Jan 14, 2013

Does the recent management survey tell us about lean practices or not?

I've received some feedback on Lean works and now we have proof that I wrote about a report released by the U.S. Census bureau regarding a survey about management practices and their relationship to profitability, productivity, and so on.

One person felt the report and data were thin. That's something to consider. (Read the Census Bureau press release, with links to questions and the research report.) Do you agree?

Another pointed out that the report was not talking about lean except for one reference. True. I was the one who interpreted the results as being data about lean, so let's not blame the researchers for that.

My reason for using the word "lean" was that the questions are, in my view, similar indicators of questions we would use for sensing the use of lean practices in a company. I think that those related to KPIs are revealing, although those about bonuses and career advancement, not so much. What's a good name for the practices? Structured management?

In truth, 16 questions can't be said to cover every practice we'd call lean -- Shingo, Baldrige, and other lean assessment tools are many pages long. But imagine how many people would have completed the survey if it had been extensive.

These are the questions, and the multiple choice answers included in the survey. Each question is answered for 2005 and for 2010, allowing change to be measured.

1. What happened when a problem in a production process arose?
Answers: Fixed, no further action; Fixed, took action so it would not happen again; Fixed, took action so it would not happen again, and had continuous improvement process to anticipate problems like these; No action.

2. How many key performance indicators (KPIs) were monitored? 
Answers: 1-2, 3-9, 10 or more, no key performance indicators.

3. How frequently were KPIs reviewed by managers?
Answers: (Mark all that apply) Yearly, Quarterly, Monthly, Weekly, Hourly or more frequently, Never.

4. How frequently were KPIs reviewed by non-managers? 
Answers: (Mark all that apply) Yearly, Quarterly, Monthly, Weekly, Hourly or more frequently, Never.

5. Where were production display boards showing output and other KPIs?
Answers: All display boards located in one place, display boards located in multiple places, No display boards.

6. What were the time frames of production targets? Examples of production targets include production, quality, efficiency, waste, on-time delivery.
Answers: Main focus on short-term (less than one year), Main focus was on long-term (more than one year), Combination of short-term and long-term, No production targets.

7. How easy or difficult was it to achieve these targets?
Answers: Possible to achieve without much effort, Possible to achieve with some effort, Possible to achieve with normal amount of effort, Possible to achieve with more than normal amount of effort, Only possible to achieve with extraordinary effort.

8. Who was aware of targets? 
Answers: Only senior managers; Most managers and some productions workers, Most managers and most production workers, All managers and most production workers.

9. What were non-managers’ performance bonuses based on? (check all that apply) 
Answers: Their own performance as measured by KPI targets, Their team or shift performance, The plant’s performance, The company's performance, No performance bonuses.

10. When targets were met, what percent of non-managers received performance bonuses? 
Answers: 0%, 1-33%, 34-66%, 67-99%, 100%, Targets not met.

11. What were managers’ bonuses based on? (check all that apply) 
Answers: Their own performance as measured by KPI targets, Their team or shift performance, The plant’s performance, The company's performance, No performance bonuses.

12. When targets were met, what percent of managers received performance bonuses?
Answers: 0%, 1-33%, 34-66%, 67-99%, 100%, Targets not met.

13. What was the primary way non-managers were promoted? (check all that apply) 
Answers: Solely on performance and ability, Partly on performance and ability and partly on other factors, Mainly on other factors than performance and ability, Non-managers are usually not promoted.

14. What was the primary way managers were promoted? 
Answers: Solely on performance and ability, Partly on performance and ability and partly on other factors, Mainly on other factors than performance and ability, Managers are usually not promoted.

15. When was an under-performing non-manager reassigned or dismissed?
Answers: Within 6 months of identifying non-performance; After 6 months of identifying non-performance; Rarely or never.

16. When was an under-performing manager reassigned or dismissed?
Answers: Within 6 months of identifying non-performance; After 6 months of identifying non-performance; Rarely or never.

These questions were followed by others asking about the organization: where company headquarters were located, where certain decisions are made (HQ or plant) hiring and pay increases, where new product introductions take place, product pricing, advertising. Level of purchasing authority at the plant, how many employees report to the plant manager, who prioritized production workers tasks, availability and use of data for decision making, how managers learn about management practices.

Then there were some about background characteristics: seniority and years of employment of person completing the survey, number of managers and employees at the establishment, % of managers and non-managers with bachelors degree, % of employees belonging to a union.

Is some data better than no data?
My overstatement about proof that lean works aside (I did get a lot of hits on the page), I think the survey gives us something to work with when discussing the benefits of lean -- or whatever you want to call it.

