I have seen organisations where almost every department could demonstrate that it was doing a good job. Sales achieved its targets, purchasing reduced costs, production improved efficiency and finance kept a tight grip on expenditure.
Yet customers were unhappy, deliveries were unreliable and profitability was disappointing. How can everybody be doing so well while the business is doing so badly?
Quite easily, actually.
A perfectly reasonable mess
Imagine a manufacturing company. Purchasing has negotiated lower prices by ordering materials in larger quantities. Production has improved machine utilisation by running longer batches. Sales has increased orders by offering customers shorter delivery times and greater flexibility.
Each department has a convincing explanation for its decisions. And each can produce figures showing the benefits.
Meanwhile, inventory is growing, urgent orders disrupt production schedules and customers wait for deliveries that were promised far too optimistically. Working capital is tied up, overtime increases and the company pays for all that efficiency with declining profitability.
Nobody necessarily made a stupid decision. The decisions simply worked against one another.
That is a rather uncomfortable management problem.
The department is doing well. So what?
There is nothing wrong with departmental targets. People need to know what is expected of them, and management needs ways to measure performance.
The trouble begins when those measures become more important than the business results they were supposed to support.
A purchasing manager can reduce unit prices while increasing total inventory costs. Production can improve machine utilisation while making customer lead times worse. Sales can exceed its revenue target while accepting orders that contribute very little to profit.
All three departments may receive congratulations. But the company pays the bill.
I would be rather interested in the management system that allowed this to happen. Who established those priorities? Who examined their combined consequences? And who has the authority to resolve the conflicts?
Those are management questions, and they cannot be answered by asking each department to work even harder.
Follow the consequences across departmental borders
When examining an operation, I prefer to follow the work and its consequences rather than stopping at the organisational chart.
What happens to the order after sales accepts it? What does purchasing's cheaper material actually cost once inventory and handling are included? What happens to delivery reliability when production optimises batch sizes?
This is where working with the people who actually perform the work becomes invaluable. Each function understands something important, but the full picture usually appears only when those pieces are connected.
And quite often, the people involved already know where the conflicts are. They have simply learned to live with them.
Somebody has to manage the whole business
Departments need their own responsibilities and measures. But those measures must serve the overall business objectives, and management must resolve the conflicts when they don't.
Otherwise, we create a peculiar situation where everybody can prove they are right, while nobody takes responsibility for the combined result.
The company does not make its profit department by department. It makes it through the combined consequences of what those departments do. Value chain ring a bell?
That's where I would look for the beef.
Let's talk
If your departments are meeting their targets while overall business performance remains disappointing, perhaps we should follow the consequences across those departmental borders.
My work starts with discovery and diagnosis, working with the people concerned to establish what is actually happening and develop an actionable improvement plan.
Contact me here on LinkedIn for an initial discussion or visit www.baleteworks.com. No strings attached.