The project of launching into a new line of business was going off really well: highly motivated, the project team was supported by the board and all important internal and external stakeholders. But it only took a few weeks until there was a spanner in the works. The expected project targets of the different stakeholders seemed to be shifting from one week to the next, the project lead was facing ever new expectations of results and after a while the first doubts about the whole project’s usefulness for the enterprise were voiced. After only three months essential resources were withdrawn from the project and six weeks later the project came to a final halt.

Such or similar situations unfortunately occur rather frequently. Projects are being initiated and planned in the best possible way, but then they are lagging behind expectations or are being stopped half-way. In most cases what is at the heart of this failure is not the way project activities were planned or managed, but often a bad set-up. If you take the following three-step approach, you can avoid the most common pitfalls and significantly increase your chances for project success.

Defining the target

When a project is being outlined, first and foremost its targets should be clearly defined. These targets describe what the project should achieve in the organisation’s business. The more precise and specific the definition of these targets, the easier it will be to plan the project and assess at what stage it will be judged successful.

If you set out to define your project’s targets in a way that is clear to all, you need to pay careful attention to your wording. The language you use should be succinct, unambiguous and easy to understand. In this way you will ensure that everybody has the same understanding of what you are saying.

To make the description of your project targets more objective, it is helpful to set up KPIs. Make sure, however, that they really reflect the established targets and are not just measurable but arbitrary variables, irrelevant for target achievement.

Finally, you should formulate target values for these KPIs. Again, this will guarantee that all people involved in the project will have the same idea of what the project is to achieve and when exactly this will be the case.

Describing project results

Having defined the project’s targets, you need to formulate the expected results. While the targets of a project say what is to be achieved by the project, project results describe what the project team has to deliver to the client after the project’s completion or at adequate milestones.

This can comprise reports, technical documents, prototypes or other things, depending on the project’s nature and its context.

With project results, just as is true for target definitions, the first step should be a description of expected project results. Bear in mind to note down not only the final, but also possible interim results, especially so if they represent crucial milestones for the further development of the project.

Next you should negotiate with your client about the form in which the results are to be handed in. The better you pin down deadlines and details even before the project is kicked off, the less you will need to double-check and revise while the project is on, when usually there is no time for lengthy discussions.

Before you go on to the next stage in defining the project, you should align the expected results with the initially set targets. The project results should always explicitly refer to the project’s targets or should make it clear that the targets have already been reached. Any discrepancy between the project’s targets and its results strongly suggests that targets or results have not, or only poorly, been put into words.

Specifying the project’s benefit

The third step links the project with its context by outlining its benefit for the company. This brings in questions like: “What problem is the project meant to solve?” Or: “How is the project connected with other activities?”

If you have found satisfying answers to these strategic questions, you should align them with the set targets by finding out if reaching these targets will really lead to the expected benefit. Should this not be the case, you will have to modify the targets.

Similarly, you should check if the expected results accord with the intended benefit. Again, if these two elements do not match you should make necessary adjustments to the results.
Having completed all three stages of project start-up, you can be sure that your project will be integrated into the strategic framework of the company and that clients, stakeholders and project team members alike will have the same understanding of the project’s targets and results – the bottom line of project success.

In the past few months your company spent a lot of time and effort into optimising their internal processes. Jobs and the separate process steps were scanned closely for potential weaknesses, and improved where possible. In the end all identified weak spots were addressed – and yet, the actual lead time was way behind the set target.

If process steps are analysed and enhanced, processes can be accelerated considerably. But often the real reasons why they are too slow go unnoticed as they are hidden in the transitions from one process step to the next.

Factor 1: Loops

In most cases delay is caused by the necessity to do rework whenever you have to loop back to a previous process step already completed. Just as there are different root causes for such rework, there are different approaches to identify and remove it.

Whenever rework is necessary to correct a mistake, this creates an unnecessary process loop. Process analysis, statistical data about errors or faulty products are useful tools to find out what flaws trigger the loop. The best way to address this problem is, obviously, to improve the workflow in a way that it runs smoothly. Alternatively, recognising errors as soon as possible minimises the waste of time due to rework.

Often, particularly in administrative processes, loops are the result of missing bits of information. Any query about earlier stages of a process costs time, especially so if the person responsible for the issue is not available. A systematic record of queries or direct interviews with relevant process participants can help identify possible weaknesses. Once the problem has been pinpointed, the interfaces between the respective process steps have to be adjusted I a way that all relevant information is being passed on, thus making further inquiries unnecessary.

