13Jul/16

How can we know the business value from the Management System?

Nytta verksamhetssystem

You know if a Management System is valuable only if it is fully used and the business performance of the organization meets all requirements.

The Management System is a tool that should be used to enable a structured control of a business. We have to measure the value of this tool based on expectations and requirements put on the organization.

The requirements on the Management System should be drawn from the performance needs expressed by external stakeholders. Top management often confirm and clarifies such needs, and set out ambitions for the business, in strategical plans. From such plans we should typically find requirements related to:

  • Customers – How to add value to them.
  • Suppliers – How to cooperate to gain mutual value.
  • Products & services – What shall we offer to the market.
  • Performance – Costs, delivery precision, response time.
  • Flexibility – Standardized offers or customer driven solutions?

Such requirements should be specified in measurable performance indicators. By adding objectives for these performance indicators will it be possible to understand if the business performs as required.

But this is not enough to understand if the Management System add value to the organization. It is possible to have good performance without using the defined Management System. Then this is of no value. The same could be valid if we know that the defined Management System is used, but we have no information if the organization meet performance requirements.

To be able to monitor the usage of the Management System we conduct document controls, quality controls and audits. Doing this one can analyze if the Management System is described to a required level, the level of product & service quality compliance and if it is applied in all relevant part of the organization.

By combining the knowledge from this analysis of the Management System usage with the business performance it will possible to draw conclusions about the Management System business value.

16Feb/16

Use multi-dimensional organization structures wisely

Charlie - EngelskaIn today complex business we have to use multi-dimensional organization structures to be able to design effective Organizations. The simple organization have one product, one customer and all employees belong to one legal entity. Requirements on such Organization Design is fairly simple and we can design all lines of reporting within one single dimension. The legal company structure would be the single organization dimension.

But what if the Organization act on multiple markets, have several product offerings and have its workforce scattered around the globe. The requirements on the organization design is then quite complex and single organization dimensions are no longer possible. The organization structures has to be design in a legal dimension, possibly a business area dimension, a project dimension and possibly a market dimension. If the organization design work is done properly, accountability and efficiency will be the result. But if the Organization Designers fail to create clarity via the design, individuals will suffer from ambiguous organization structures and business will suffer from organization inertia.

13Jan/16

Top Managers management of Management System

Management of Management System

With the new ISO standard 9001:2015 there is an increased pressure on top management to manage the Management System. Organization Development managers often tells me that top management does not understand how to use the Management System. Top management often tell me that a Management System has little to do with what they are doing. At the Management Review, required by the ISO standard, this situation is put on its edge. Too often such review meeting adds no value to the business.

Imaging you is the top manager. You have just bought a tool that may help you to create a successful business. Would you give it to a manager in the organization to use it in a way they find best? And then ask them to report back once a year if there is a problem? No, definitely not. Doing it like this would not help you to create success. The tool would become someone else’s. I am sure you would put some requirement on the tool and the managers being responsible for it. And you would request regular reports on performance of the tool. Does it deliver according to expectations?

A Management System is a tool for top management to enable successful business. Often this tool is managed by an Operational Development manager. Top management shall transform strategic directions, threats and opportunities together with stakeholder interests in to requirements on processes, organization structures and controls. Operational Development manager will design the details of the management system in close cooperation with operational management. Managers will drive and ensure utilization and performance will be monitored. Top management will then be involved in the evaluation of the Management System performance (Management Review) and additional or changed requirements will be given in order to improve the Management System.

10Dec/15

All I want for Christmas is a feel good book about Organization Design.

MS Architecture Scetch - Type 2 - Christmas

Christmas time is happy times and time to relax. It gives opportunities to read a good book. On the top of my Christmas list I have a modern book about Practical Organization Design. But I have not yet found the book I want. Are the book written yet or will the book be written by Santa’s elves?

The book should be a true story about an organization who struggled to maintain efficiency. The customers were leaving the company, the owners were dissatisfied and internal efficiency continuously decreased. Bankruptcy was getting closer. Something has to be done. Led by a woman, the top management created a strategic change plan. The building of a great new Management System was started.

Starting from the key Assets of the organization, the Business Logic was revised and strengthened. The design of the Value Creation Chain was done to better fit both customers behavior as well as internal effectiveness. Responsibility structures was adapted to performance standards and controls was applied to support fast decision making. Management in all levels was coaching teams of employees in all areas to do extraordinary design and implementation work of the new Management System.

The story will of course end happily. The organization turned bad business into successful performance. All external stakeholders were impressed by the transformation. Top Management honored all employees for the excellent work done. And the great new Management System was celebrated in a great party. And the organization lived happily forever after.

