Excellence in Operations… …Why Bother?
A possible approach
Florence, May 9th 2005
AGENDA
Introduction System Dynamics Improving Performance…how? Excellence in Operations: strength and weakness
2
INTERVAL
“…in life the global picture has priority on details.” R.Musil “The man without qualities”
3
INTRODUCTION
THE COMPANIES:HOW TO EXPLAIN THEIR BEHAVIOUR?
the Customers
a Service Company
the Service (level)
OBJECTIVE: TO UNDERSTAND THE ORIGIN OF OSCILLATIONS
4
ORIGIN OF OSCILLATIONS (1/2)
PURE EXOGENOUS
THE EXOGENOUS STIMOLUS IS THE REASON OF THE BEHAVIOUR Turbolence and oscillations in the Far East
markets
…reflect in London.
5
ORIGIN OF OSCILLATIONS (2/2)
PURE ENDOGENOUS
THE STRUCTURE OF THE SYSTEM IS AT THE ORIGIN OF THE BEHAVIOUR
6
COMPANIES AS SYSTEMS?
JUSTIFICATIONS
From the Language SUN-ISTEMI: TO STAY TOGETHER
From Economics THE SYSTEMIC TRAIT OF COMPANIES ORIGINS FROM THE NATURE OF THE MANAGING ACTIVITIES THEMSELVES THAT ARE INTIMATELY CONNECTED ONE ANOTHER WITH A “CAUSE – EFFECT” RELATIONSHIP
Receiving Customers’ Requests
Production
Delivery
7
AGENDA
Introduction System Dynamics Improving Performace, how? Excellence in Operations: strength and weakness
8
INTERVAL
“Nowadays, everyone is aware of the fact that maths entered as a demon in all the aspects of everyday life…” R.Musil “The man without qualities”
9
SYSTEM DYNAMICS
QUESTION AND ANSWER AS AN INTRODUCTION
QUESTION
WHAT IS THAT?
ANSWER
IT’S AN APPROACH TO THE STUDY OF THE SOCIAL SYSTEMS AND, IN PARTICULAR, OF THE ECONOMIC ONES TO ENLIGHT THE ROLE OF THE RELATIONSHIP BETWEEN POLITICS, DECISIONAL STRUCTURES AND DELAYS OF INFORMATION, IN INFLUENCING THE DYNAMIC SYSTEMS
WHAT IS THE AIM?
WHAT IS THE BASIS?
THE CONCEPT OF FEEDBACK CIRCUIT (OF INFORMATION)
10
SYSTEM DYNAMICS
HYPOTHESES (1/3)
FEEDBACK CIRCUIT STATE OF THE SYSTEM DECISION, ACTION NEW STATE OF THE SYSTEM
State of the System (i.e.: resources) Collection of information, decisions, actions
11
SYSTEM DYNAMICS
HYPOTHESES (2/3)
DECISIONAL PROCESSES FLOWS OF INFORMATION HUMAN RELATIONSHIPS
STRUCTURES BUILD OF INTERCONNECTED FEEDBACK CIRCUITS
12
SYSTEM DYNAMICS
HYPOTHESES (3/3)
STRUCTURE OF FEEDBACK CIRCUITS
ORIGIN OF THE BEHAVOIUR OF COMPANIES
Service Level
EXPLAINS
Defect Ratio
motivation
Systemic Structure
time
13
SYSTEM DYNAMICS
BUILDING BLOCKS
POLARITY OF THE CAUSAL RELATIONS AMONG VARIABLES
X
POSITIVE IF
Y
X
+
Y
X
NEGATIVE IF
Y
X
- Y
14
SYSTEM DYNAMICS
SYSTEM ARCHETYPES (1/2): EXAMPLE
EXAMPLE OF A POSITIVE FEEDBACK CIRCUIT
+
EMPLOYEES’ MOTIVATION
+
DIVIDENDS TO EMPLOYEES EMPLOYEES’ PRODUCTIVITY REVENUE PRODUCED
+ +
15
SYSTEM DYNAMICS
SYSTEM ARCHETYPES (2/2): EXAMPLE
EXAMPLE OF LIMITS TO GROW
+
SERVICE PORTFOLIO
+
NUMBER OF CUSTOMERS
RESIDUAL PRODUCTIVE CAPACITY
+
+
NUMBER OF DAILY TRANSACTIONS
16
AGENDA
Introduction System Dynamics Improving Performace, how? Excellence in Operations: strenghs and weaknesses
17
INTERVAL
“The astuteness of the complex systems is high and can mislead man […] however, man can react…” J.W. Forrester “Industrial Dynamics”
18
IMPROVING PERFORMANCE
SYSTEMIC VIEW
+
Investments in Capacity
Capacity of the Process
+
Erosion of Capacity + Effective Performance Performance Gap +
Time spent improving
D ay el
Time spent working
Desired Performance
19
IMPROVING PERFORMANCE
SYSTEMIC VIEW: WORK HARDER
+
Investments in Capacity
Capacity of the Process
+
Erosion of Capacity + Effective Performance
Time spent improving
There is a negative feedback working to reduce the gap
D ay el
Time spent working
+ B1
Pressure to work harder
+
Performance Gap + Desired Performance
20
IMPROVING PERFORMANCE
SYSTEMIC VIEW: WORK SMARTER
+
Investments in Capacity
Capacity of the Process
