What are procedures? Procedures are documents that describe business processes. Procedures are one tool we can use to train new and current employees how our processes work, and sometimes we show them how processes interact. Procedures can also help ensure a high degree of consistency in how processes operate and in the results they yield.

From "We Want Our Mummy", Columbia Pictures (1938)

Procedures are also a pain for many companies to write and maintain. Many organizations write procedures with one goal in mind — compliance. Not that there’s anything wrong with that. Either there’s a compelling business reason for you to comply, like a larger organization that says they won’t do business with you unless you comply with a certain standard, such as ISO 9001. Or, there are laws with which you have to comply simply to stay in business (for instance, worker safety and food safety regulations).

Strangely, when compliance is the most important — or the only — goal, companies often forget about their procedures once they’ve implement them. Instead of monitoring and measuring, reviewing, and adjusting their performance — gradually and continually improving the process — they put the Almighty Book of Policies and Procedures in a hallowed place on the shelf and ignore it.

From "vodex.co.uk" site

Why is that? Well, here’s what some companies say about procedures:

• “Writing procedures isn’t our business”
• “It’s a cost center, not a moneymaker”
• “It takes time and money to maintain procedures”

Writing Procedures Isn’t Our Business

It’s true — your customers aren’t buying your internal procedures. What ARE they buying? Yes, they’re purchasing a product…but is it just the product or service they’re buying? Of course not.

Besides paying for goods or services, your customers are paying for the quality of your product, your ability to produce a consistently good product, and/or your ability to act on problems quickly and efficiently. They like the fact that you don’t make excuses — you just fix problems. And how do you do that without implementing effective policies and procedures, like “how to conduct an internal audit” or “how to take corrective action“? You might, if you’re lucky, but luck doesn’t guarantee your customers consistently high-quality results.

Procedure Writing Is a Cost Center

True, it costs you time and money to develop, implement, and maintain procedures. The fact that you have to research, write, review, and approve procedures can appear expensive and time consuming.

But what does it cost you NOT to have procedures? Like we said earlier, effective internal procedures are what help you gain and keep customers. Without the high quality and consistency that procedures help ensure, you risk losing your hard-earned reputation — and your hard-won customers. It’s much easier to keep a satisfied customer than it is to obtain a new one and it’s infinitely easier to keep them than it is to win them back once you’ve disappointed them.

It Takes Time and Money to Maintain Procedures

“Besides”, many companies insist, “our people know what they have to do. They don’t need procedures once they have the proper experience ‘under their belts’.” But how did your employees get that knowledge in the first place? Were they given in-depth training? Was the training consistent? Are they able to build on that knowledge?

Besides, business circumstances change (look at the recession we still seem to be going through). Customers’ needs change over time. Regulations are added all the time — some don’t affect you but others have a great impact on your business. Are you accounting for these types of change in your procedures?

In short, maintaining your procedures will cost you something but not maintaining them will cost your company a great deal more. You run the risk of falling behind your competition, falling to the back end of the technology curve, or falling out of compliance if you’re not looking at your procedures as “living documents”. If you’re not continually looking to improve the way you do things, you run the risk of stunting your company’s growth.

To sum up, you really should develop, implement, and maintain business procedures because it’s just plain good business and not just because somebody’s making you.

What do you think? Can an organization’s growth be held back because of poor or nonexistent procedures?

* * * * * * *

If you find your company is having trouble developing effective, meaningful procedures, check out our full line of business policies and procedures. They’ll make your policies-and-procedures journey easier to start and make it easier for you to stay on the right path.

It seems for the last couple of years as though we’ve been constantly running in crisis mode. To put it mildly, the worldwide economic situation got out of control 2-3 years ago and it doesn’t show signs of improving soon. Uncertainty abounds, fingers are pointed in every direction, and many of us feel powerless to do anything but wait and worry.

