And This Too Shall Pass

Have you heard the story behind the phrase “This too shall pass”?  Here is one version of the folktale:

One day Solomon  decided to humble Benaiah ben Yehoyada, his most trusted minister.  He said to  him, “Benaiah, there is a certain ring that I want you to bring to me.  I  wish to wear it for Sukkot which gives you six months to find it.”

“If it exists anywhere on earth, your majesty,” replied Benaiah, “I will  find it and bring it to you, but what makes the ring so special?”

“It has  magic powers,” answered the king.  “If a happy man looks at it, he  becomes sad, and if a sad man looks at it, he becomes happy.”  Solomon knew that no such ring existed in the world, but he wished to give his minister a little taste of humility.

Spring passed and then summer, and still Benaiah had no idea where he could find the ring.  On the night before Sukkot, he decided to take a walk in one of the poorest quarters of Jerusalem.   He passed by a merchant who had begun to set out the day’s wares on a shabby carpet.  “Have you by any chance heard of a magic ring that makes the happy wearer forget his joy and the broken-hearted wearer forget his sorrows?” asked Benaiah.

He watched the grandfather take a plain gold ring from his carpet and engrave something on it.   When Benaiah read the words on the ring, his face broke out in a wide smile.

That night the entire city welcomed in the holiday of Sukkot with great festivity.  “Well, my friend,” said Solomon, “have you found what I sent you after?”  All the ministers laughed and Solomon himself smiled.

To everyone’s surprise, Benaiah held up a small gold ring and declared, “Here it is, your majesty!”  As soon as Solomon read the inscription, the smile vanished from his face.  The jeweler had written three Hebrew letters on the gold band:  _gimel, zayin, yud_, which began the words “_Gam zeh ya’avor_” —  “This too shall pass.”

At that moment Solomon realized that all his wisdom and fabulous wealth and tremendous power were but fleeting things, for one day he would be nothing but dust.*  (http://www.wscribe.com/parables/index.html)

The story I am more familiar with goes like this:

It is said an Eastern monarch once charged his wise men to invent him a sentence, to be ever in view, and which should be true and appropriate in all times and situations.  They presented him the words: “And this, too, shall pass away.” * (Wikipedia)

Why do I recount these stories about that phrase?  Because that phrase, while applicable to life in general, is all too true specifically when applied to business.  Where once businesses thrived and brought great joy to customers, investors and employees alike they now close their doors.   Management teams once considered “masters of the universe” have become vulnerable and uncertain – vulnerable to the changing winds and uncertain about what they need to do next.

What changed over the years?  Many of us can remember back to the 1950’s and 1960’s when the US was the dominant industrial power.  Fresh out of WWII, there was huge global demand for consumer products and America was the world’s supplier.  America was flush with cash since it exported far more than it imported.  While there were struggles in life, there were also some comfortable certainties.  At that time people graduated from high school, got a job in the local factory, married their school sweetheart and raised a family.  Kids played unsupervised until dark and neighbors watched out for the safety and behavior of all the kids on the block.

All of that has changed.  American industry is no longer ‘the only game in town’ and the US is far from being flush with cash.  Global demand remains but Americans are competing with low-cost labor from many growing economies.  A life-long job with a local employer is not a typical scenario.  It is more likely a worker will change jobs and professions multiple times during their careers.  And kid’s activities are so organized in many cases they don’t know how to just go outside and play.  People don’t just drop in to visit any more and the parents of neighbors don’t raise their voices to other people’s children.

You may wonder how we got to where we are.  We did it just like we do most other things – one unintentional step at a time.  Our culture did not change over night.  It has morphed relatively slowly but has been doing so for such a long time that it is bearly recognizable in some respects.  How many of you have ever had a puppy?  You were completely delighted to have that cute little bundle of love and energy.  Every day you would play with it and you never really realized how much it was changing until someone who had not seen it would stop by and exclaim surprise at how much it had grown.  When you are there every day you don’t see the tiny changes.

Same can be said about our culture and the expectations of customers.  Look at the automotive industry in its early days.  First came Henry Ford who was willing to sell a car of any color – as long as it was black.  Then William C Durant formed General Motors and offered the environment a variety of styles and colors.  GM was so successful by tapping into those customer wants that Henry Ford had to close his doors and retool in order to compete with the new set of customer expectations.   Today we are talking about mass customization where a customer can pick and chose options for his/her car and still have it delivered in a couple of weeks.

