Autonomy, accountability and tunnel effect

One young employee told me “I don’t like my manager to ask me over and over again about the progress of my work. I like to get my objective and then be let on my own to achieve it, I’ll report when I’m done”.

Well I thought, you have never been project manager nor in charge of a team. You probably barely know anything about project management techniques and the difficulties to synchronize multiple outcomes, and probably voluntarily ignore the existence of dependencies between tasks for your own selfish comfort.

This kind of cocky open arrogance from someone without significant experience is not something a seasoned project manager will appreciate. Chances are that facing such a mindset, the manager will reinforce his/her control.

It is one thing to demand empowerment, autonomy and be willing to take accountability, it is another to give periodic feedback about the progress of a task or project.

What managers or project managers don’t like at all is the tunnel effect, a common metaphor in France and in project management parlance that describes the extended period during which, the customer and/or the project manager are left in the dark, without any clue about the progress of the job do be done.

At the end of the tunnel, when customers and/or project managers discover the results, chances are that the outcome is not satisfactory or can even endanger the whole project! Something that could have been prevented if there had been periodical feedback, assessment and realignment if required.

This is why software development went for methods insuring loops, scrums, instances during which the stakeholders can share the state of current development, mitigate the risks and even take into account late changes.

Giving periodic feedback is not only something to please customers and project managers, it is also something useful for colleagues and other stakeholders that are dependent on tasks or outputs. By getting feedback and insight, those stakeholders can adjust their own schedules and actions according to current progress.

Management at all levels is highly facilitated through shared visual management, like for example using a Fever Chart, a simple visual dashboard/indicator introduced by Critical Chain Project Management.

Therefore, even in organizations granting a large autonomy to their associates, there is no such a thing as getting an objective and returning to report when it’s achieved.

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Problem solving: what was the last change?

This post could be a sequel of “Yeah, problem solving” in which I used Peter Senge’s quote: “Today’s problems come from yesterday’s solutions”.

Quite often people we consultants meet are puzzled by a problem they can’t understand:

  • a reliable process or machine suddenly seems out of control,
  • steady performance dropped unexpectedly and with no apparent reason,
  • sudden quality issues with trusted supplies,
  • etc.

Our experience lead us to investigate the last change made, precisely because of the “wisdom” of Peter Senge’s quote: chances are that a modification (fixing a problem) led to unexpected Undesirable Effects and causing new a problem to appear.

Of course, the modification to look for is seldom the worried person’s ones, which he/she would most probably remember and perceive the possible cause-to-effect relationship.

No, the modification more likely happened outside the span of control and without the knowledge of the impacted people.

A modification leading to a problem in a lengthy process can happen far away (both in process steps and location) from the point the problem appears, letting the people perplexed about this reliable process now out of control.

Purchasing and procurement choices are unfortunately often the unintentional culprits, buying a slightly different grade of material, changing a supplier or accepting a low quality batch with the best intentions: cut costs or ensure timely deliveries.

When facing a puzzling problem the investigation should follow “the last modification path”.

This isn’t always easy though. The Undesirable Effects brought up by the change may be minimized or even neutralized for a while, long enough for everybody to forget about the nature of the change, when it happened and its consequences then.

That’s precisely why some industries with strong safety and regulatory constraints like aeronautics or pharmaceutical have to be cautious about any modification (needs approval after thorough risk assessment) and capture every information about virtually anything (dates, manufacturing conditions, persons in charge, certificates…), in case an investigation must find the root causes of a deviation (or worse), long time after the triggering action occurred.

When the problem cannot longer be neutralized by the former forgotten fix, it looks like a new problem.

Searching for the last change is often a good guess, yet not always leading to the root cause. Keep in mind that some modification correlate nicely with the apparition of the problem, but correlation isn’t causation.

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Can CCPM reinforce Parkinson’s law?

In this post I share a post-mortem analysis of a situation we’ve encountered while helping a company to improve its performance. This company was specialized in custom-made machine engineering and asked for help to improve its On-Time Deliveries performance. We proposed to install Critical Chain Project Management (CCPM), an obvious choice given the circumstances.