“What? Me worry?”
Alfred E. Newman

Crisis Management Is a Response…

The economic crisis has occurred and whether it was through our fault or not, we have to get it under control and fix it quickly as possible — that’s what crisis management is. Depending on the nature and extent of a problem, it may take considerable resources to fix. As we’ve seen, our current economic crisis has used up an enormous amount of resources and promises to swallow up many more before we even come close to a solution.

Unfortunately, it looks like many companies — but especially small-to-medium businesses – will simply have to do their best to ride out the economic storm. Too much is beyond their knowledge or control.

…Whereas Risk Management Is Strategic

Many people have laid the lion’s share of the blame for the economic crisis on the financial sector, or on government policies. Certainly they weren’t the only causes, however. Companies in every sector took unnecessary risks and didn’t implement a system of effective controls and oversight. Good risk management practices existed but they weren’t followed.

Risk management consists of identifying potential threats, assessing their likelihood and their impact (if they were to occur), and taking the necessary steps to eliminate or minimize risks. There are risks we’ll always be powerless to avoid or control (severe weather, earthquake, etc.), but we can cope with them — and many others — better simply by implementing effective risk management systems.

Management Philosophy

There is a management philosophy, mirrored by ISO 9001, that merely correcting a problem isn’t as good as identifying its root cause and taking steps to make sure the problem doesn’t recur. That’s called “taking corrective action“.

That philosophy also says that making sure a problem doesn’t happen again isn’t as good as preventing it from happening in the first place (aka, “preventive action“). It follows, then, that risk management is markedly preferable to crisis management. This is not to say you shouldn’t prepare to manage crises (after all, the best-laid risk management plans aren’t going to prevent every crisis…like they say, “Stuff happens”) but that crisis management should be your fall-back position.

Comments, anyone?

One way to be sure to eliminate a problem for good is to identify the root cause and eliminate it. In the world of quality, we have this easy to use tool for getting to the root cause of a problem.

The “Five Whys”, simply put, means you state the problem and keep asking why until you’ve identified the root cause. However, using the Five Whys means the problem has occurred. Isn’t it better to prevent the problem from happening than correct it after the fact? Preventive action is infinitely preferable to corrective action.

I’ll give you a “for instance”. Someone I know recently left a wireless provider she’d been with for several years. What upset her most was that when she canceled, the customer service rep (CSR) didn’t ask why she was leaving. She might have reacted positively if the CSR had offered her an incentive to stay but he didn’t, and she’d pretty much made up her mind by then that they weren’t worthy.

If you can’t give somebody a reason to stay all along, your problems aren’t going to be magically solved by root cause analysis or any other corrective action tools. A root cause analysis may help you solve your problem, but why let the problem happen in the first place? Why not head off the problem? Take an active interest in your customers, rather than sit back and wait for things to happen.

Most customers will walk away from you without complaining. They don’t announce that they’re taking their business elsewhere: they just do it. They don’t give you a chance to explain yourself because they feel like they’ve been let down all along.

Dissatisfaction isn’t the result of a one-time occurrence. It happens over a period of time.  If, from the outset, communication is poor or nonexistent, the foundation for customer dissatisfaction is being laid. If you don’t continue to make your customer feel valued and welcome, the relationship that might have been never is.

Next, I’ll be looking for an answer to the question, “Why don’t customers complain?”, and I’m asking for your help. Are you more likely to complain to your vendors, or do you keep quiet and look for an alternative right away? What if you don’t have an alternative? What do you do then?

Thanks for your insights, and best wishes.

We all know what “corrective action” is, right? If you don’t, it’s really easy. It’s an action you take to eliminate the root cause of a problem (or nonconformance), thereby preventing — or reducing the likelihood of — the problem’s recurrence.

So, define the problem. (Well, see, it’s like this. Our skater was ahead — I mean “way ahead” — in the longest of the long-distance races. It’s, like, six miles. And with nearly three-quarters of the race gone, his opponent’s nowhere near him. He might as well be in another building…or another country.)

Doesn’t sound like a problem to me. (I was about to get to that. It’s at that point that our guy’s supposed to switch lanes to the outside. Only our coach says, “INSIDE!”, and our guy GOES inside, like he’s told. And because he didn’t switch lanes, our man’s DQ-ed.)