The changing competitive environment spells disaster to those companies that can not adapt.  Obsolete products and processes mean shrinking market share and reduced profits.  Senior executives with established companies are experiencing sales and profit problems and are uncertain about how to sustain their existing business let alone grow it over the next few years.  These are companies that started years ago, had success, grew and then over time saw the bloom fade off their rose and now know troubled times are at hand.

The problems these companies are facing are not due to a lack of effort or intelligence by the management teams and the employee workforce.  Quite often some of the hardest working people are busy in companies that are under performing.   You could say that it is precisely for that reason that those people are working so hard.  They are trying to bail out the water in their boat faster than it is coming in lest it sink them.  The end result is that they don’t have enough time to do non-urgent and important activities (quantrant II in Steven Covey’s ‘Seven Habits of Highly Effective People).  These dedicated people cannot do the long-term planning because they are too busy fighting the short-term tasks at hand.  They are consumed by the daily tactical cycle of putting out fires and  never having quiet moments to figure out what problems are at the core of the business and what solutions have to be put in place.

A frantic work pace becomes the norm.  The thinking of management takes on a more critical view of their workers.  Those employees who go home at the end of the scheduled work day are looked down upon.  Apparently they don’t share in the ‘sense of urgency’ felt by others.  The business leaders firmly believe that the people who really understand the situation and how important work is stay late because they share their concern for the survival of the business.

Company executives try everything they know without gaining the results they are looking to achieve.  Years have been invested in creating and trying to execute new strategies only to see little, if any, progress.  Now they may be willing to try something slightly different.

Sometimes the performance problem exists in part because the executives of these companies lack the understanding of what the overall competitive environment was like when the business was first started.  They don’t know the context of the company within the time when it was created.  Context is King.  Without knowing what it was like back then they will fail to understand just how much that environment shaped their business model design.  Now take that business model design, from those long-passed glory days, and insert it into today’s world.  Most of the product, process and organizational designs no longer work.  They have become irrelevant.

This is apparent in Tom Peter’s book “Re-imagine”.  Mr. Peter’s discovered that of the top 100 companies in the US in 1910 only 18 survived over the next seventy years and only 2 outperformed the stock market.  He further substantiates that point by noting that of the S&P 500 companies in the 1950’s more than 80% failed to exist 40 years later.

These statistics tell us that business model designs do indeed become obsolete.  What worked as recently as 40 years ago no longer provides what is needed in today’s world.  When customer expectations, competitor offerings or new materials change so must designs.  The question is not “how good is the quality of the design?” but instead “how good is the design in relation to the current environment?”.

The idea about quality of design in relation to the current environment must be applied to different levels of the organization.  Think of products / services, processes and organizations as unique parts of a business and take the time to realize that each one of those parts has a design.  The idea of designs being
relevant or obsolete needs to be applied to the parts of a business as well as its whole.

What determines if a process design is no longer relevant?  Some will tell you that it is strictly the customer and they like to use the term Outside In.  I happen to believe they are only telling you half the story.  Processes have to fulfill promises made to customers while at the same time contributing positively to the bottom line.

Promises to the customer can be broken down further into price, quality, lead time, and desirability (appearance, features, functions and options).  The term I like to use when referring to those promises is Value Proposition (VP).  We all look for great value before making a purchase.  If one particular product has the greatest perceived value (combination of price, quality, lead time and desirability) then people will clamor to buy it.
Interestingly it is usually not the least expensive product that becomes
the market leader.

Who gets to determine what the Value Proposition is for a particular product?  Certainly not the executives of the companies offering the product.  This is an important concept to understand and BPM ultimately plays a key role.  I can say generally ‘it is the market place that determines the value of a product’.  When I say market place I am referring to the sum total of all customers within a given market.  The market  determines: what is a reasonable price for a given product; it determines the level of quality it will accept, and it decides how long it will wait for the product to be delivered.  Additionally it is also looking for certain features, functions and options and a pleasing appearance.

It is very important for all executives involved with creating demand for a company’s products to understand the Value Proposition of the market place for those products it is offering.  The market’s VP is the baseline.  Next it is important to know how well a company is performing in relation to that baseline.  Are its products more or less expensive?  Is the quality higher, the same or lower?  How long does it take to supply products to the customer?  How well does a
company’s product stack up in its features, functions and options?

There is one other activity worth executing before moving to the next step and that is to take a look at the competition and how well they are performing in relation to Value Proposition.  This will give executive very good information on where their products are falling short and where they have a distinct advantage.

While executives do not get to decide the expectations of the market place they do get to decide what steps their company will take with the VP information they have collected.  They know market expectations, their company’s performance in relation to those expectations and how well the competition is meeting what the market wants.