Critical Chain Project Management (CCPM) is supposed to supersede Critical Path Method (CPM) with its capability to deliver projects on time, something CPM has consistently failed to do for more than sixty years now.

Among the obstacles to on-time project termination is the Parkinson’s law. This law – not to be confused with the disease of the same name – states that “work expands so as to fill the time available for its completion”,

The Critical Chain Project Management approach recognizes this specific behavior consisting of refining the work, add unrequired features or perform additional tests instead of handing the task over to the next person in charge when finishing a project task ahead of time.

The main reasons for this behavior refered to as “Parkinson’s law” are that someone finishing earlier will:

  • fear to see the allocated time to achieve the task reduced by management the next time
  • fear to appear unable to give a trustworthy estimation of the time necessary to complete a task
  • enjoy the extra time when finishing earlier instead of being late and under pressure
  • enjoy to seemingly deliver just-in time and as predicted something that is ready and waiting for a while

Critical Chain Project Management being aware of the Parkinson’s law, its proponents educate the project members about the consequences of this behavior and put the relay race principles as well as common project buffer in place.

The relay race principles state that when a task on the Critical Chain is nearing its completion, a signal is sent to the next resource that will take over. This resource is then using this early warning to make sure to be ready on the high priority task that soon will be handed over. This is like the relay runner starting to run when the baton is approaching in order to be at top speed when it’s handed over.

The common buffer is a shared protection of the finishing date made of the sum of roughly the half of all individual protection margins. Please see Introduction to Critical Chain Project Management for more details about CCPM protective buffer.

So far so good. Now here is a developers team that was working in constant hassle, with chaotic and permanent priority changes and countless interruptions. Multitasking was so bad that some of the members could not work on a given task more than 3 minutes in average before the next interruption occurred.

Thanks to CCPM, multitasking was banned, interruptions prevented and focusing on one single project at a time became the new rule. The team members soon acknowledged the positive change and the comfort of getting rid of all the hassle and the multitasking.

Yet top management was not happy because the development team did not deliver more by finishing projects earlier, and taking a closer look concluded that CCPM reenforced Parkinson’s law. Indeed, the team members took it easy and did not really rush to the next priority job once their current task on the critical chain was completed.

What went wrong?

Well, nothing went really wrong, simply putting the system under control and stopping the constant chaos let the true problem show up: the team was not managed.

As long as everyone could influence the work on the projects, mainly sales managers and general manager worrying about the delivery date, someone was giving orders. Under such a pressure the developers managed to push the projects to their completion, even they finished late. As things were progressing, even in a total uncoordinated way, there was a general feeling that the process was delivering.

Once the CCPM rules were agreed and installed, sales managers and the general manager refrained to interfere with development team and developers had their list of priorities to work on. What they did not have was a manager taking care about work intensity (another word for productivity), cadence, challenging for continuous improvement. In one word: a manager.

Without the management’s constant challenge and care, the developers simply laid back, feeling legit to do so after all the years of stress and bad working conditions.

Insufficient cause

Reflecting on this story I realized that the top management was assuming that CCPM principles of stopping multitasking and keep focusing on the critical chain priorities was enough to squeeze out the unnecessary individual margins and consequently speed up the development process. This in turn would allow to increase throughput with the same resources.

In the Logical Thinking Process (LTP) lingo, this is an insufficient cause, meaning that by itself it will not be sufficient to cause the expected effect; increasing throughput.

What we consultants, and probably the general manager, considered a given was that this team was managed. As well this was clearly a Necessary Condition, we felt it was “oxygen”, another LTP term for conditions that are supposed so obvious that it is not necessary to express them, just as oxygen is necessary for humans to breath.

Conclusion

The CCPM principles worked well. The chaos was tamed and the developments could finish within the estimated time, now based on so-called focused durations.