Factor 2: Missing input

Just as loops caused by further inquiries waste time, so does information not gathered in time slow down business processes. The timing of when this specific input is being provided is particularly relevant in complex processes with two (or more) sub-processes.

In principle, there are two approaches to remedy such problems concerning interfaces. One straightforward fix is a Kanban system, so that the entire and complete input necessary for a certain process step is available when needed. Whenever the flow of goods and information has to be actively regulated, this method should be chosen. If, however, active input management is difficult to realise, it is advisable to work with a check list. In this way you can make sure in advance if all necessary input parameters are at hand before you start a process.

Factor 3: Idle time

In most cases it is idle time in the form of waiting that slows down processes. Whenever you do not directly move on to the next process step but keep your goods or data on hold, you are stuck in idle time.
To identify such periods of unproductive waiting, you have to scan critically the flow of goods and data within a process. Once you have found in the process chain the bottlenecks responsible for regularly creating idle time lost with waiting, you need to adjust the respective interfaces, either by a Kanban system or by implementing an early warning system preparing for the next process step.

As has been shown in these three instances slackening the processing pace, the process lead time is not only determined by single process steps, but, to a considerable degree, by their different interfaces and the flow of goods and information. This means that, in terms of process optimisation, these issues should be examined just as closely as the process activities themselves.

 


Covid-19 has forced many employees to work from home, thus further leveraging digitalisation: Meetings are no longer conducted face-to-face, but as telephone or video calls; also, rather than talking things over next to the coffee machine a phone call is made; and many processes have always been online anyway, the only difference being that now they are no longer managed via the organisation’s network, but through remote access.
This shift to a remote, digitalised environment works astonishingly well in most parts, but often the sudden break with traditional modes of operation for the sake of a completely digitalised workplace also reveals certain flaws: system overload, errors in digital processes, insufficiently aligned applications or databases, or, quite simply, limited server range or defective ports at home.
So how can processes in companies be digitalised in a way that business-related procedures run smoothly – even if all employees are suddenly ordered to work from home? As complex the problems of some companies may seem, the answer is actually quite simple: by developing and implementing a strategic roadmap for this kind of digitalisation, tailor-made for the individual enterprise.

Identifying the status quo

Before you start thinking about any strategy for digitalising processes, you should conduct a comprehensive and thorough evaluation of the status quo. This will ensure that your strategy will really meet your needs and that the existing tools will be seamlessly integrated into any new system (or that an adequate replacement is being provided for).
First you need to identify existing processes and routines. By designing a process landscape or using a similar form of visualisation, you and your staff members will get a general idea of what processes there are in your company and how they are interconnected. If your chosen mode of data representation does not only include formal procedures but also all other regular activities, any deficiencies in the system of processes will become apparent.
Then you should make a list of your IT systems and digital tools. For each individual setup or tool, you should write down its purpose, if it is linked with one or more systems and to what extent its use is standardised within your company – and if there are known problems in its application.
Having visualised the network of existing processes, digital tools and systems, you will be well-informed about the quality of your current digital processes and where improvement is necessary. Finally, you need to set your priorities: Which of the weak points in the network of your processes and IT systems should be addressed first and what, at least for the time being, works out fine as it is?

Developing a strategy

If you have finished this primary assessment, you will have to develop a strategy for implementing your plans to digitalise processes. This will help you to address your priorities in a target-oriented and efficient way, to recognise and use synergies when it comes to putting things into practice and to avoid double work and ensure compatibility of solutions.
To do so, you need to answer some basic questions, like: Would you like to go digital by means of a single, more complex integrated system or do you prefer linking up individual systems? Are existing systems to be integrated, or are you planning a completely new system? There is no simple answer to these and similar questions as these matters depend on many different factors. As they, however, determine the route you will be taking on your strategic roadmap, you should deal with them as early as possible.
Once these strategically important parameters are clearly defined, you have to decide where in your company or in your process landscape you start the digitalisation process. This should be aligned with the priorities you have set beforehand and with the chosen approach. Moreover, you should take into account how flexible and adaptive your staff members are when it comes to change or how you would like to deal with upcoming restructurings.
Next, after defining the starting point in your digitalisation programme, you should develop a roll-out plan. As the considerations you have to make are similar to those you dealt with when choosing the correct starting point, you can use these previous results and adapt where necessary. Having done that, your digitalisation strategy is ready for implementation.

