The Garrison Report #2006-7

How to Increase Your Company's Effectiveness and Efficiency - Part II

The last issue of The Garrison Report #2006-6 (www.tedgarrison.com/resources/garrison-report/2006-reports/how-to-increase-your-companys-effectiveness-and-efficiency) started the discussion on how the best value concept can increase your company's effectiveness and efficiency. The report focused on the first, or defining, phase of the DMAIC model that is illustrated below in Figure 1.

 

FIGURE 1 - DMAIC

The last report explored how to establish the client's requirements and your own expectations of operational tasks. Now you are ready to measure them because without measurement there is no way to know if you are improving or even achieving your desired results.

However, the key is to measure the right stuff. Jack Welch tells a story in his book, Jack: Straight from the Gut, about how even measurement doesn't always produce perfect results. He reported that he observed that one of GE's businesses showed a remarkable leap in revenue. However, Jack also noticed there was no increase in profits despite the revenue increase. When he asked why, he was told there had been a sales contest to increase business, but no one mentioned margin. While sales increased, the sales people merely gave the work away to increase volume. This is important because too many contractors focus on volume instead of profit margins.

In the late 1970s, a friend of the author owned an electrical contracting company in suburban New Orleans. When his sons came into the business, it was felt they could increase the size of the company. They did. They doubled their volume, but unfortunately, the profit didn't increase. It wasn't just a matter of how many managers they had; it had more to do with the potential business. In order to increase their volume, they had to lower prices and seek less desirable work. Further, with the increased volume, they weren't able to provide the normal high customer service. The result was reduced margins. The company went back to its original volume because, they concluded, why work twice as hard for the same profit?

Resistance to Measurement

There are several reasons employees resist measurement. They include the following:

  1. Employees fear and mistrust measurement.
  2. There is a general lack of understanding of what or how to measure.
  3. The results are typically not shared in an open manner.
  4. Most people make measuring too difficult.

Employees fear and mistrust measurement because too often the measurement is the basis for punishing the employee instead using the information to improve the system. To avoid this problem, measurement should focus on schedule, quality and responsiveness instead of costs. Cost savings are a by-product of the improvement, but when the process focuses on the cost, it appears that all anyone cares about is money. It's much easier for people to understand and accept the idea that schedule, quality and responsiveness are customer focused.

Many employees believe that measurement is about checking up on them and that no matter what they do, no one will be happy. Instead, the measurement should be about the results. Workers must be part of the process in determining what must be measured. The employees must understand that when the desired results are not being achieved, it's about the system, not the people. From using Six Sigma statistics, it has been observed that when the desired results aren't achieved, the worker is the problem somewhere between 5 and 15 percent of the time. Yet too often the employee is blamed, regardless of the facts. When the worker understands measurement is designed to make his job easier by eliminating the problems that impact the results, the worker begins to embrace measurement.

Some organizations share the measurements only when results are undesirable. Workers fear measurement because it is just a source of their problem. Instead, companies should also use the numbers to reward good performance. Share the positive results and reinforce the effort with positive feedback to eliminate this fear.

Keep this measurement process simple. Don't make the process complicated, or measurement will only add work for the employees without any benefit. The extra work only breeds increased resentment.

Two Important Tools

The evaluation process can't occur in a vacuum. The measurement must measure the output desired by the customer, whether it's an internal or external customer. Therefore, customer value feedback is essential. It doesn't matter how well you think you are doing; the only thing that matters is the customer's happiness. Without proper measurement, you have no idea what the customer is thinking. Dean Kashiwagi's Performance Based Studies Research Group at ASU has observed this condition. They require all contractors that participate in their best value programs to submit references. One would think that people would provide only their best references, but often contractors receive poor ratings from their references. Yet everyone is surprised when a contractor receives a poor rating from one of his best references. This is a result of not measuring the customer's satisfaction. Focus on what the customer thinks is the most important. (This concept was discussed in greater detail in the previous report.)

The other way to judge your performance is to benchmark your performance against the best in the industry. If you are not the best, or at least very near the top, you are setting yourself up for a fall. This should not be a problem because any value-based contractor wants to be the best.

It helps to measure things that are repeated on every project. This way you get constant feedback. Also, you are measuring things that will have an impact. When something occurs only once in a while, it's not where you want to put your energy. Focus on the 20 percent that produces 80 percent of the benefits. A few things you might want to measure include the following:

  1. Inputs --deliveries. Often we think we are saving by buying from the lowest-cost vendor, yet if their deliveries are late, those cost savings might be a myth.
  2. Tasks--how long and quality. Schedule and performance is what you are paid for, so step up to the plate and be the best.
  3. Flow--down time between tasks. In Florida it's taking a homebuilder 14 months to build a house. This is not because it takes longer to build a house in Florida, but there is more down time between tasks. It's time homebuilders figure out how to manage a project's down time.
  4. Output--quality: rejects, problems and punch list. When these are done correctly, it reduces cost. If you are not measuring these items in an effort to eliminate them, you are burning money

Analysis--Improve--Control

While the defining and measurement phases are the most important, the remaining three phases also have value. If you don't analyze the results of your measurement to understand them, you aren't much better off than those who didn't measure in the first place. Part of the analysis is to determine where you can get better. The great ones, such as Tiger Woods, attempt to improve their game even when they are ranked number one.

Without the desire for continuous improvement, your company will fall back and quickly become an 'also ran.' Besides, what's the point of Six Sigma if you aren't into improvement? Finally, once you make the improvements, you need to control the process so people don't return to the old way of doing things because it's more comfortable. It takes time to develop new habits. Make it happen! Don't let the workers slide back.

Final Thought

Many people believe that Six Sigma is about only quality and statistics, but it's much more. It provides the tools for leadership to think through tough issues, especially those that focus on the customer. We are facing a new ball game. The construction industry is facing change like it has never seen before, and it will occur at unprecedented rates. Those who accept it and realize the potential will find it fun. Those who refuse to accept the new world will continue to fear change, and their performance will suffer. The choice is yours.

 

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