The Throughput did increase, but not dramatically. There a three reasons for this:

  1. First reason is that the increase of throughput allowed new projects to start earlier, but given the average length of a project (10-12weeks), the speeding up was not very noticeable.
  2. Second, CCPM was applied on the work packages without challenging the work package contents nor engaging continuous improvement at once. The local management chose to collect data about buffer consumption first, in order to understand where and what to improve. Given the projects durations, this is a slow process.
  3. Third, there was no incentive to improve due to the lack of team management. This later becoming blatant once all other disturbing factors have been neutralized.

So CCPM did not enforce Parkinson’s law. CCPM did what it is supposed to: set the scene for efficient focused work and deliver the projects on promised dates.

CCPM is no cure for everything and no substitute for failing management.


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My takeaways from Breakthrough Project Management conference

Paris, October 17th, 2016. Ian Heptinstall, co-author of “The Executive Guide to Breakthrough Project Management, Capital & Construction Projects on-time in less time, on budget at lower cost without compromise” (full title), was there to deliver his conference on the subject.

Before you turn away thinking this has nothing to do with my industry, you should ask yourself if yours too struggles to deliver on time, in full, on budget. If yes, the ideas shared in this conference should be of interest, whatever your trade is.

Ian’s claim is to introduce a way to deliver in less time and less budget, without compromising on scope, quality and risks, no longer trading off.

The conference

The time indications are related to the video

Many project managers do not realize their projects go wrong, but several studies show that most (capex) projects do not fulfil their requirements (2:26). Ian goes through the major reasons at macro and micro level for projects to miss all their targets. Three issues are found at the heart of the problem (8:10); the way to contract, the way to plan and the way to execute.

Ian, together with co-author Robert Bolton, believe they’ve found an easy, repeatable and sustainable way to overcome these issues. The shift from traditional project management to Breakthrough Project Management is presented from 10:00.

Among the things to change is the methodology shift to Critical Chain Project Management (CCPM) briefly introduced at 14:32. The project’s monitoring Fever Chart is explained at 22:20. The proven CCPM methodology will face a major obstacle: the way of contracting and purchase (26:06).

The new way to consider contracting is introduced at 29:16 and starts with the issues related to fixed pricing. For instance, complex problems involving high-tech or some new technology are tricky to estimate in terms of costs. Second, buyers want to have fixed prices. Contractors subcontract and ask for fixed prices as well. The buyer is usually the winner on the expenses of the contractor.

Instead of a hierarchy of contractors, the new approach promotes alliancing, i.e. putting stakeholders in a single team aligned onto a common goal and paid in the same way: “cost-fixed-variable” (34:17). Cost are expenses to be covered, without markup. The fees are fixed and variable and not related to costs. The only way for the partners to make more money once the project is started is to get the variable fees, thus have a successful project. What the success is made of is left to the client to decide: time, quality, safety.. This changes the team members behaviors.

The characteristics of project alliances are summarized at 37:45. Project alliancing does not mean the bidding is not competitively sourced (39:10).

The conference summary is presented at 39:50.

My takeaways

The whole conference is presented in a lively way, with some funny and true everyday’s examples of the ridiculous requirements or expectations in traditional project management. It makes the conference anything but boring!

Being knowledgeable about Critical Chain Project Management (CCPM), it is not the CCPM discovery that raised my interest, but the simple way Ian presented it. It is consistent with the book’s aim: being an executive guide, thus give concise necessary insight and explanation, without boring the audience.

Alliancing was new to me and raised my interest, reminding the issues I’ve seen with the usual hierarchical buyer-supplier relationship.

Finally, I’ve found the whole conference (content and presentation) worth a post to promote it. I hope it will do.

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Do what you can, with what you’ve got, where you are

This quote, often falsely attributed to Theodore Roosevelt (see Sue Brewton’s blog), is an excellent mantra for both personal and management use.

Too often when facing a problem or a challenge, individuals tend to push it to others, to complain about their insufficient resources and have great ideas for others instead. Think about the latest cost reduction program for instance.