DQ-ed? (Disqualified. He had the best time, but didn’t win the race. We had the best man, the best coaches, the best training, best nutrition, best staff, the fastest track…and we have nothing to show for all that. No winner, no medal, no endorsements…nothing.)

And why was your man disqualified? (Like I said, the coach said “go inside” and he went inside. The coach made a mistake. So did our skater, I guess.)

Why did the coach tell your skater to go inside? (He wasn’t paying close attention…he was distracted…he was confused, somehow.)

Why did the skater do what the coach said? (He trusted the coach. He wasn’t paying attention, either.)

Why weren’t they paying attention? (I can’t say for sure. Maybe they were so far ahead, they got a little careless.)

See what we did? Recognize the “Five Whys”? We got down to a possible root cause. I say ”possible” because we rely on an individual’s focus, memory and biases. If we subject several people, including the skater and coach, to the “Five Whys”, we get a somewhat balanced result.

Now that we’ve identified a root cause, how do we eliminate it? Better yet, “What does this have to do with MY business?” For the answer to these and other questions…

…stay tuned.

Thanks to recent reports across all media (ex., “Toyota’s Slow Awakening to a Deadly Problem“, 1 Feb 2010), we’re beginning to see the enormous scope of the acceleration error that has prompted the recall of millions of Toyota vehicles.

Toyota, a company long considered a paragon of lean manufacturing virtue (hence, its assuming the mantle of “World’s Largest Car Maker” from GM), appears to have a serious defect in many of its highest-selling products. “Unintended acceleration” has resulted in hundreds of accidents (reported so far) and the loss of untold lives. In the last two weeks, Toyota shut down the production lines of some of its most popular vehicles to address the situation.

Could it be, as some have suggested, that Toyota has been “hoist with (its) own petard”? Or, to put it another way, was Toyota done in by the very system designed to make it efficient and prosperous?

Just today (1 Feb 2010), Toyota “officially” announced it had found a way to correct the problem (one that goes beyond replacing or doctoring floor mats), but many people aren’t satisfied the manufacturing giant has found the real solution. And even if it has, it will be a long, long time before Toyota recovers from the damage it has done to its reputation.

Questions abound, including “Why didn’t Toyota conduct a thorough investigation when it first learned of the problem (back in 2007?)”, “Why did the company stay with the ‘floor mat’ explanation for so long?”, and “Why didn’t safety bodies (like the NHTSA) do more when they realized there was a problem?”

Toyota’s TPS system appears to be in need of a corrective action — the question is, “Where?” Is the problem in manufacturing only? Customer service? Marketing? Design & development? Outsourcing? Or, did Toyota get too big for its own good?

Toyota’s not the only organization incriminated in this scenario. The National Highway Traffic Safety Administration doesn’t come out of this situation unbloodied and unbowed. There are allegations that it could have and should have done more to keep the defect, whatever its root cause, from getting out of control.

In a half-hearted defense of NHTSA, they appear to have been ahead of many of their counterparts around the globe. Recalls in Europe and elsewhere followed the recalls in the US. Furthermore, every government body is hurting. There isn’t anything they don’t need — the authority to inspect and recall, or enforce laws; more people; more training; and a degree of autonomy, so they’re not called on the carpet (truly, no pun intended) for doing their job.

No amount of corrective action, though, can begin to make up for the people who’ve already lost their lives. (Interesting how in a situation like this, we tend to say, “Lives were lost needlessly“, when the opposite is true. Too many times, lives have to be lost — often in numbers — before action is taken.)

Lessons we might take from this at this “early” stage? One: corporate management is increasingly susceptible to hubris as a company grows.   Maybe Toyota was afflicted with the same disease financial services caught — we haven’t seen a problem in so long, they must all be licked. Not that corporate “attitude” is the root cause of Toyota’s problem, or even a proximate cause, but the “floor mat” story should have given us all pause to reflect.

