Optimization and Context: What Can’t Leadership Teams Do? (Measuring the Unmeasurable – Part 4)

SOURCE: Kay Sever | October 28, 2022

Context is defined as “the circumstances that form the setting for an event, statement or idea”. In 2022,  we will be exploring the context surrounding optimization in business… 1) what we believe and have been taught about success in business and 2) how these beliefs have influenced our perspectives on the “who, what, when and how” of optimization and the gains we are able to achieve and sustain.

To illustrate the power of context on business success, over the next few months we will consider questions that cannot be answered within traditional/historical business practices and how the resulting void in information shapes the context for this thing we call “management”… how you define management responsibilities, how you communicate, how you solve problems, how you measure  success… and how success is unintentionally limited despite investments in improvement/optimization.

This article is a continuation of a series of articles that reveal how data for operating potential is different from actual and budget data, followed by some things executives and management teams CAN’T DO without data for operating potential.

Operating potential is “a company’s existing untapped capacity for profit generated by assets and the organization”. Data for operating potential is linked to the “outer limits” of operating capacity that already exists or “best possible” performance for existing assets and the organization. Data for operating potential does not exist for most companies, which means that executives and management teams have no way to measure or quantify the dollars of profit they are leaving on the table… dollars linked to“being the best” goals in vision and mission statements… dollars that could have been generated for FREE by existing equipment and/or the organization… but weren’t.

What Leadership Teams CAN’T DO Without Data for Operating Potential

Have you ever considered what you CAN’T DO because you are limited to two datasets for making every decision about money, about processes and about people? Without data for operating potential, business leaders are forced to compare actual to budget because it’s the ONLY OPTION they have to assess performance and make decisions. Both of these datasets exclude or hide operating potential, making it effectively INVISIBLE to those who need to see it the most!

What does this mean to management processes/scenarios that occur at companies and operations all over the world? In this article, we continue our review of some real-life management activities that are negatively impacted by only having two datasets for decision-making.

Your ONLY OPTION – Real Life Management Applications (Continued):

3) Capital Spending Request: A plant management team has presented the list of capital they desire for the coming year. You are there to review their requests and hear the team’s justification for the dollars they are asking for. Without data for operating potential,

a) Your only option is to ask traditional questions about ROI, pay-back periods, etc.

b) You don’t know how much of the current capacity is NOT being used.

c) You may be told that the new equipment will lift a bottleneck in the system, but you can’t verify the true bottlenecks from a capacity perspective.

d) You may be given run rates for new equipment that came from vendors, which can’t be taken at face value to determine what’s possible to achieve.

4) Expansion Request: One of your operations has proposed a major expansion. You are there to review their proposal and hear their justification for the dollars they are asking for. Without data for operating potential,

a) Your only option is to ask traditional questions about ROI, pay-back periods, etc.

b) You don’t know how much of the current capacity is NOT being used.

c) You may be told that the expansion will lift a bottleneck in the system, but you can’t verify the true bottleneck(s) from a capacity perspective.

d) You risk spending millions of dollars expanding one plant, when a different plant should be the target for expansion… a VERY EXPENSIVE MISTAKE!

5) Corporate Culture Initiative: Your executive team has proposed an initiative to change the corporate culture from reactive to proactive. You are listening to the proposal. You agree that the culture is reactive and wonder if it is costing the company money, but actual and budget data do not provide that information. Without operating potential data that reveals the losses,

a) Your only option is to ask traditional questions about the strategies for culture change.

b) You don’t know how to measure the losses being caused by reactive corporate cultures.

c) You are concerned that if a culture shift is accomplished, it cannot be sustained without data linked to the shift. You know that if a culture shift is not sustained, the backward slide could make things worse than they are today.

Conclusion: When business leaders have no access to their operating potential, they make decisions that exclude consideration for its existence and unknowingly walk away from millions of dollars that their operations (assets and people) already have the potential to generate. These decisions can affect performance, profit, operating strategies and even corporate culture for years to come.

Thought for the month: If you understand what’s missing and take action to remove barriers that are holding you back, you can be confident that you are not just “getting better”… you are “getting it all”!

Kay Sever is an Expert on Achieving “Best Possible” Results. Kay helps executive and management teams tap their hidden profit potential and reach their optimization goals. Kay has developed a LIVESTREAM management training system for Optimization Management called MiningOpportunity – NO TRAVEL REQUIRED. See MiningOpportunity.com for her contact information and training information.

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Kay Sever Author
P.O. Box 337 Gilbert, AZ USA 85299-0337

Kay has worked side by side with corporate and production sites in a management/leadership/consulting role for 35+ years. She helps management teams improve performance, profit, culture and change, but does it in a way that connects people and the corporate culture to their hidden potential. Kay helps companies move “beyond improvement” to a state of “sustained optimization”. With her guidance and the MiningOpportunity system, management teams can measure the losses caused by weaknesses in their current culture, shift to a Loss Reduction Culture to reduce the losses, and “manage” the gains from the new culture as a second income stream.