to enforce even the voluntary standards. Organizations can and do impose strict selection and re-selection criteria on the members of their value networks.

Of course, the leaders and managers of the value networks and the organizations that comprise these networks should personally be transparent and accountable. However, to encourage risk taking to generate wealth, the individual decision makers are largely protected by their organization becoming the person accountable in the eyes of the law.

This separation of the organization from the people that run it creates mistrust. How then are customers confident enough to do business? Personal relationships count for a lot in making and accepting promises. The organizational management system helps salespeople and sales processes to make and keep competitive promises for their customers.

Customers and other stakeholders rely more and more on the law to protect them from poor decisions and broken promises. Organizations can see the rules are changing and want to stay ahead by broadening their duty of care to include customers, employees and communities. Indeed, the 2006 Companies Act in the UK reminds company directors of these wider duties.

Now we see companies climbing on the long bandwagon named “Sustainability for ALL Through Being Socially Responsible in Everything We Do”. Even if it were available, ISO 26000 certification would not “prove” social responsibility or sustainability credentials.

Instead, organizations have to perform to prove their heads, hearts, decisions and actions are socially responsible to their stakeholders. Stakeholder trust may then grow from websites that truth-check the social responsibility and sustainability claims of any organization. Indeed, stakeholders may fund these websites directly or indirectly.

Instead of publishing socially irresponsible versions of “greenwash”, may we see more leadership by global companies benefiting their stakeholders wherever they operate?

Productive work creating prosperity for all

September 11, 2012

Can we live within our means without robbing future generations of their livelihoods? Yes, by productive work within process-based organizational management systems that eliminate causes of waste, assure quality and assure social responsibility for sustainability.

Process-based organizational management systems, driven by lean sensibilities, enable the people who work within them to add value faster and prevent loss sooner. Productive work adds value to metals, plastics, soils, food, people, data, information etc… That is to say confident customers will happily pay a lot more for the output than the cost of all the inputs. Supported by a management system, work may increase the value of inputs tenfold or more. Some of the increase in value pays for sustainable design, production and delivery. The increase in value also pays for the facilities, investors, money lenders (or partners) and taxes. That leaves the employees who use their share to look after their families, their communities and themselves.

However, countries and their citizens cannot prosper by enabling their people to polish each other’s shoes. Nor can they rely on their citizens continuously shopping for stuff. Nor should they print money willy-nilly. Countries must compete or cooperate on opportunity and quality to export more and earn new money to invest so their citizens can feel secure and confident enough to invest, work, study, play and enjoy family life. Therefore some nations’ taxpayers invest in healthcare, infrastructure and education (especially in the sciences and engineering) to enable thriving enterprises to protect the environment while adding a lot more value for global markets. This way inventors and entrepreneurs are encouraged to solve problems that create wealth and well-being through more value adding work.

Trade imbalances vary according to the relative productivity of each trading nation and that influences the value of each country’s currency. Sharing low value adding work with other countries may result in less inequality globally between countries. Enabling customer countries to make what they would otherwise import could more responsibly improve sales (such as making Range Rovers in Saudi Arabia). Devaluing currency is widely seen as a sign of economic failure but may be temporary to boost exports.

In the eurozone we see the results of nation states affected by these economic facts of life while, unfortunately, sharing the same currency. Germany invested long term and sold its products all over the world. People living in the ‘club-med’ region bought these imported products with cheap borrowed money, instead of earned money, or in place of privatizing and paying taxes to invest in creating more value themselves. Consequently, regions that largely comprise government workers, food growers and hosts of tourists are not adding enough value to compete with “Vorsprung Durch Technik”. Years of nonproductive work, easy money and underemployment are now having their tragic consequences on the lives and fortunes of ordinary people.

Process-based organizational management systems are used to make work more productive in farming, education, training, purchasing, design, production, delivery, operations, maintenance, government, and recycling. Just about every enterprise can benefit or suffer consequences of not providing the means for teams to determine and fulfill requirements. Without process-based management systems we see silos of like-minded individuals trying to keep their bosses happy instead of earning the confidence of customers and other stakeholders. Occupying jobs instead of working productively for customers is a road to ruin. The future may see food producing countries, coupled with government reforms and the removal of subsidies, earning enough for a positive balance of payments with their trading partners. Apart from the adverse and beneficial effects of global warming it all depends on the quality delivered and value added by work of farmers aided by animals and then machines. More productive farmers tend to result in farmhands becoming factory workers adding value to other materials thereby earning more dependable incomes.