+
Erosion of Capacity + Effective Performance
Time spent improving
+
D ay el
Time spent working
+ B1 B2
Pressure to improve the process
Pressure to work harder
+
+
Performance Gap There is a negative + feedback working to reduce the gap Desired Performance
21
IMPROVING PERFORMANCE
THE RESULT OF THE SIMULATION
WORK HARDER
Performance
WORK SMARTER
Performance
time Capacity of the Process Capacity of the Process
time Delay Delay
22
IMPROVING PERFORMANCE
WHEN THE FEEDBACK CIRCUITS BECOME VICIOUS
THE PRESSURE OVER EMPLOYEES INCREASES
THE PROJECTS / PROGRAMS OF EXCELLENCE IN OPERATIONS HAVE SCARCE PROBABILITY TO SUCCEED: LIARS CLUB
THE COMPANY CULTURE REWARDS THE “HEROS”
EXCELLENCE IN OPERATIONS BECOMES AFP (Another %#$@%*# Program)
23
AGENDA
Introduction System Dynamics Improving performance, how? Excellence in Operations: strength and weakness
24
INTERVAL
-…said the barber, […] because the experience shows us that the most part of the projects subjected to His Majesty, results as impossible or excessive, or such to be bad for the king and the kingdom. - However, mine… - replied don Chisciotte… Miguel de Cervantes Saavedra, “Don Chisciotte”
25
EXCELLENCE IN OPERATIONS
WHEN AND HOW IT WORKS?
LET’S IDENTIFY THE KEY SUCCESS FACTORS
SPONSORSHIP OF THE MANAGEMENT (PUSH OR COMMITMENT)
INVOLVEMENT AND WORD OF MOUTH OF THE EMPLOYEES (EMPLOYEE PULL) SETTING GOALS & HALF LIFE
ALL THE LEVELS
26
EXCELLENCE IN OPERATIONS
A POSSIBLE MODEL
+
Observation of effort/results linkage by others R2 Diffusion Managers' goal for commitment
+ Results + R1 Reinforcement Effort allocated to + the innovation commitment to the innovation + B1 Normative Pressure Normative Pressure from managers
+ commitment Gap
+
27
EXCELLENCE IN OPERATIONS
THE FEEDBACK CIRCUITS INSIDE THE MODEL
POSITIVE REINFORCEMENT: THE COMMITMENT IS SUBSTAINED BY RESULTS DIFFUSION: THE COMMITMENT IS SUBSTAINED BY THE WORD OF MOUTH AMONG THE EMPLOYEES NEGATIVE NORMATIVE PRESSURE: THE COMMITMENT IS SUBSTAINED BY THE MANAGEMENT PUSH TOWARDS THE OBJECTIVES SET
HALF LIFE TIME FOR DEFECTS
EMPLOYEE PULL
MANAGEMENT PUSH
28
ECCELLENZA OPERATIVA
THE HALF-LIFE TIME CONCEPT: AN OUTLINE (1/3)
DEFINITION: WITH DEFECT OF A GIVEN PROCESS OF A COMPANY WE MEAN OPERATING ERRORS RE-WORK REDUNDANT PRODUCTION OF REPORTS UNSCHEDULED DOWNTIME EMPLOYEES’ TURNOVER DELAYS UNREALIZED HUMAN POTENTIAL COSTS RELATED TO LOW QUALITY
29
EXCELLENCE IN OPERATIONS
THE HALF-LIFE TIME CONCEPT: AN OUTLINE (2/3)
HYPOTHESIS: ANY DEFECT LEVEL, SUBJECTED TO LEGITIMATE EIO PROGRAM, DECREASES AT A CONSTANT RATE
WE CAN IDENTIFY THE HALF-LIFE FOR DEFECTS
REALISTIC
30
EXCELLENCE IN OPERATIONS
THE HALF-LIFE TIME CONCEPT: AN OUTLINE (3/3)
31
EXCELLENCE IN OPERATIONS
LET’S REMIND OUR HYPOTHESES
THE PROJECT OF EXCELLENCE IN OPERATIONS CAN GUARANTEE THE IMPROVEMENT
THE NUMBER OF DEFECTS WILL FOLLOW THE HALF-LIFE RULE
THE DEFECT DECREASE-RATIO IS PROPORTIONAL TO THE EMPLOYEES’ COMMITMENT
THE EMPLOYEES’ COMMITMENT IS TIED UP WITH THE NORMATIVE PRESSURE OF MANAGEMENT BUT, ABOVE ALL, WITH THE OBTAINED RESULTS
32
EXCELLENCE IN OPERATIONS
THE SIMULATION: THE DETAILED MODEL
Defect Smooth Time Historical Defect
+
Defect Improvement Rate Expected Half Life Expected Improvement Fraction Ratio Actual to Predicted Results Sensitivity to communication Committment + Effect of Results on Committment Max effect on Results Min effect on Results Normal Slope Results + + Word of Mouth + Change in Committment from results
33
-
Defects
Change in Defects
Defects Min Actual Improvement Fraction -
Communication Intensity
Actual Half Life
+
Change in Committment from Management Push + Committment Gap + Management Goal for Committment Time to turn off management push Time for Management to train
