Every organization is a complex system of activities. An efficient organization has the ability to create values for customers, and at the same time satisfy the owners. Successful and sustainable organizations have the ability to maintain a positive level of satisfaction among all stakeholders. Not all organizations are in such a positive situation and there are a number of different methods and scientific studies available to help managers improve efficiency and effectiveness. From the early years of the 20th century when Taylor wrote about Scientific Management, over Juran’s Quality Control and later Total Quality Management, Business Process Re-engineering, Lean and lately the popular Agile approaches.
Behind all of these methods and approaches there exist a fundamental law on how to design effective and efficient organizations. An Organization is a complex system of infinite number of queue systems. Work is ongoing, work is waiting and variations in the work pile up delays. This is true for each individual as well as for the full organization. This understanding helps us to formulate the following fundamental law:
The optimal design of an Organization has to balance Lead Time, Resource Utilization and Variations to achieve wanted performance.
It is impossible to maximize all three of above at the same time. Assume you are able to use all available resources 100% at the same time as all customers are served as soon as they enter into the organization. The customers are happy, and the flow of customers increases. The system will then become overloaded and Lead Time will increase dramatically. Customers will become very dissatisfied.
How has different organization design approaches tried to manage this fundamental law? Scientific Management argued that all activities shall be identified and standardized. This approach tries to minimize process variation and by that achieve efficiency. Business Process Re-engineering focus lead time by identifying unnecessary activities and simplify process flow. Agile work methods tries to balance according to the law. Agile manage utilization of resources by the use of backlog planning, it standardizes work tasks in sprints and minimize lead time by waiting to start sprints until there is a customer order.
How can we use the knowledge of this fundamental law? When you design the business model of a company and designs the Management System Architecture you have to identify key performance requirements and optimize the high level design based on this. If cost is critical, resource utilization should be maximized and long lead times can be the result. If flexibility is important you may have to have some amount of resources available for work. If lead time has to be short, 100% resource utilization will not support success unless you have full control of customers input and process variations.