Implementing your strategy

What you wanted to achieve in the first place – that processes, once digitalised, run smoothly – will only come true if you put your plans to the test by doing a reality check. However, just as it is always the case when you implement something, there are a couple of traps which can threaten the success of your project – even if you can eliminate some of them through careful planning.
Before implementing your strategy, you need to specify the details: In the early stages of the strategic planning process, you already set the frame for this step. Now you have to find appropriate tools and systems to fill it. Pay extra attention to interfaces which hold the key to properly working, flawless processes.
What is more, do not take these changes too lightly: Be aware right from the start that it is not just some little technical modifications you come up with, but that your interference considerably changes the way your staff members are used to working: Progress in digitalisation will change processes, employees will have to learn how to use new types of software and some jobs will probably be transformed entirely. As mostly only few people have a positive attitude towards change, adequate change management is most vital here.
Essentially, what is true for any new initiative, also applies here: Things will only happen if you get them done. In other words, you have to get up on your feet and oversee, push and check the current implementation process. Otherwise, your journey to digitalisation, will end up on a bumpy road.
Have enough ressources available without overtaxing your company, oversee the progress made and correct deviations, while always being guided by the ultimate goal of your agenda.
If you adhere to these guidelines, you will be able to develop and carry out a digitalisation strategy that closely fits your needs. In this way your processes will run smoothly, even in times of crisis.

 


2020 – The spreading coronavirus causes disruptions in the supply chain of many companies. These difficulties have already led some companies to the brink of insolvency [1].

2019 – Iran retains a foreign oil tanker ship resulting in rising concerns regarding a blockage of the Strait of Hormus. As a result, the oil price shots up [2].

2011 – An earthquake and a subsequent tsunami destroy a Toyota supply plant. The resulting supply shortage causes a breakdown in production processes, thus considerably delaying the delivery of cars [3].

Supply Chain as an Optimisation Task

In our globalised world, the value chain of any product generally is a series of interrelated activities of several companies and countries. Consequently, the design of the supply chain is a critical task which needs to consider several targets. Unfortunately, some of the targets are contradicting.

One of the most obvious targets of supply chain optimisation is cost reduction. Suppliers and source countries are selected to minimise the cost of production to allow for low product costs at high margins.

Logistics are another important optimisation aspect. Lead time, suppliers’ reliability and flexibility are important factors, especially in just-in-time manufacturing. As delayed deliveries can easily result in production downtimes, logistics are often almost as important as costs.

Lately, sustainability and carbon footprint are becoming more important in supply chain design. This is especially true for B2C products; however, legislation is expected to provide more rigid guidelines and requirements companies need to comply with.

Besides, the examples above highlight another target parameter for supply chain optimisation: risk.

Risks in the Supply Chain

There may be many different types of risks in a company’s supply chain. Probably the most obvious is potential quality issues. Many companies today address these by incoming goods inspections and frequent supplier audits.

What is often ignored is the dependence on individual suppliers. A single source setup strengthens the bargaining position of the supplier and may result in higher costs. At the same time, supply interruptions become more likely as issues in the production of an individual supplier directly impact the entire supply.

Also, if one supplier relies too heavily on one single customer, this may become problematic in the future. A drop in purchase volume, even if it is temporary, may pose a significant threat to the supplier’s ability to survive.

And what is true for depending on a single-source supplier is also true for regional dependency. The issue with regional dependencies is that they do not only affect the supplier location – the problem Toyota was facing after the 2011 tsunami – but also the transportation routes – which became problematic in the Strait of Hormus case.

Supply Chain Risk Analysis

To ensure that their own operations are running smoothly, companies need to evaluate their entire supply chain. However, given the vast number of products, raw material and services which a medium to large-size corporation is sourcing, a detailed analysis of the entire supply ecosystem is neither possible nor economically feasible. Here I’d recommend the ABC analysis. This is a proven tool to identify the critical segments in the supply chain. This approach divides supplies in three categories.

A parts are those which have the highest value and are most critical for the one’s own value creation. These components are normally sourced by highly specialised suppliers, plus they are a significant cost factor and cannot easily be replaced in case of supply issues. For A-parts, a detailed risk analysis of suppliers and sub-suppliers and the systematic integration of risk mitigation measures in the supply chain is a well invested effort.