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With the “Do what you can, with what you’ve got, where you are” mantra in mind when facing a problem or a challenge, the right approach should be:

  • What can I do by myself? What is in my hand? What actions are within my scope of authority / autonomy, what can I decide / engage / implement by myself?
  • With the means at my disposal, what can I do? How far can I go and is it enough to achieve the goal? What do I really need more to achieve the goal?
  • From my position in the organization, what can I do? What can I decide? What can I influence?

Here are 3 situations the mantra can be great for.

1. Facing one’s fears

These questions should be part of a personal routine and a mental checklist. Especially when facing a scary or challenging situation, going through the questions shifts the focus from emotional perceptions to factual assessment.

There is probably more that can be done than instinctively perceived, so in order not to give up too fast, remembering the mantra guides to an inventory of possible options.

We could double the mantra by another maxim I’ve found in General George S. Patton’s memoirs: “Do not take counsel of your fears.”

2. Facing the boss

When discussing a problem or a challenge with the boss, the quick inventory of personal possibilities avoids disappointing him/her with a list of reasons why the problem is very tough to solve or the goal out of reach, with request for more means or with suggestions for others to act instead.

Only when one’s capabilities, available means or one’s position in the organization are truly insufficient to solve the problem or achieve the goal, the limitations of all possible current options should be fed back to the boss.

3. Facing subordinates

On the other side a manager who sees a direct report trying to escape his/her duty, demanding more resources or offering great ideas for others, the rephrasing is easy:

  • I ask YOU to do what YOU can do
  • I ask YOU to do with the resources YOU have
  • I ask YOU to consider the options YOU have from YOUr position in YOUr perimeter

Conclusion

“Do what you can, with what you’ve got, where you are” is easy to remember, holds a lot of calm confidence and wisdom and can come handy in several situations.

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The man-machine system performance

When looking for performance improvement of a man-machine system, too often management puts emphasis onto machine or technology at large, ignoring the fact that humans associated with equipment, machines or technology form an interrelated system and consequently humans are the discriminating factor.

The fallacy of trusting the latest technology

There is a strong belief, backed up by vendor’s marketing, that the latest state-of-the-art high-tech equipment will bring a breakthrough in performance. This is welcome news for executives struggling to keep their organization up with competition and seeking a significant performance uplift.

Production managers, industrial engineers or system designers are big kids loving high-tech expensive toys, geeks of their own kind and dreaming to get the latest, biggest, fastest piece of equipment.

Once investment made, performance does not skyrocket though.

What happened?

Management blindness

Management ignored the human factor, i.e. people put in front or in charge of the new machine, the latest technology. An operator and his machine for instance are a system.

The overall performance of this system is determined by the human-machine pair, and guess what, the most variable and hardest to control is the human factor.

Unlike machines, humans have their moods, their worries, variable health and morale, private concerns and motivation issues. One day fine, the other day down.

Humans are not equal in competencies and skills. Some learn fast, some learn slow and some never really get it.

So what’s the point giving the latest top-notch technology to someone not competent or not motivated?

Yet this is most often what happens. Management assumes that the best of machines will make the difference, totally ignoring the influence of the people in charge.

The irresistible appeal of technology

Most decision makers and managers have some kind of hard-science background, got their degrees in engineering or business management. They were taught the robustness of math, the beauty of straightforward logic and to trust only facts and data.

When puzzled facing in real-life the highly variable and elusive nature of humans, they have a natural tendency to prefer hardware. This is something that can be put into equations and eventually controlled. This is what they are most familiar with or at least the most at ease with.

Humans are only trouble. No equation helps to understand their intrinsic drivers nor to reduce their variabilities. This is all about soft skills and psychological factors. Nothing for engineers and hard science-minded people.

Instead, they put a strong hope that the best and latest technology will trump the human factor, reduce it to a neglectable pain. But this never happens.

So again: what’s the point giving the latest top-notch technology to someone not competent or not motivated?

Leveraging performance

In order to improve a man-machine system, it is key to first have a look on the human factor, the most important one. Make sure competency is granted. If someone lacks the necessary competencies, performance is nothing than a matter of luck.