Jan 9, 2013

Lean works - and now we have proof

Corrections/clarifications made 1/13/2013

The Management and Organizational Practices Survey (MOPS) results, just released January 4, 2013, from the U.S. Census Bureau, finally gives us some reliable data about the correlation between lean management principles and profits, productivity, and growth. (Obviously, to say we have "proof" is misleading, because we all know that correlation [the word I used in the body of the article] is not the same as causation. Forgive me for writing a more exciting headline.)

Responses from 30,000 large-company plants* to a 16-question survey about their manufacturing management practices were analyzed by researchers from the Census Bureau, Stanford, and MIT. The questions, related to what the (Census Bureau) researchers are calling “structured management practices,” fit into current lean thinking. Researchers say they are based on continuous monitoring, evaluation, and improvement practices, and were selected from current lean manufacturing principles. I think that the questions were useful in assessing the state of a company in using continuous improvement and lean, perhaps not exactly as we would write them, but close enough to make the data gathered meaningful.

With the data collected, researchers came up with a management score for the plants' intensity of use of the practices investigated. These management scores were compared to data on company performance.

Did the companies with stronger scores make more money?

That’s what people really want to know - are lean companies more profitable? The answer is yes, a lot more. Companies with the highest scores on using management practices associated with lean were much more profitable, as this graph shows.

The Y axis on this graph is unfortunately labeled "Profit" -- the source data is a ratio meant as a measure of "Profitability." To normalize for size of company and other factors, profitability is defined as Operating profit / sales, specifically value added minus wages and salaries / total value of shipments. The data all refers to individual plants, not the company as a whole.**

There’s a lot more to the report and the study that I’ll talk about in the next few days. I just wanted to share the news that we can finally begin to base our ideas about the value of lean on some hard data, objectively collected, analyzed with the highest level of statistical rigor. 

Read the Census Bureau press release, with links to questions and research report.

This is not a Census Bureau survey and has not been through the usual Census Bureau review process. It is the findings and opinions of the research team. The Census Bureau is simply making it available because it expands on their data. The report details indicate that a high level of statistical rigor was applied by the research team.

* The sample used for the survey was limited to large companies. Because of some estimating processes used in the ASM data for small and medium sized businesses, they were omitted from the survey. That's a disappointment since so many of our practitioners are from such companies. I have not yet found the criteria for calling a business small or medium. 

**Definitions of "value added" and "shipments" as used by the Census Bureau
  • Value added - This measure of manufacturing activity is derived by subtracting the cost of materials, supplies, containers, fuel, purchased electricity, and contract work from the value of shipments (products manufactured plus receipts for services rendered). The result of this calculation is adjusted by the addition of value added by merchandising operations (i.e., the difference between the sales value and the cost of merchandise sold without further manufacture, processing, or assembly) plus the net change in finished goods and work-in-process between the beginning- and end-of-year inventories. For those industries where value of production is collected instead of value of shipments, value added is adjusted only for the change in work-in-process inventories between the beginning and end of year. For those industries where value of work done is collected, the value added does not include an adjustment for the change in finished goods or work-in-process inventories. “Value added” avoids the duplication in the figure for value of shipments that results from the use of products of some establishments as materials by others. Value added is considered to be the best value measure available for comparing the relative economic importance of manufacturing among industries and geographic areas.
  • Value of product shipments - Includes the total value of all products produced and shipped by all producers, not just those with values of $100,000 or more. However, for selected products, this can represent value of receipts, value of production, or value of work done. Industries that are published on these unique basis are separately.

Jan 6, 2013

Management Blog Carnival 2012 - Square Peg Musings

Square Peg Musings by Scott Rutherford is new to me and I’m happy to discover and review it as part of the 2012 Management Blog Carnival. Scott has the right experience, writing ability, and things to write about to make a top-notch continuous improvement blog. He comes from the ASQ quality arena, which gives his reports a slightly different spin from the lean blogs. In fact, he is an ASQ Influential Voice and includes a disclaimer: “While I receive a variety of quality resources as honorarium from ASQ in exchange for this commitment, the thoughts and opinions expressed on this blog are my own.” That seems to be true. Scott writes in his own voice from his own perspective with his own conclusions. To me, that’s what makes a blog interesting.

A few recent posts I’ll highlight:

What if I can’t get a raise? is a compelling subject for a lot of people. Scott starts by saying why that’s not so compelling for him as a government employee who really likes what he’s doing now. From his days of chasing the paycheck as a quality manager, he does have some advice to impart: be a leader, provide value, and draw attention to others. Providing value, in Scott’s view is going to the gemba, enforcing standards, and communicating expectations. A few more other things he says leaders do:

  • Being cognizant of organizational performance and how you and your team fit into the big picture. 
  • Mentoring your team appreciate new opportunities and challenge rules. 
  • Asking your team, “how do you think we should solve this problem?”
  • Success follows you, it is not you. 
  • Focusing the spotlight on the team successful. 

His conclusion is, “In my opinion, skip the raise and help your team be successful.”