The VP analysis helps executives know where to focus their time and energy.  It helps to think about this idea if you realize that three of the four components of the Value Proposition can be directly linked to BPM: price, quality and lead time.  It also helps to think about the VP as the performance requirements for any process improvement activities.  “Performance requirements for processes should not be arbitrary”.  BPM practitioners should take the time to determine what the performance requirements are for any process they are going to improve.  And then the BPM person must design processes where the performance capabilities are equal to or greater than the performance requirements.

If the BPM professional designs and implements a process that meets the requirements of the market (outside in) and the shareholder (return on investment) then that process will be relevant, for now.

Sustainable performance, at the business or process level, is only possible if the executives of firms adapt their existing designs to accommodate the new
performance requirements of the company.  As we look at the existing requirements of today’s environment we can rest assured that “this too shall pass”.

Outside In design

I spend time in several Business Process groups on LinkedIn and one of the terms I keep seeing is “Outside In”.  I keep seeing people using that phrase as if they just had an epiphany or that they just came over the ridge and have seen the promised land.  What I don’t understand, or what surprises me, is that it seems to be a new thing to experienced people.  “top down, outside in” is how everything should be designed.  How do you go about designing something where you have not established its purpose?  How do you design something if you don’t create specifications (performance requirements)?  Outside In is common sense and I don’t see why it is getting so much play.

So I responded to a discussion and wrote the following: 

‘Outside In’ is about Context.  Understanding Context is critical in every line of thought – not just BP design.

In order to understand the purpose of an activity you have to understand it in the context of the process in which it exists.  Processes are a collection of activities.  Evaluating an activity on its own has some merit but to fully understand the activity one must understand it within the context of the process in which it exists.

Seeing an activity on its own will not provide you with an understanding of how it fits into the whole.  Every activity has a cost associated with it and should also have a value associated with it (non-value added activity?).  The activity receives its performance requirements from the next level up – the process.

In order to understand the purpose of a process you have to understand it in the context of the system in which it exists.  Systems are a collection of processes (Senge – Fifth Discipline).  Every process has a cost associated with it and its corresponding value.  The process receives its performance requirements from the next level up – the system. 

 Every business has a number of systems which support it and to understand the performance requirements of those systems you have to view them in the context of the overall business.  The system receives its performance requirements from the next level up – the business. 

 And there is where some companies have stopped their thinking.  They view their systems, processes and activities only in the context of the business itself.  They are operating in a vacuum and use performance indicators focused within their four walls.

 However those businesses need to go the next level up – the competitive environment.  They need to add another layer of context.  The business operates within the context of the competitive environment.  If a business does not factor the competitive environment into their performance requirements it will be flying in the dark.  And the likelihood it is going to hit the mark (from the competitive environment’s perspective) is slim to none. 

Hence the need for Outside In design.  While one can look at performance from the ground up (activity to process to system to business) the requirements come in the opposite direction.  One needs to understand the competitive environment first.  One has to know what the outside (competitive environment) is requiring to know the minimum performance requirements for the business and then it cascades all the way down to activities and individual employees.

And the competitive environment is not defined solely by the expectations of the customer.

What happens if your company slightly exceeds customer expectations but there are competitors offering even more?  In that situation you will most likely lose market share.  Remember, your investors are not the only ones looking for a Return on Investment.  So are the customers.  Customers want to get the most for their money (the greatest return on their investment) and if your competitors are offering more than you then you need to adjust your performance requirements.  You need to be offering a compelling Value Proposition to the market and if you don’t understand what the customers want and what your competitors are offering then you will most likely fail.

Companies don’t get to decide what the performance requirements are for products and services.  Customers do.

That is one perspective on Outside In design.  Where does your understanding differ from mine?

Context of Operations

This is most of an email I sent to a colleague who was about to teach a class on Operations.  This was my introduction to him of me and what I do.   

“I have spent the past 23 years designing processes (12 years), designing departments (7 years) and designing businesses (4 years).  If you don’t mind I will recount how that progression occurred.  Initially I worked on determining the root cause of process performance problems (nice alliteration) and designing solutions.  The effort was typically directed to one department.  As the projects grew so did the breadth of the processes.  It did not take long until I was working on processes that spanned departments which definitely increased the complexity.  I did have great success and eventually was asked to step into the CIO role at La-Z-Boy (LZB).  In that role I redesigned the IT department for the LZB division (3 years) and then created an entirely new IT department to service the all 14 divisions at LZB (4 years) plus the corporate office.  Though my title was CIO my actual role was IT Department designer, leader and manager.