Beware of incompetent but highly motivated people though. In their desire to do well, they may have unknowingly potentially dangerous behaviours and/or take bad decisions. These motivated ones are likely to learn, do thing right but need training and guidance.

Not motivated incompetents are not likely to take any initiatives. They are the manager’s pain and burden and giving them better, faster machines won’t help. What’s worse with not motivated incompetents is passive aggressive behaviors that can lead to potentially dangerous situations as well.

Competent but not motivated people need and probably deserve management’s attention in order to get them into the winning quadrant of the competency-motivation matrix, aka skill-will matrix (top right).

There are the competent and motivated people who do their job effectively, often efficiently and without bothering anybody.

Competent Find a driver or a whip No worries
Incompetent Long way to go… Potentially dangerous good will
Not motivated Motivated

Competency-motivation matrix from a supervisor perspective

It is with these competent and motivated people that the limits of machines or technology can be found, as they will use them properly and purposely. Even when these performance limits are reached, it’s not certain that better planning and/or better organization cannot get more performance out of the system.

Think about quick changeovers and all capacity that can be regained applying SMED methodology, or rethinking maintenance in Total Productive Maintenance (TPM) style.

Wrapping up

When facing the challenge for improving performance, considering the way operations are done should be the first step. The second is to remember than investing in people is usually cheaper and more effective than investing in technology in first place, because a well utilized outdated machine will have better yield and be way cheaper than a poorly utilized state-of-the-art new one.

“Unfortunately” for tech-lovers who would prefer new “toys”, this investment in humans has to be a substantial part of their manager’s daily routine.


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How corporate Lean programs spoil golden opportunities

This is the sad and true story of a manufacturing unit of a major manufacturer in his industry.

This company has a corporate program to roll out Lean, with permanently appointed staff to support it. The Lean organisation is structured from a corporate level to sites representatives and staff appointed to support departments within the plants (Lean Promotion Office).

The corporate program is consistent and fine, designed by subject matter experts and tailored to fit both the activity and corporate culture. Such an ambitious program has a phased agenda, milestones, audits, reviews and everything necessary.

The Lean Promotion Office supporting team is therefore very busy breaking down the corporate rollout plan and preparing training sessions, coaching sessions, reviews and everything necessary.

Everyone who has witnessed such organisation and corporate rollout knows that the supporting team tends to become a swelling bureaucracy of its own, with very busy people seldom seen on shopfloor.

Comes a day in a department when the production must be stopped for supply shortages and unfortunately the stoppage lasts several days.

Once the things jobless personnel could do were done, they were left unoccupied and all by themselves, in a kind of readiness, the production being assumed to resume anytime soon.

Which did not happen, and boredom became the daily normal.

This is when the consultant regularly visiting the department shows up, and a bit upset by the waste of human skills, proposes to organize a much needed initiation to 5S.

That can’t be done.
– Why?
– 5S is scheduled later in the year, according to the rollout plan.
– But people are available now and with the current department (messy, dirty) condition it is a golden opportunity to both train people and improve the condition!
– Nobody is available for the training.
– But I can do!
– This is not compliant to our rollout plan and procedures.

As incredible it sounds, there was no way to organize the initiation and no manager would back up the proposal nor agree to give it a go.

I assume the Lean Promotion Office members are measured according to their (planned) activity and weren’t eager to mess up the plan, take any chances to displease their managers.

Production managers were blind to the situation and not knowing much about 5S, could not see the opportunity to have meaningful occupation for their staff.

To add to the sadness of the situation, when 5S training time will come, the situation may not offer the same opportunity: machines may be running, everybody may be busy and the mess and dirt may not be that visible as it was during the stoppage.

5S training will then probably be done with case studies and simulation, on restricted area at best, in order not to disturb production. This is where the golden opportunity is really lost: using a real case to act on, learn and improve.

Postponing the training and improvements to later scheduled time slot will make the actual 5S related problems last longer, cost more and waste the opportunity.


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What coaching means to me – part two

A coach is a person able to teach, train and advise someone, to improve skills and/or practice and to make his/her coachee reflect about achievements and how to improve from the lessons learned.