Two: nothing can completely take the place of testing and inspection. We have safety standards, regulations, etc., in place in the aerospace and food businesses. For better or worse, more is on the way. Why not make the automotive world jump similar hurdles (i.e., make safety mandatory)?

Three: the best designed, most rigorous systems eventually come apart when they’re not paid attention. CAPAs, like anything else in your Quality Management System, have to be applied continually in order for your company and your system to improve. Toyota has said it in so many ways: “Satisfactory” isn’t.

So, what happened? Your ideas?

(P.S. – Not like Toyota needed more bad news, but now they have a braking problem on the newest Prius. What do you think of that?)

Policies are the backbone of every organization.  Even startup companies that don’t yet have formal policies follow long-standing, commonly accepted “rules” of individual and corporate behavior — implicit policies (e.g., the “Golden Rule”) that guide them.  Formal, written policies guide appropriate (ethical) behavior in larger companies.

Yet, everyone has had to deal sooner or later with policies that are so poorly written that they’re without meaning and validity.  In short, they’re unenforceable.  But if good policies are so important to the company, why and how do bad policies happen?  Well, here’s how…

One: They’re Written for Problems That Don’t Exist

Outside of the corporate policy statement — which stems from your vision and mission statements — a policy statement is generally a response to a problem.  Policy is one aspect of a plan to rectify the problem (a corrective action, if you will). One example of a policy written in response to a problem is, “We will respond to every customer complaint within 24 hours.”

You write such a policy not for an isolated complaint, but because complaints are piling on top of complaints and customers are beyond “dissatisfied”.  If you’re introducing a new product or line of business and you have no customers yet…well, what’s the point of having a complaint policy? How would you know if it’s appropriate if you’ve never received a complaint?

Two: Employees Are Unaware That a Policy Exists

If you have a policy that no one knows about, it’s as bad as having no policy. The last time you wrote and implemented a policy, how did you get the word out to employees? How do you notify new employees that the policy exists and how do you train them?

Three: Policies Are Difficult to Understand

• They’re too long. Observe – but do not follow blindly – the Golden Rule of Policy Writing. If it’s longer than twenty words, make sure the point of the policy is perfectly clear.
• Their scope is undefined or unclear. Who does the policy apply to? Under what conditions? If it’s a blanket policy, it’s not an appropriate response to a specific problem.
• The policy is too complex. Another Golden Rule of Policy Writing ought to be “stay away from buzzwords, jargon, and platitudes”. Get to the point.
• It’s too vague. If the average employee can’t tell who the policy is meant for, what the point of the policy is, or you use indefinite words like “sometimes” or “often”, your policy will eventually be misinterpreted.

Also, if your policy lacks specific terms of compliance (e.g., a definition of compliance, how to monitor it, and what to measure), how do you know if people are complying?

Four: Who Owns the Policy Is Unknown or Unclear

Who has additional information regarding the policy? Who is empowered to make policy changes? If you’re not empowered but you see a need for a change, who do you go to and how do you get it taken care of?

Five: Responsibility for Enforcement is Unclear

Whether the penalty for a policy violation is “a maximum of 30 days in jail, $5,000 fine, or both”, “thirty lashes at the mast”, probationary status, or a stern talking-to, who’s going to enforce the policy? What enforcement tools are you giving them?

Six: Consequences of Policy Violation Are Unclear or Don’t Exist

How do you reward compliance?  How do you penalize noncompliance? Is the reward or penalty appropriate to the noncompliance? (Or, do you figure on using the “honor system”?)

Seven: People Don’t Believe in the Policy

This ties together “not understanding the policy” and “who owns the policy”. If your employees don’t understand the reason for the policy – if they don’t buy into it – they’re not going to throw their weight behind it. People need to have a vested interest in policy development, implementation, and enforcement. They need to participate in – have a stake in the outcome of – the process.