20Nov/15

Output is input to process design

Output is input

I too often meet organizations where processes primarily are identified as a structure of activities. “First we purchase parts. The product is then assembled and finally we send it to the customer.” Doing like this enables us to control work. “Yes, we assemble!” But it doesn’t enable us to control quality of result. “What is ok result?” Furthermore, bad quality in inputs tend to follow the activities without being detected. Finally, is such a process, described primarily by activities, hard to understand from a user perspective. “Ok, I shall work, but what do you expect me to deliver?

Focus on deliverables when you design a process! Start with outputs to the customer. What shall we deliver? What is the criteria to be meet by this delivery? When we understand this, the purpose of the process is understood and we are able to monitor its performance.

From the output we identify intermediate deliverables within the process. Do we need specific type of information, do we need product components, do we need equipment, do we need resources, etc.? We will create a basic process design by walking backwards, from the output of the process, and step by step lay out a blueprint of the logical relation between the intermediate deliverables. The approach will lead us to the starting point of the process. This is where we find inputs from externa suppliers or other internal processes.

At this stage in the process design work we have a blueprint of input deliverables – intermediate deliverables – output deliverables and the logical interaction between them. Now, it is time to add activities. We identify activities in between deliverables having a logical direct relation. The activities shall describe what we have to do in order to transform one type of input to a wanted output.

Identify your outputs from the process and start walking.

02Nov/15

Are you effective enough? ISO 9001:2015 requires improvement!

Car

I specifically appreciate one of the improvements in the new ISO 9001 standard. It requests the Organization to evaluate and improve the effectiveness of its Management System. Not much has been spoken about this improvement of the standard. For some it may be perceived as a detail. But I think this is one of the key elements in how the standard guides you to reach business success with the help of a Management System. The new standard puts the spotlight at you (being the management of the organization). You have to understand the very essence of what a Management System is, understand why you have it and how you can improve Organization success by improving the Management System. Unfortunately, this is a huge challenge to many Organizations. Certainly for those Organizations where the Management System is viewed as a bureaucratic burden and only a necessity to be able make business.

The 2015 version of the ISO 9001 standard explicitly request the organization to evaluate and to improve the effectiveness of the (quality) management system. Why is this a challenge? Effectiveness is about reaching wanted results. Evaluate is about understanding what is good and what is bad. Improve is to do something about it. If we do not know in what way the Management System enables the Organization to reach its results, we cannot know how to improve the effectiveness of the Management System. Simply measuring Organization output will not be enough. We have to measure elements of the Management System that have a traceable impact on the Organization effectiveness.

Let us take a practical example. Think of last year’s sales result. Was it good? Was it good enough? Can you improve it? To what extent are the sales result an effect of internal activities in your Organization? How much did it depend on competitors, market movements, legal changes, technology development, political decisions, etc.? If you did not reach the wanted sales result, how much of this was due to low effectiveness of the Management System? This is really hard to say, unless we add other measurements relevant for Management System effectiveness. Organizations that do not have these kind of measurements do most often not improvements of the correct building blocks of the Management System. They blame others, do nothing at all or does the wrong changes.

Let me use a car to explain the topic of measuring effectiveness. I use my car to travel from my office to visit my customers. The car has to function when I need it. I do not want it to consume too much petrol and I do not want to spend too much time in the car. This is the result I want to achieve using my car. I can measure this and understand if the result has improved over time. Less petrol, shorter travel times, always functioning. But when I evaluate these results, with the aim to improve the car, I do need more information. How can I decrease the consumption of petrol? Is there any seepage? Problem with the engine? Is the catalyst working properly? We need to measure performance of relevant components in the car, if we want to improve effectiveness of using the car.

Let us return to the Organization and its Management System. Organizational effectiveness is possible to measure by its achieved result. Effectiveness of the Management System has to be measured by the result of building blocks of the Management System, viewed in the perspective of the Business Logic. How effective is the Organization Structure? How effective are the Processes? How effective is the Controls? The Business Logic may require you to be fast in business, cheap or present in several countries. What impact do this have on Organization Structure, Processes or Controls? How can we measure the performance of the Management System we have developed? Relevant measurements have to be applied. These measurements should be possible to use when we evaluate the Effectiveness of the Management System. To find these measurements is the challenge! A challenge to take seriously as it may unlock great improvement possibilities in your Organization.

16Oct/15

Where are research in design of organizations?

