18Sep/14

Do your Management System support Customers full Life Cycle Value Flow?

The purpose of an establishment (company, administration, non-profit organizations, etc)  is to add value to their stakeholders. A business organization, a company, has to deliver money to the owners by selling products or services to customers. At the same time, customers will not buy out of charity. Of course they need to get value in return. This customer value is often thought of as product or service purchased, which is of course true. But it is not the complete picture.

Customers and markets are different. Purchasing an aircraft is of course completely different compared to buy a shoe. But on a general level, all customers follow same kind of value flow. They identify a need, they investigate possible options, the make a purchase decision, the use what they bought and experience tangible value, and they decide to stop usage and finally dispose the product or stop using the service. This is the customers “life cycle value flow” for a purchased product or service.

Gear Customer Value Lifecycle

So, what does this have to do with design of management systems? A lot I would say. The management system has to support the company to provide value for the customer. If we think of “provide value to the customer” is to deliver product or services, we may focus the management system to exactly this. This was actually the reason for the first edition of the ISO 9001 standard, to provide a standardized framework to ensure quality of products to be delivered. Maybe that is why many companies still maintain this as the scope of their management system.

What happens then if we open our minds about which customer values is to be provided by the company. What impact will this have on the management system? Can the company add value to a customer when they are in a process to identify needs of products and services? Can the company add value in all of the described phases in the customers “life cycle value flow”? Yes, of course they can and the company should.

The management system is the design of all elements in a company, including those with external interactions to customers and other stakeholders. The design should be done in ways that add most value for customers throughout their “life cycle value flow”. Successful companies are of course the ones that add value to its customers in the most convenient way (for the customers) compared to alternatives.

18Sep/14

Plan, Do, Check and Management Review

A well designed management system is a valuable asset. All company assets has to be managed to ensure effective performance and this is of course also valid for the management system. I use Deming’s circle to explain what this means for the management system. Deming talks about plan, do, check, act and sort these into a circle which becomes continuous improvement. If the management system is an asset we can understand how to manage this asset with the help of Deming’s circle.

Plan-Do-Check-MR

To Plan means to in advance, based on best practices and wanted position, agree on how to do things and who to do this. The outcome of the “Plan” part is the Management System in itself. It is made tangible via documents like organization chart, process description, targets, etc.

The Do part is where we all in a company follow the Plan, use the management system. We act according to processes, assigned responsibilities and defined activities. Important then is to ensure right competence for each activity and to always act in the best interest of customers and owners and with a responsible behavior towards employees and environment.

The Check part is where we monitor performance of the management system. Often this is limited to compliance controls, where we verify quality of “Do” in terms of fulfillment of “Plan”. We monitor compliance in audits, in reviews or tests of operational activities, including formal controls. Besides compliance controls it is likewise important to monitor if the design of the management system support company objectives. We have to monitor this by comparing performance towards important business characteristics like customer satisfaction, speed, resource usage, position towards competitors, etc.

The Act part closes the improvement loop and use information from the Check part to analyze performance of the Management System and make decisions of improvements that can enhance performance. The ISO standards 9001 and 14001 defines the Management Review as an essential part in the management system. In my view this is the decision meeting where top level management “act” according to Deming’s circle.

18Sep/14

So, what is the reason your Organization Structure is designed as it is?

How do you do to design your organization structure? Do you hand out areas of responsibilities to skilled employees? Or do you group same type of tasks into functional areas? In many cases I believe you simply copy an organization structure from another company. If you think I am wrong, why is most companies organized in the same structure?

If you look into organization structures of different companies you find a fairly unified pattern. Most companies have a sales department. Sales people works with sales, so you need to have a sales department to sell. If you shall deliver goods to your customers, you need a delivery department as they do deliveries. If you need to develop some products you need a development department as they do development. This looks fairly obvious and reasonable. But is this the smartest way to design an organization structure?

Over decades, perhaps centuries, company leaders most often use “pattern design” to set up an organization structure. Organization structures are “stolen with pride”, copied and pasted, done as it always was done. If you do like this, where is your uniqueness? How do you beat you competitors? Copy them and try to run faster? And, by the way, does it not sound like a bit self-fulfilling design approach. Do you really need sales department just because you do sales? When a read numerous theories about organization structures most literature describes classical organization structure types like function centric organization, product centric organization, customer centric organization or the combination in a matrix organization. It is like scientists in organization management have a great ability to describe an organization but little knowledge in actual design of organization structures. If I want to outperform competitors how shall I think to do a smarter design of the organization structure?

In search for an answer to this question I had to re-evaluate the essentials of an organization structure. What is the purpose of having it and what does it do? Exploring different definitions of organization structures I think the widely spread definition from the ISO 9000:2005 standard is rather comprehensive. ISO writes “arrangement of responsibilities, authorities and relationships between people.” The key word in the context of this blog post is “responsibilities”. To do a design of your organization structure you need to understand what responsibilities are key to your success.

In the “pattern” examples above responsibilities are related to activities like sell, develop and deliver. Are these responsibilities the ones to focus when you design the organization structure? You have to validate this against the needs identified by your value creation chain and business model. What about company assets like knowledge, tools, raw material, customers, etc.? To what extend are they important for success, in line with your business model? Shall you use key assets as focused areas of responsibilities when you design organization structure? Maybe you set up a knowledge department, tools department, customer department, etc.

When we are this far in exploring the essentials of an organization structure design we understand that it is about responsibilities. It can be responsibilities of activities, like sales. Or it can be responsibilities of assets, like competence. Is this all what responsibilities is about or do we have another area where responsibilities can be defined? What about internal or external deliverables? Is this an important area of responsibilities? The purpose of a company it is to create value for its customers. This is done by the external deliverables. So isn’t deliverables the most important responsibilities then? Shall we design our organization structure with focus on key deliverables, in line with value creation chain and business model?
Asset-Activity-Deliverable

Maybe we shall focus more on responsibilities for deliverables when we do the design of an Organization Structure. It also goes hand in hand with a number of modern business management methods like Management by Objectives, Process Management, Balanced Scorecard, etc.

I argue that Organization Structure has to be built around responsibilities for assets, activities, deliverables or a combination thereof. When you do the design of the organization structure you have to make this based on key attributes identified in the business model and value creation chain. This means you shall do active choices in the design of your organization structure. If you only use a pattern because all other do this, your organization structure will not help you to increase effectiveness beyond a level of acceptable.

 

18Aug/14

Architecture of the Management System.

The design of internal structures in a company is formed by its organization and work processes. This design is named the Management System and may be certified according to international standards, e.g. ISO 9001. Activities inside the company refine available assets into value for external stakeholders.

Good designs of the Management System take into consideration both external aspects to the company as well as internal strengths and weaknesses. The performance of a company viewed by customers and owners describes the effectiveness of the management system. Internal performance as viewed by managers and staff inside the company describes the efficiency of the management system.

Management System Architecture

So to do a good design of the management system you have to have these top level (architectural) considerations. The company has to find a position in the selected external environment. It has to identify a business logic that matches the behavior of major stakeholders in the external environment. The company shall design a value creation chain that enables customers to make use of products and services in the most convenient way. Internal value creation needs to be aligning with both the customer value flow and the nature of internal value creation. Responsibilities have to be distributed in organization structures and relevant controls should be applied.