So, if you want meaningful, effective, and enforceable policies, start with these seven basic tenets:

1. Don’t write a policy for a nonexistent problem;
2. Be sure all employees are fully informed;
3. Write policies so they’re easy to understand;
4. Let everyone know who “owns” the policy;
5. Make it clear how the policy will be enforced and by whom;
6. State the consequences of noncompliance; and
7. Implement policies people can believe in.

Do you have an example of a really good – or a truly atrocious – policy? If it’s an example of “bad policy”, how might you make it right?

Best of luck, and best holiday wishes.
Steve

Great news!  The U.S. Department of Commerce said orders for durable goods rose in May for the second straight month…

The Federal Reserve said today, at the conclusion of a two-day meeting, that “the pace of economic contraction is ’slowing’ and that financial market conditions have improved”…

In yet another sign of the recovery, a report showed “sales of new houses unexpectedly dropped last month, indicating foreclosures made existing homes more attractive…”

Forgive me for playing devil’s advocate but first, “they” are referring to lagging indicators.  Second, “they” never give any details like “Where’d you get those numbers?”, a question that was curiously missing from most analyses of derivatives and credit default swaps in the last couple of years.

Third — and most important — the danger is that before meaningful long-term shifts in policy have been made, corrective actions have been taken, and really effective controls are implemented, people will get caught up in the euphoria of the moment and forget what got us into such a bloody mess in the housing and financial sectors.  (“Oh, everything’s back to OK, so we can go back to business as usual!”)

“Business as usual”, as we ought to know by now, is a dysfunctional coping mechanism at best.  Common sense — as well as sound business practices, guidelines, and standards like ISO 9001 — dictates that when something bad happens as has happened in the housing and financial markets over the last two years, we take action to prevent that bad thing from recurring.

If we don’t properly or adequately analyze the problem, determine its root cause, identify the best method for eliminating that cause, and take action, next time — and our collective track record isn’t terribly promising — the ones that choose to stay with the status quo must be allowed to fail.

Do you disagree?

The metrics you use depend on where you are on your lean journey.  Maximizing your cash-to-cash cycle is the target and your inventory turns or velocity is a great measure.  Your inventory turns are composed of your finished goods plus Work In Process (WIP) plus raw materials.  What do you need to measure?

Inventory Turns

First, your sales cycle drives finished goods turns, production drives WIP turns, and purchasing drives raw material turns.  The faster each of these move, the better your cash flow.  Many companies have inventory turns of 5-20.  Drive yours over 100 and you are doing great.

Overall Equipment Effectiveness

Second, the fewer unproductive man hours you use to drive these measures upward, the better your numbers look. You can use the  Overall Equipment Effectiveness (OEE) measure here. 

OEE% = Availability%  X  Productivity%  X  Quality%. 

Think of Availability% as machine running time (actually making parts) / total machine time (including setup, breakdown, or other down time).  Productivity% is based on machine performance or operating speed compared to its maximum speed.  Quality% is the number of good parts produced compared to the total number produced. 

Multiply them together and you get the Overall Equipment Effectiveness or OEE, which can be used to find the waste that is holding you back.  OEE varies dramatically by industry but target 90% and you will be doing well here.

Improvements Per Employee

Third, a strong aggressive program of improvement will overcome everything else.  Kaizens or improvements tracked per employee will provide a barometer for action.  Corrective action, preventive action, or just corrections are all required by ISO 9000.  Lean also thrives on continuous improvement.  Many companies might be happy with one improvement per employee per year.  But if you really want to drive improvement you need something far more aggressive like two improvements per person per month.  That’s right, per month!

One improvement per employee year means that an employee works about 240 days in a year and comes up with one idea.  What kind of productivity do you think you are getting with 1/240?  Now if that same employee provides two ideas per month, that’s 24 ideas per year or 1/10 productivity.  Which do you think produces a more competitive company over time?  But wait, you can get synergistic returns by communicating your improvements to all employees.  Others will see one idea and think of an improvement on it and make it even better

Lean metrics can be as simple as inventory turns, Overall Equipment Effectiveness, and kaizens per employee.  Use these three to get your lean program started and I guarantee you will see dramatic improvements in your organization.