B parts represent the next segment in a company’s supplies – both with regards to volume and value. For B parts, a risk analysis should include the company’s suppliers in a first step. This significantly reduces the effort compared to the analysis of the entire supply value chain but still allows for systemaitc mitigation planning. If the outcome of the initial supplier risk analysis brings to light any points which require special attention, this may trigger a more detailed analysis for selected parts or suppliers in the B-segment.

The bulk of supplies in terms of volume are usually off-the-shelf articles, so-called C parts. Given the low value and high volume of these parts, a detailed risk analysis does not make sense economically. For risk mitigation, a certain level of redundancy in the supplier base allows a company to avoid unpleasant surprises in case of crisis.

Using the ABC analysis as a guideline for supply chain risk analysis allows to minimise the resources needed to gain an adequate overview of a company’s supply ecosystem. This will enable you to adjust your supply chain and make it more robust, so that your company will be more resilient to local or global crises.

Quellen:
[1] DW (26. Februar 2020). „Coronavirus sprengt die Lieferketten – Wirtschaft droht Lähmung“. DW.com.
[2] FAZ (18. Juli 2019). „Ölpreis steigt nach Tanker-Stopp“. FAZ.net.
[3] Spiegel (13. April 2011). „Toyota-Kunden müssen auf Autos warten“. Spiegel.de.


The production lines operate at maximum capacity, order books are full, and the next delivery date is at hand. The last batch is just leaving the coating line when the red light flashes: there are uncoated spots clearly visible on several parts.
Happily, this is not a major issue. The affected parts are stripped, cleaned and sent back to the coating line. Half a day later, the lot is ready for shipment.

Quick fix versus sustainable solution

You probably know similar situations, not only from a production context, but also from other parts of an organisation. A deviation is observed and almost instantaneously someone puts forth a solution – and often this solution remedies the deviation.
Unfortunately, most of these solutions are mere quick fixes, which only address the symptoms. They correct the observed deviation but not the underlying problem which caused the deviation in the first place. Thus the deviation is likely to re-occur later.
In contrast, a sustainable solution does not address the symptoms but the root cause. To address the cause generally requires a bit more time and effort compared to a quick fix. However, it also prevents the same mistake from happening again.

Reasons for a deviation

A deviation in this context means that the actual result does not line up with the expected result. This may happen due to two reasons: either the assumptions on which expectations are based are incorrect or there are flaws in the implementation.

Incorrect assumptions

If you are implementing something new, deviations are often caused by incorrect assumptions. Whether it comes to product development, process optimisation, or the implementation of new tools or methods – you always step out of your experience and explore a new terrain.
In a new environment with only partial information, expectations are mostly based on assumptions, either about the environment, functionalities or causal links. It is important to be aware of these assumptions.

Implementation flaws

If the expected results are not based on assumptions but are derived from a sound understanding of how various factors are correlated and interconnected, deviations often result from flaws in the implementation. It is well-known how to achieve the targeted results, but once or twice this best practice approach was abandoned.
This type of deviation is often observed in areas with clear and stable processes in place like large series production or other frequently repeated processes with low variance.

How to address deviations with long-term success?

If you want to get rid of a deviation once and for all, you should follow a three-step approach:

Analyse the deviation

First of all, you need to understand the type of deviation you are dealing with. Ask yourself whether your expectations are based on an extensive process knowledge or on mere assumptions. If the latter is the case, try to understand which assumptions you have made.

Analyse the root cause

Next, you need to understand the root cause of the deviation. You need to understand which assumptions were incorrect or where the way you implemented certain steps had flaws. Tools like 5-why or Ishikawa are quite useful.

Derive and implement measures

Once you understand the root cause you need to address it. If the cause is a flaw in the implementation, you need to ask: How can I prevent the process from slipping again? The answer usually is to be found in the design of the process or the control mechanism.
In the case of incorrect assumptions, you first of all need to replace faulty assumption. Afterwards, you need to assess how, based on your updated knowledge, you ought to proceed.
If you follow the three steps sketched out above, you will not only be able to correct deviations and failures but also come up with a sustainable solution and thus improve the quality of processes on a long-term basis.

The consultants completed their job and the corporate strategy is defined. After a two days’ workshop and three or four iterations of the report, the results are great: The company’s vision is now realigned, goals and targets for the next fiscal year are defined and a detailed action plan is derived. Shareholders, directors and management are satisfied and fully support both strategy and action plan.