 

As a Vice President I did have control over those areas reporting directly to me and so I could design them to work the way I wished them to.  IT, HR and Finance are all support functions and because each area is asked to participate in all projects you can see how important it is for them to work closely together.  If you know anything about IT you will be aware of the challenge made to every CIO – Align IT with the business.  Problem is businesses are not aligned with themselves and therefore there isn’t just one thing IT can align to.  (I contend that there really is not something called “the business” but instead a collection of departments that share a common business name.)  

 

Businesses need a way to have all of the parts working together.  It does not benefit a company to let each department go off and try to optimize itself thinking it will have an optimized whole.  It simply does not work that way.  Optimizing all the parts does not optimize the whole.  After leaving LZB four years ago I started documenting the design of the entire business to show relationships and how the parts needed to work together.  It actually shows how to align the parts of a company – the holy grail of business.

 

You have some process work in your course.  If you are a process designer you know that processes are invisible until each activity/component is documented.  Documenting processes is actually documenting process designs.  It is only when the entire process is visible that you can determine if a change is warranted and what the impact of that change will be.  By documenting the process before making changes you minimize risks of unintended results.  Also by documenting the process you can determine whether the process needs to be changed in order to achieve certain performance goals or if it is a matter of execution.  Poor process performance is the result of either a poor design or the poor execution of the design.  Until you document the process you can not know where the problem exists.  More than 80% of the time it is design-related.

 

Now reread the last paragraph and substitute the word ‘process’ with the word ‘business’.  The principles are exactly the same.  Most executives (people in your class) do not understand that businesses have designs.  They know products have designs and some will know processes have designs but few if any will know that the business has an actual design.  And because they do not know designs exist in businesses they do not look at the design when they are having performance issues.  They look at their employees (remember performance = design + execution) and if you can not see the design you go after execution.  This is why so many projects in companies have such a low ROI and management is frustrated with their investments.  They are not resolving the root cause.

 

I know this is a roundabout way of getting to one suggestion I would have with your course.  And that is context.  Context provides the appropriate background for any area of study.  One pet peeve of mine is when people judge actions taken decades ago and use today’s mores as the backdrop.  Without knowing what was going on in the past those judging do not have the right context to understand the actions that were taken.  Without understanding the entire business your students may not fully grasp Operations.  I do see that you speak about business and process design and I want to encourage you to show how things are connected, not separated.  It really is not ‘business and operations’ any more that it was ‘the business and IT’.  All of it is the business because “Everything is connected to everything”.

 

There is a particular sequence that leads up to the performance requirements for Operations.

Ø      Capstone. 

o       Strategic information such as the determination of the performance goals for the company.  What are the revenue goals and profit goals?  They drive everything. 

o       In addition you have to understand the competitive environment.  Without knowing the competitive environment you are making plans in a vacuum.  Returning to the idea of context, the competitive environment provides the context for designing the business for success. 

Ø      Market Model.

o       Markets, customer segments, product groups, products and Value Propositions.

o       Determine whether your Market Model can deliver on your revenue goals.  If not you have to make adjustments to the Market Model design.  You may increase your markets, sell to new customers, develop new products or redesign existing products.  You may acquire an existing company which will broaden your Market Model.

o       Part of the work in documenting the Market Model is determining customer expectations.  This is critical because Market Model requirements are input into Operations (Process Model).

Ø      Process Model. 

o       The Process Model contains all of the processes that the business performs.  What I am referring to may be slightly different than how you think about it.  Selling is a process.  Marketing is a process.  Assembling components is a process.  Making components is a process.  There are processes that focus on Creating Demand for a company’s products and services.  There are processes created in order to Fulfill Demand for those products and services.  I expect that in your course you equate Operations with Fulfill Demand processes.  If I am correct in that assumption I would suggest that in the future you consider all processes as part of Operations.  That is why Lean concepts work on the shop floor and in the office as well. 

o       The point I wish to make here is that the performance requirements for processes is not arbitrary.  The market place will determine what is an acceptable price or acceptable lead time both of which are determined by the Process design (Operations).  The market gives Operations the minimum requirements in order to be competitive.

 

I will stop here.  I have probably worn out my welcome by now.  You should know there are two more Models that are part of a business design:  Organizational Model and Systems Model.  If you wish to have an overview of them I would be glad to share it with you.

 

Everything I have written comes from my business partner and me.  I can not direct you to a different source because we are the sources for these ideas.  This is just the tip of our ice berg.  I have much, much more I could discuss. 

 

Let me know if you wish any clarification on the ideas I have presented.  I will be glad to respond.”