In another post, in his turn as host of the Management Blog Carnival he takes a look at
Nicole Radziwill’s blog, Quality and Innovation. One of Nicole’s unique ideas Scott mentions is questioning the validity of Deming’s 14 points. (In contrast to Michel Baudin’s recent blog posts based on the 14 points.)

A third, Celebrating World Quality Month - Wrap-up of the DQG Conference  is one of my favorite kinds of posts, a report on a professional conference, in this case the Dubai Quality Group. On the personal side, he tells why he enjoyed himself: hospitality, great speakers, great audience, and questions. It’s actually difficult to write a good post about a conference. Writing about who spoke about what -- the central purpose of the event -- can easily turn into a list of names and topics without much information. I think Scott did a good job of saying enough about what the speakers said, then telling us why it was important. It made me interested in finding out more about the speakers, whose names are new to me. Most speakers were from outside Dubai, but Scott says the 160 people attending were from the Arabian region. We know too little about continuous improvement there -- from business news I have seen from Dubai, Qatar, and other middle eastern countries, I can tell you there is robust activity there.

While I liked Scott’s blog a lot, it was very hard to read its tiny white type on its black background. (Granted, the web being what it is, font size can be rendered smaller or larger than intended.) The dark background is cluttered with a reading room scene that seems unrelated to the topic. Readable black type on a white background may be boring, but that’s the point. The writing is more important than the decoration. Blogger has lots of simple themes to choose from and  converting to one of them might be a good idea.

I know I will keep up with Scott’s blog because of its originality and interesting insights. Good job overall.

Jan 4, 2013

Management Blog Carnival 2012 - Michel Baudin's Blog

It's another year for the Management Blog Carnival, the brainchild of John Hunter, aka Curious Cat. It's bloggers blogging about other bloggers, and the guide to all of them is on the Curious Cat blog website. This year, the first blog I'm taking a look at is Michel Baudin's Blog.

Michel Baudin’s Blog, titled simply Michel Baudin’s Blog, is one of those combinations of good writing, deep experience, and wide-ranging knowledge. In general, his posts reveal him to be thoughtful, well-read, and erudite, while he avoids being obscure or academic. The blog is easy to read and navigate. It is visually attractive, with a simple layout and enough images to keep it interesting.

As for content, some posts are links to current articles and news related to lean. Michel usually adds his insight -- valuable but short.  The value of having an expert select articles is that it helps the rest of us by sifting the wheat from the chaff.

The best reason to follow Michel’s blog is to read his longer essays. Lately he has been picking out each of Dr. W. Edwards Deming’s 14 points for inspiration, reminding us what Dr. Deming said, then how his experience or stories from other books illustrate what the point means. After reading one of these blog posts, you not only know what Deming said -- whether you had been familiar with his work or not -- but you have spent some time thinking about how it relates to your own job.

An example is

Deming’s Point 10 of 14 – Eliminate slogans and exhortations
"Eliminate slogans, exhortations, and targets for the work force asking for zero defects and new levels of productivity. Such exhortations only create adversarial relationships, as the bulk of the causes of low quality and low productivity belong to the system and thus lie beyond the power of the work force."
What usually happens when banners appear in the workplace and word comes down, translated to some version of “work harder” or “stop making mistakes”? Michel relates stories from Ben Hamper’s automotive experience in the 1980s. Slogans are meant to communicate to workers and the public some emphasis on improvement, but they usually fail.  Michel shows some more effective ways used by Toyota, Porsche, VW, and Honda to get the message across.

In an earlier post, Comparative advantage, free trade, and productivity, Michel dissects the meaning of the terminology invented by the 18th century economists, David Ricardo and Adam Smith. Not surprisingly, people are a bit vague on the original meanings of these economic and business terms we throw around, and blank on the context in which the terminology began. You have to like business and manufacturing history to read the whole story, and I wish people did so more often.

Mitigating “Mura,” or unevenness is an article that should not be missed. It takes a long time for lean learners to get past a focus on Muda and start to learn what Mura and Muri are all about. Michel starts by saying:

Mura then really is the conjunction of overburdening some resources while others wait, or of alternating over time between overburdening and underutilizing the same resources.

Then he offers an in-depth exploration of:

    Mura in space, Mura in time, and Mura in space and time
    Degrees of severity: Deterministic, random, and uncertain environments
    What is special about Manufacturing?
    Internal versus external causes of unevenness
    Most useful skills in dealing with Mura

I can’t possibly summarize the article. I’ll just say it’s one you might want to print and hand out, then use for discussion.

Overall, Michel Baudin’s blog is a really good place to learn things missing from your years of education. You’ll get a picture of lean theory and how it plays out in the real world, as well as a dollop of economic and business theory. Highly recommended.

The next blog review in my series will be Square Peg Musings.

Copyright @ 2005-2014 by Karen Wilhelm