SOURCE: Kay Sever | April 23, 2024
The Renaissance Period was rooted in a desire to explore and discover new knowledge. Renaissance thinking focused on discovering “what was unknown, overlooked, missing or misunderstood”. In 2024, we will be using Renaissance Thinking to understand what’s missing from a traditional optimization scope and how to broaden that scope to capture millions of additional dollars with no additional capital.
In February we explored the history of accounting and learned that the 800-year-old accounting system developed by merchants to track trade (i.e., “buy and sell”) transactions, inventories and profit is still in use today (with few modifications). Companies around the world use it to track/report revenue, costs, inventories and profit. We also learned that if your goal is optimization (i.e., “best possible” performance), the financial system does NOT contain and/or report metrics for that goal.
To Achieve Optimization/”Best Possible”, You Must Lift the Lid on Performance
Management beliefs about an operation’s performance and capabilities are shaped and supported by data that they see and use every day to manage three things: 1) equipment/production processes, 2) people/the organization and 3) change initiatives. Actual and budget data are used to achieve performance goals and determine if an expansion is needed. Your perspectives about what is possible to achieve are shaped AND LIMITED by actual and budget data. Why is this true? Using only these two datasets for decision-making means your vision for what is possible to achieve is BLOCKED because actual and budget data do not reveal or measure your upside potential.
When metrics for optimization/”best possible” are missing from your toolset, it’s like having a “lid” over the top of your management system. When this lid is in place, you can meet budget and maybe even achieve your stretch goals, but you NEVER KNOW how much better than budget your equipment or people can do. You may spend money and make unneeded changes to equipment and the organization to achieve more when you already have what you need to achieve more! You can add “be the best” to your vision or mission statements, but if you don’t have metrics for “best”, you can’t determine if you have achieved it and cannot make decisions that help you tap into hidden operating potential, which means you must forfeit millions of dollars of profit that you could have reported but didn’t.
Lifting the Lid on Performance Changes Several Management Perspectives
Having access to optimization metrics removes the performance lid on production, cost, working relationships and collaboration. With these metrics, it’s exciting to finally see your operating/financial potential for your equipment and your organization and know that you can tap and convert much of that potential and convert it to earnings without spending money. This realization changes several management perspectives about what is possible to achieve for operations and companies. Let’s review seven management perspectives and how optimization metrics drive shifts in management thinking that empower a company to achieve and sustain “best results” for the long term…
Perspective #1 – SHIFT FROM “Can We Meet Budget?” TO “How Good Can We Be?”
One of the most frequently asked questions in every company is “Can we meet budget?” The reason for this focus is the importance of achieving the company’s goals and minimizing the variance if there is a budget shortfall. Executives and managers often wish they could quantify what “best” looks like. Optimization metrics make it possible to quantify what “best” looks like and shift to a “how good can we be?” operating mode… a way to work together that maximizes profit, makes it easier to achieve budget, and brings out the best in your equipment and your people.
Perspective #2 – SHIFT FROM “Getting Better” TO “Getting It All”
Every improvement initiative is about getting better… i.e., improving over today’s performance. You can measure that improvement and probably have had teams and projects focused on specific areas where performance needed to be better or more consistent. These kinds of problems are important to fix, but improvement initiatives often lack metrics to quantify “best” performance, which means you can reach an improvement goal and not know how many dollars you are still leaving on the table. With optimization metrics, executives and managers can shift to a “getting it all” mindset and operating mode… a way to change that suddenly makes organizational barriers unacceptable.
Perspective #3 – SHIFT FROM A “Cost Reduction Focus” TO A “Loss Reduction Focus”
As we discussed in last month’s article, cost reduction initiatives are used frequently to increase margins and reduce variances to meet budget targets. The problem with this approach lies in the way costs are recorded in the financial system… specifically variable costs. True variable costs directly vary with production volumes. There is a second set of variable costs that I call event-based costs… variable costs that do not correlate with production volumes. Most of these costs are LOSSES that could have been avoided, but they are lumped in with value-added costs, which can cause value-added variable costs to be reduced in error and costs that caused losses to not be overlooked. Optimization metrics can measure costs not linked to production volumes and can help you shift from a cost reduction focus to a more effective loss reduction focus that quantifies hidden costs and exposes their triggers for elimination… the very best way to achieve your budget goals!
Perspective #4 – SHIFT FROM “I Manage My Box” TO “I Co-Manage the Value Stream”
Perspective #5 – SHIFT FROM “Us vs. Them” TO “We Are One Team”
The effect of silos in organizations and how to eliminate them is a topic discussed in virtually every improvement initiative. Sometimes managers of silo departments are viewed as people that are unapproachable, as personalities that cannot be influenced, or as individuals that will not participate in efforts to improve the way departments interact. Perspectives #4 and #5 are both linked to organizational effectiveness… how departments interact and how management team members work together to solve problems and provide support. Optimization metrics can quantify the impact of weak working relationships on the bottom line, so it is suddenly easy to set new standards for organizational effectiveness, which can increase profit by millions of dollars.
Perspective #6 – SHIFT FROM “Barriers Can’t Be Removed” TO “No Barriers Are Acceptable”
Perspective #7 – SHIFT FROM “Change Takes a Long Time” TO “Change Happens in a Moment”
Eliminating barriers to change is a topic included in many improvement initiatives. People’s fear of change is frequently the barrier most focused on. In my work, I have found that fear of change is NOT the highest priority barrier. Invisible barriers within the management system are the REAL ENEMIES of sustainable change and reaching your optimization goals. These barriers are seldom understood or discussed, but they sabotage the great work of teams and management teams and do it in way that operates from behind the scenes. There is so much to share about this topic. Perspectives #6 and #7 both involve the sabotage of optimization and change initiatives. These shifts in thinking minimize the risk of losing millions of dollars of future profit.
To summarize, these seven shifts in management perspectives are easy to make with optimization metrics in management’s tool box. All of these shifts in thinking prompt new questions about performance and help solve problems that were viewed as unsolvable or just “part of the process”. They unite people vertically and horizontally in the organization, which creates a powerful “one-team” collective mindset about achieving and sustaining “best possible” results. All of these management insights bring a company closer to the truth about what is possible to achieve and change!
Next month: We will continue our optimization journey and talk about objective management strategies that can be applied once the lid is lifted by adding optimization metrics to management’s toolbox.
Thought for the year: Renaissance thinking has a direct application in positioning your company for success with capital-free optimization. If executives and management teams foster and nurture the desire to explore for hidden profit potential everywhere, what they learn will give them a huge advantage when they want answers to “what’s possible to achieve”.
Kay Sever is a Performance Optimization Expert and Optimization Management Strategist/Coach. Kay helps executive and management teams quantify and tap their hidden profit potential to 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.
To comment on this story or for additional details click on related button above.
- About Us
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.