And today marks another painful anniversary of four evil acts never to be forgotten. Nations enjoying a temporarily bonanza in non-renewable resources may invest in healthcare, infrastructure and education but some do not oblige their young men and women to work for a living. Wherever the idle live, if they don’t feel loved or are taught they are superior, they may harbor hate for strangers or colleagues. They may even choose work that adds no value and destroys life and lives. Hopefully the reawakening of the people will restore wise leadership, respect for others, productive work and leading-edge science and other important human endeavors.

Sustainability, from being socially responsible in all that we do, can prevail if all nations prepare. Visionary leaders prepare people for the era beyond the loss of abundant natural resources. They enable work to increase value while conserving resources. They cooperate internationally for justice so more people have a chance to work for a secure living. They encourage cooperation and responsible competition. Their example makes us want to volunteer, to contribute to the arts, and to invest so we prosper more equally and sustainably with time for play and well-being from our productive work.

Accordingly, all organizations in government, not for profit and commercial sectors are well advised to develop and optimize their process-based management systems so workers help each other to fulfill stakeholder requirements while removing all work and waste that does not add value for all.

Some effects of globalization

August 7, 2012

Well managed economies of countries that are rich in minerals and low-cost labor grow while even relatively well-managed economies lacking in these resources struggle.

The manual workers who add value to land and materials prosper in the countries with less developed economies while manual workers struggle to continue to prosper in developed countries.

Initially it is the service workers who add value to people, ideas and data who are more likely to prosper in the developed countries.

Consequently, we’ve seen the gap between rich and poor widen within the developed economies even if we see more equality globally between countries.

Better education, training and management systems enable more people to prosper from their work. The nature of the work will change for those who are prepared for the changes. Whatever the work, process-based management systems can enable work to add value faster and prevent loss sooner.

But as delivery distances become more costly and with the better management systems we can expect the return of more manual work career options so products are made in smarter ways and so they are made closer to customers.

Learning and earning our way out of borrowing too much

November 12, 2011

The slow economy is a crisis for individuals, families and communities in many western countries. For a decade or more, many western economies have borrowed more than they have earned. Politicians now have to reduce public spending to avoid borrowing even more money. Reduce spending to keep the interest repayments down on what our country has to repay every month.

Yes, our credit bubble was made much bigger by banks slackening their credit controls to sell more and more loans to us (and to buyers of the loans). Politicians are more likely to allow inflation to erode our debts (by “printing” unearned money and allowing the currency to devalue) while we wait for them to create jobs. Inflation would also erode the value of our work and any savings we have left.

In seeking a living wage, all of us need work that adds enough value for all to be rewarded so all can look after their families, communities and ourselves? Therefore potential earners need help to measure the sustainability of their behaviors, skills and knowledge (competence). Providing jobs for incompetent people or insufficient competent people gets us nowhere. Schools, colleges and companies all have role to play in enabling the skills and knowledge of workers to add enough value for viable careers, fruitful families and successful communities.

Some politicians have had the honesty to admit that recovery will take ten years. We need at least as much time to repay as it took us to borrow the money we had not earned. Changing what we do to ensure our work adds value faster means we can also repay our debts faster.

Or are we waiting for politicians to create jobs?

Work, not jobs, is the key. Jobs are a departmental concept. Jobs occupy functions to further careers and claim bonuses. Jobs like this add no value for customers. Jobs like this put us deeper in debt. Better to determine how our work adds value. In both the private and public sectors, our work has to add value for customers (includes taxpayers) who are able and willing to pay. Our cross-functional work can add value faster to earn more for all of us.

Our work becomes meaningful in process teams as together we create more successful customers.

First we have to understand our processes. Then we need to be competent, applying our skills and knowledge within these processes for the benefit of customers. But far too many skilled and knowledgeable people work in departmentalized organizations that waste 40% of their efforts to serve customers. Two days a week on rework, pointless work and repair. Too many organizations neglect their cross-departmental processes for adding and enabling value. In short they neglect their process-based management systems.

How can we improve the economy for ourselves, our children and our communities? Process-based management systems can make everyone’s work more effective and then more efficient. Management systems can help all of us to determine and fulfill the needs of our customers. Process-based management systems that are self-improving so they help us to prevent loss while speeding the rate at which our work adds value.

All of us can create sustainable and satisfying work lives so we earn our standards of living.