SOURCE: Kay Sever | September 30, 2019
OPTIMIZATION… When we think about that word, phrases like “achieving the best results”, “eliminating bottlenecks” and “making the most money” come to mind. You are told by vendors and experts that you must buy new equipment and systems (often millions of dollars) to achieve optimization. If the executive team decides to move forward with optimization, three words commonly summarize management’s focus: Machines, Money and Maximization.
What if I told you that there are three more areas of focus that will make or break your efforts to maximize results? What if you knew that ROI would be less than you promised the board of directors AND less than was possible to achieve if these areas were ignored? What if you learned that little or no investment is required to include these areas of focus in your optimization plan and prevent lost ROI?
It’s time to pull the veil back on three aspects of optimization that are overlooked, underrated and misunderstood, especially since weaknesses or mismatches in these aspects cause preventable losses that are often not known, measured or reported. It’s time to explore the “organizational side of optimization”: Mindset, Measures and Management.
In this series of articles, you will gain some new perspectives about the Six “M’s” of optimization and how the organizational side of optimization can be linked to the equipment/systems side of optimization to produce the highest possible ROI that is sustainable over years, not months. We will also be touching on the “Performance-Culture Connection”, something that is at best vaguely understood by most executives and management teams.
Machines, Money, Maximization – When Capital is Available to Move Forward:
When executives agree to move forward with an optimization focus, company engineers evaluate the production value stream for system bottlenecks, equipment mismatches and capacity restrictions that are preventing production from being higher. Cost reduction may also be part of the strategy. Vendors and experts may be consulted on “state of the art” equipment that would solve these problems. Requests for capital are submitted to the executive team and presented to the Board of Directors; if approved, orders are placed with the expectation of a long-term benefit that stretches far into the future. There are two financial outcomes of a 3M focus on optimization:
- You meet your ROI goals but are unaware that ROI could have been higher with little or no additional investment.
- ROI falls short of expectations (assuming equipment ran as expected) and you don’t know what to change to fix it.
ROI MATH in a 3M Optimization Focus:
In any organization, there are two streams of ROI happening all the time… 24 hours a day, 7 days a week, 365 days per year. One stream comes from equipment/systems (E/S) and a second stream comes from the corporate culture/organization (C/O). In a 3M optimization approach, only the ROI from equipment and systems (E/S) is considered, forecast, measured and reported as part of the protocol in capital approvals and post-installation performance evaluation. Let’s break down what actually happens within the ROI formula to understand how ROI is impacted by the corporate culture and organization…
- Mathematically, it is important to know that actual reported ROI attributed to equipment performance is really the “net sum” of E/S ROI + C/O ROI.
- When an organization’s corporate culture contains weaknesses that cause miscommunications, mistrust and silos, C/O losses occur that are seldom recognized or measured.
- New equipment may have the right capacity, but C/O losses linked to the way equipment was managed will result in a lower than expected ROI for the equipment.
- Because C/O losses are seldom quantified or reported, it will be difficult for management to determine what to change to further increase ROI from current levels.
- It is possible to have state of the art equipment and not maximize earnings! Executives and site management teams that oversee operations with strong equipment sets but weak corporate cultures/organizations are suffering invisible C/O losses.
- If equipment is performing well, earnings will be up and management will be happy; they will not be thinking about or looking for C/O losses that are offsetting some of the gains.
- If equipment is performing poorly, new equipment may be proposed without understanding the hidden C/O impact. This is important to consider because a weak corporate culture/organization may be a MORE COSTLY PROBLEM than the equipment.
- Without measuring the C/O impact, management may invest in new equipment that will mask C/O losses which will continue to occur until the culture and organization are strengthened.
Companies are in business to make money, not lose money. If your executive team was aware that losses were being caused by the organization/corporate culture, would they want to know more? If they were armed with data that help them understand the weakest points, they would want to take action to strengthen the weaknesses and stop the losses, especially if they knew that C/O losses can be stopped with little or no investment!
Next month we will explore the 3M’s linked to the organization, corporate culture and C/O losses.
Thought for the month: “Full Optimization” of a site or company requires a “6M” focus to truly maximize profit over the long term.
Kay Sever is a leading expert in reducing financial losses caused by corporate cultures, optimization and change barriers. She has developed a management training system called MiningOpportunity which is based on her 20 years of experience working with mines and plants to reduce the losses they never measure… losses linked to corporate culture, hidden excess capacity and change barriers. MiningOpportunity modules teach executives and management teams how to find and quantify their losses and apply strategies and tactics that stop them. Unique insights from Kay’s 3-year study of management’s barriers to change and optimization are included in the content. See MiningOpportunity.com for her contact information and several training options for your team, including the NEW “Spend a Day with Kay” option.
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