It takes some experience and skill to coach others, that’s why I am not comfortable hearing the words coach or coaching that often is business, these words being used way too lightly in my opinion.

>Read What coaching means to me – part one

Many of the alleged coachings are nothing more than a kind of facilitation or workshop moderation. Coaching may sound better and please the facilitator’s ego, but it isn’t coaching.

What coaching means to me is living a significant part of time with the coachee on the shop floor or gemba (can be an office, warehouse, hospital, whatsoever) and making use of real problems to help him/her to improve his/her ability to cope with unexpected and random situations.

It may well need a structured approach, a set of principles, methods and a toolbox, but real-life problems are seldom solved in the way the examples in training classes depict.

Many of the real-life problems need a bit of creativity because they may be similar to previously experienced ones, but slight differences can hinder the same solutions to apply. A coach should have the ability to find a way to overcome this kind of difficulty and design a suitable experiment for solving the problem.

When a problem arises, it is an opportunity for the coach to see how the coachee is approaching it, and if needed give some advice and later feedback.

The coach does not need to know the solution and have answers to everything, but at least have the ability to analyze and make out a way to attack a problem in a structured way, then help his/her coachee to do the same without too much interference. After all, it’s the coachee’s golden opportunity to learn.

Except when regulatory constraint, if so-called coaches keep sticking to the book or procedures and are reluctant to “experiment”, it’s usually a sign of lack of experience and/or maturity. The stronger the cling, the less useful the “coach”.

The “coaching” mentioned in part one is therefore more about procedure reinforcement than real coaching. Its value lies maybe in the rollout of the Lean program but not in developing people’s skills.


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Continuous improvement: how easily focus is lost

In an industrial environment improvement opportunities are literally infinite, especially if nothing has been done so far about improvement and maturity, about industrial best practices and considering methodologies like Lean, Theory of Constraints (ToC) or Six Sigma was nearly nonexistent.

When starting to improve, it happens quite often: committed people get lost and lose focus. Instead of concentrating on the core issue to achieving the Goal,  they dilute efforts on lesser important subjects, secondary objectives or even unimportant things.

As a consequence real improvements are delayed or even won’t happen.

How to prevent this from happening? Here are three things that will help:

  • Choose proper KPIs
  • Have a sponsor keeping some distance
  • Start with a Goal Tree

Choose proper KPIs

Measurement is the first improvement step. Choose the (few) KPI(s) that really reflect the achievement of the assigned key objectives and assess the effects of improvement efforts with these figures.

Assigned key objectives points to a Goal set by the organization’s owner or the delegate executives. Bottom-up chosen improvement targets lead most often to local optimization which is scarcely contributing to the overall system improvement, hence the reservation about point kaizen or kaizen blitz workshops focused on local improvements/problem solving.

Expected improvement is generally about productivity, quality, timely deliveries or any combination of them. Outcome should be measured in physical units, e. g. widgets per hour, right first time rate or on time in full (OTIF) deliveries.

Pitfall to avoid with KPIs is to choose activity-related instead of outcome-related ones, like the number of kaizen events held in the week rather than additional widgets made ready for shipping.

Teams may get some scolding for not delivering the expected results even though they were convinced to have worked hard and gotten nice results. They are just not aligned with top management’s expectations.

Back-standing sponsor

Having someone higher ranking / legit, keeping some distance from details and looking at the project with a broader perspective is a good way to prevent shop floor teams to get pulled down into details and away from their objective.

The sponsor should have authority to both help the team to overcome some difficulties, when decisions are to be made with other stakeholders and authority to demand regular reports and direct the team when necessary.

Regular reports and expectation of results are powerful incentives for the team not to lose themselves during their improvement journey.

Having a back-standing manager is common practice in the consulting business where a manager will follow, support and coach the consultants shop floor team, making sure focus is kept on the right objective and progress is consistent.
Some customers can’t understand the importance of this management they consider costs added, not value-added, an easy way to charge more (Yes this may happen, but let’s assume the consultants we’re considering are good ones with real care about delivering value and some ethics).