EXCELLENCE IN OPERATIONS
THE RESULTS OF SIMULATION (2/3): COMMITMENT & DEFECTS VS TURN OFF TIME
Turn off Time (month) 12 14 16 18 20 30
34
! " #!$ %&'(' #!#)#*%+'!,' ,( --' -'(. !' -'("/0 *%,(#+'!,(# #% " ., -'( #% % ( " #!$ %&#+'!, - ,('11' '..'(' ,( -- '%'$*, ' " !,( -( 23"'!,' - # -(#+# (#.3%,*,# 43'.,* -'(*)# !' - ,('11' $'!#(' *22#(#,,3(* &(*,#. '2 .- !,*!'*+'!,'
EXCELLENCE IN OPERATIONS
THE RESULTS OF SIMULATION (3/3): COMMITMENT & DEFECTS VS COMM. INTENSITY
Communication Intensity RAMP CONSTANT
35
! " #!$ %&'(' #!#)#*%+'!,' ,( --' -'(. !' -'("/0 *%,(#+'!,(# #% " ., -'( #% % ( " #!$ %&#+'!, - ,('11' '..'(' ,( -- '%'$*, ' " !,( -( 23"'!,' - # -(#+# (#.3%,*,# 43'.,* -'(*)# !' - ,('11' $'!#(' *22#(#,,3(* &(*,#. '2 .- !,*!'*+'!,'
CONCLUSIONS (?) (1/3)
MANAGEMENT’S ROLE
MASTER & COMMANDER: ESSENTIAL IN THE FIRST PHASE, TO START THE PROJECT AND OBTAIN THE FIRST RESULTS SPONSOR / PATRON: IT HAS TO PROVIDE A HIGH COMMITMENT, AT LEAST IN THE MEDIUM TERM STRATEGIST: IT MANAGES COMMUNICATION AND LEAD THE WORD OF MOUTH
the Management is the flywheel of the project
36
CONCLUSIONS (?) (2/3)
THE EMPLOYEES’ ROLE
PIONEER: THE ONES WHO JOIN THE PROJECT IN THE EARLY STAGES CATALYST: IT INCREASES THE COMPANY’S INVOLVEMENT, TOWARDS A COMMON GOAL KEY SUCCESS FACTOR: THE PROJECT WILL SUCCEED ONLY WITH EVERYONE’S EFFORT
it is the internal “sponsor” that leads to success
37
CONCLUSIONS (?) (3/3)
ALL TOGETHER
IMPROVERS OF PROCESSES…AND SO PERFORMANCE: VALUE MAKERS FOR THE COMPANY, IN THE MID TERM (AT LEAST)
38
ENCLOSURE A
ESSENTIAL BIBLIOGRAPHY (1/2)
--- (1997) The Economist, September Dioguardi G. (2005). “I sistemi organizzativi” - Mondadori Mollona E. (2000). “Analisi Dinamica dei Sistemi Aziendali” – EGEA Mollona E. (2000). “Strategy-making in complex social systems” slides Mollona E. (2000). “Positive Feedback in Business & Economics” slides Oliva R., Sterman J. (2001). “Cutting Corners and Working overtime: Quality Erosion in the Service industry” Management Science/Vol. 47, No. 7, July 2001 Oliva R. & others (1999). “Overcoming the improvement paradox” European Management Journal , Vol. 17, No. 2, pp. 120-134, 1999 Powell B. (2002). “Systems Thinking and Barriers to Quality Improvement: Survey Results - ASQ Presentation - 11/13/02” Repenning N., Sterman J. (2001). “Nobody ever gets credit for fixing problems that never happened: creating and substaining process improvement” Management Science/Vol. 47, No. 7, July 2001 Repenning N. (1999). “A simulation based approach to understanding the Dynamics of Innovation Implementation” Organization Science, 13, 2: 109-127.
39
ENCLOSURE A
ESSENTIAL BIBLIOGRAPHY (2/2)
Repenning N., Sterman J. (1996). “Getting quality the old-fashioned way: selfconfirming attributions in the dynamic of process improvement” Schneiderman A. (1988). “Setting Quality Goals” American Society for Quality Control: Quality Progress Schneiderman A. (1986). “Optimum Quality Costs and Zero Defects: are they contradictory concepts ?” American Society for Quality Control: Quality Progress Sterman J. (1997). “Unanticipated side-effects of successful quality programs: exploring a paradox of organizational improvement” Management Science, Vol. 43, April 1997 Sterman J. (2002). “System Dynamics: System Thinking and Modeling for a complex world” Massachussets Institute of Technology – Engineering System Division – Internal Symposium Wittenberg J., Sterman J. (1996). “Self-Organization, Competition, and Succession, in the Dynamics of Scientific Revolution”
40
EXCELLENCE in Operations… …Why Bother?
A possible approach
End of presentation