Thinker and oldOrganization Design, as a holistic competence area is fairly unexplored. Designing an organization is a complex undertaking. You may find books and trainings in process management, organization structure theories, target setting, project management, agile development, etc. Each of one of these competence areas can be used to create tangible building blocks in an organization design. It may be targets, processes, roles, decision points, etc. These tangible building blocks should be viewed as elements in a system.

The design of an organization cannot be understood by exploring single elements in isolation. Increased capabilities in an isolated element will not improve organizational efficiency, whatever level of perfection the element has achieved. All elements have to be optimized in relation to surrounding elements. And the sum of all such design elements of an organization has to interact with surrounding environment. We have to develop the organization as an open system. Only when we do this, we may achieve both internal efficiency and external effectivity. This is the way to build sustainable business success.

Why has so little practically useful new science been published lately? I have discussed this with friends and colleagues, working at universities and different companies. I have searched in libraries and on the internet. There are a lot of management literature, but not much is new. The fundamental models that defines our mindset are old. Not many have a system approach. If they have, they either describe the organization design at a very general level or focus one element of the organization design. The most commonly referenced theories or models I have found are:

  • Management by objectives, 1954, Peter Druker
  • Star model, mid 1960’s, Jay Galbraith
  • McKinsey 7-S Model, 1980, Tom Peters
  • Process Re-Engineering, 1990, Michael Hammer
  • Business Balanced Scorecard, 1992, Robert Kaplan & David Norton
  • Business Model Canvas, 2004, Alexander Osterwalder

The idea that an organization is an open system is not new in any aspect. The idea that all design elements has to work together is not new. But why can I not find modern system theories on organization design? Theories based on in depth studies and having a holistic perspective on how to build an organization. Where are the research? What are the latest theories? Where are the researchers?

07Oct/15

Process decision points activates management

Process decision point

The best way to find out if the management system works is to use it. The critical usage is related to decision making. Decision making is a management work. You will provide a management tool by adding decision points to a process. Specified decision points in a process, with identified criteria for passage, enables management to make fact based decisions. Active managers are a prerequisite for successful implementation of a Management System.

A roll out of the Management System will be facilitated by defining process decision points. Managers that are active in a decision point will demonstrate the importance of using the process. Supported by pre-defined criteria for passage of a decision point, the organization will know what to do. Management attention, and the processes ability to support the organization, are keys to successful implementation of a Management System.

If you are an Organization Designer and need to prioritize among the work to do, I strongly suggest that you put focus on decision points of your processes. Identify typical key decisions for management. Often these decisions are related to acceptance of risks, use of money or use of resources as well as to acknowledge the business relevance of process output. Being an Organization Designer you have to specify criteria for passage as well as identify a decision body of managers to make the decision. Then roll out this process in the organization, activate managers and the process will start to live.

15Sep/15

Find out why the customer buys and you’ll have identified key performance indicators.

Practical Organization Design, Management System, Target

Practical Organization Design, Management System, Target

Most organizations use measurements and targets to control business. Unfortunately I often find organizations with measurements related to what the can do or they themselves want to achieve. Many organization have problems to understand how to identify true key performance indicators. If they internally do something fantastic, it may not be what the customer want.

The simple and obvious solution is to think like a customer. What is important? Why will the customer buy? Why will the customer continue to buy? Why will the customer recommend buying from you? Find the answers, translate these to some vital few measurements, and you have identified Key Performance Indicators for your business.

Key performance indicators goes beyond a single service or a single product, it includes behavior, trust and relationship. Key Performance Indicators may cover delivery precision, response time, information correctness, availability, etc.

The ISO management system standards request the organization to define a Policy. Example of a Policy can be a Quality Policy, an Environmental Policy, etc. A successful policy reflects what the customers find important. If this is true for the Policies of your organization, your Policy is a good starting point to identify Key Performance Indicators.

07Sep/15

Too much Management – too little System

MS Architecture - Puzzle

Of course you have to manage and control business. But if operations are in a mess, it is a challenge to get business on track. It is much easier if operations runs smoothly from the beginning. We all agree to this. But then, why do so many managers focus most of their efforts on daily operations? Why is the work to design an effective Management System too often neglected? I think it is because many managers do not know how to do a structured organization design. That’s why they have to use too much management to control a badly designed system.

It is not easy to run a business. You need to understand external business environment, identify a business logic, develop a value creation chain, set up structures of responsibilities and apply relevant controls. I believe most would agree that a good design of internal structures proactively minimizes risks in the operations and enables focus on the right things. All of the above elements has to be designed, not in isolation but as a whole, as a system with internal and external interaction. If you know how to do this, you can develop an effective Management System.