Well, the cost of meaningless efforts, wasted time and resources on ill-chosen or defined objectives is often much higher than the cost of the back-standing manager.

When the Goal is defined at the top-level and the objectives assigned to the teams, the project governance is usually defined as well, with someone high-ranking taking the sponsor / jury role. Bottom-up initiatives do not always have it.

Start with a Goal Tree

My regular followers are used to read my posts promoting this fantastic tool: the Goal Tree. Many of you readers may not yet be familiar with Goal Trees, and I strongly recommend you to learn more about them and evaluate the potential benefits using them.

At the beginning of a project, building a Goal Tree is a smart investment worth the couple of hours required: a well-built Goal Tree will give guidance toward the assigned or chosen Goal as well as the associated few Critical Success Factors to achieve and the list of Necessary Conditions to fulfill.

The Goal Tree is built upon necessity logic (in order to achieve… we must…) and thus prevents to get lost in nice-to-haves or irrelevant “improvements”.

From the moment I used a Goal Tree from the start myself, I kept focused, consistent and more efficient for myself or the teams I worked with. Conversely, when I thought I could save the effort starting with a Goal Tree it went not that brilliantly, with some deviations, drifting and the like.

These unpleasant experiences were powerful reminders, especially when the back-standing manager legitimately “kicked the a**”.


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Six differences that distinguish cost cuttings from cost reductions

Chris HOHMANN

Chris HOHMANN – Author

1. Arbitrary vs. Rational

Cost cutting is an arbitrary decision to suspend some expenses or drastically reduce budgets. It comes quick and unexpected. The often arbitrary, brutal and sudden non-negotiable stop of expenses deserves the name ‘cut’.

Cost reduction is a rational decision to drive some costs down, usually through a structured and timely phased program.

2. Reaction vs. analysis

Cost cutting is an answer to some emergency to save money in order to overcome a crisis or to please investors / stock exchange.

Cost reduction comes as an answer to a situation assessment, an improvement plan, a benchmarking study. The purpose is usually to improve competitiveness for the mid/long-term.

3. Blanket vs. focused

Cost cutting is pretty arbitrary as it focuses on some expenses judged as non-priority or hits equally any expenses with an overall target, e.g. saving x million € or y % of budget. Thus cost cutting is not virtuous, it just reduces the total cost (value and waste) instead of getting rid of wastage.

Cost reduction is based on rational search for lasting improvements, targeting unnecessary expenses, excessive spending or trying to find cheaper alternatives. Cost reduction programs are opportunities to revise designs of products and services, reconsider the supply base and sourcing and any other opportunities. Cost reduction is an invitation to reconsider value, to be creative.

4. One shot vs. sustainable

Cost cutting is generally not sustainable as some expenses are necessary, as for example buying spare parts and maintaining machines in operating condition. Once the savings made, cost cutting gives top management the feeling of big achievement but the savings are short-termed and are usually made at the expense (so to say) of future budget.

It is not unusual to see a surge of expenses afterwards, in order to recover from the negative side effects of arbitrary cost cutting.

Cost reduction do not only last but the new practices, alternative sourcing or solutions may be applied to other departments, businesses or products.

5. Limited vs. infinite

Cost cutting is always limited. Cost cutting will always reach a technical and/or operational limit beneath which no more business can be done safely, achieving the targets e.g. quality, reliability, timely deliveries, and so on.
Paradoxically cost reduction can lead to increased incomes when offers are made more competitive. Increasing incomes can literally be infinite while cost cutting has an absolute limit.

As we see, compared to cost cutting, cost reduction can be a good thing and is not necessarily stressful. It can even be fun.

6. Quick vs. slow

The weak point of cost reduction is the required time to yield results, making it unfit to deal quickly with a crisis. Cost cutting can be seen as a necessary evil to overcome a temporary hard time, but might not be sufficient without trying in the same time to increase revenue.

As a conclusion, Cost reduction is simply not cost cutting, but confusing them, people fear both.

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