The team enthusiastically starts working on the tasks, but soon daily business becomes top priority and strategic work is hardly performed. It is obvious in the mid-year review that the team will not be able to complete all the initiatives defined in the strategy workshop – and at the end of the year just one single project out of a dozen is completed and only one more reached implementation status.

Strategic planning vs. operational reality

I regularly come across stories like this. A corporate strategy is defined and a project for implementation is initiated. However, completion of the project fails because operational tasks are prioritised. There are many reasons, but you can make out some generic themes.

Assumed ability for change

“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.” This quote from Bill Gates is a fair summary: In the strategic planning for the next one or two years we often assume that we can achieve almost anything we’d like to. That the proposed change would be too much for the organisation, is only considered after the implementation failed.

Available resources
To implement a strategy, you need resources. If a company’s staff is busy with operational tasks, the organisation is simply not able to drive strategic projects and initiatives.

Lack of focus
And even if resources are available, daily business often compromises strategic work. It is the daily business which generates cash flow. Therefore, there is always a tendency to allocate resources to operational tasks, even if they were originally planned for strategic projects. This behaviour boosts short-term performance (and may be reasonable in some instances) but mostly results in issues with long-term strategy implementation.

Successful strategy implementation
I do not deny the importance of strategic planning, but it is the implementation of a strategy which supports success. To realise your strategy and thus secure long-term success of your company, you should focus on three things:

Realistic planning
The cornerstone of successful strategy implementation is realistic planning. Be true about what you and your organisation can achieve and plan accordingly. I propose to ask yourself two questions:

  1. What is it that I should do?
  2. What am I capable of doing?

In case you are not sure about the answer to question 2, you should work with priorities. This allows you to guide strategic initiatives according to their importance.

Providing resources
Once the planning is completed, you need to check whether you have the required resources for implementation available. This should include finance, skills and manpower. In case you identify a need, closing the gap is priority No 1. F this is about skills and manpower, you can either hire staff or engage a consultant.

Keep you focus
It is important for those responsible that they keep their focus on implementing strategy. Therefore you ought to make sure that managers and employees have sufficient free capacity for strategic initiatives.
In case an employee needs to be re-allocated from a strategic project to another task, you should carefully consider all aspects of the respective decision. You should not take such a step unless you are sure that the long-term benefit of an additional operational effort exceeds the value of the strategic project. Besides, such a decision should be documented – including the reasons for the decision.
If you plan realistically, provide the required resources and ensure that the team keeps its focus, you will probably be able to implement your strategy. And with a successful implementation of your strategy, your company will economically thrive.

 


The presentation of the project idea left everybody euphoric. The proposed product will revolutionise the market, return some 150€ to 200€ for each invested Euro and the market share in the target segment will rise above 50%. As this will also increase brand awareness, revenue and market share of the existing products is also expected to increase – and the company will be able to open up entirely new markets.
The next day the project is kicked off and the team starts working. However, the first project report is a frustration. Because the high level of uncertainty, the detailed risk evaluation reveals that the project risk is almost as high as the profit expected from the new product. After lengthy discussions, the project is given up just a few weeks after its kick-off.

What happened?

At first glance this story is an example of how risk analysis should support decision making. A promising idea was presented, a project for its realisation kicked off and risks and opportunities were analysed. With the new information the project was re-evaluated and then discontinued because the risks was seen as too high.
If you take a closer look at the facts, things are not as simple as they might look. The decision to stop the project was based on a comparison of the project risk and the projected product revenue. This comparison neglects other benefits of the new product for the company besides the revenue of the product itself.
The increase in market share, the positive effect on existing products and the opportunity to find new markets was not included in the decision. As all these factors have a positive impact on the company’s bottom line, one may assume that the company would have been better off with the project – even if the project risks are significantly higher than assumed in the beginning.

How to avoid such mistakes?

Silo mentality is still a reality in many companies. This facilitates situations as the one described in the beginning: Information is evaluated within only one part of an organisation. Decisions are based on the needs of a subset of the organisation and thus are rarely the best possible solution for the entire company.
To avoid this pitfall, you need to break the silo mentality. This can be achieved by a scenario approach (see “Four requirements for scenario planning” https://rno-consulting.com/en/vier-anforderungen-an-die-szenario-planung/). In the given setting, a three-scenario set-up is probably the best approach. However, it is important to create the scenarios from the company’s point of view.

Reference Scenario

The reference scenario describes the company’s future assuming the evaluated project will never be kicked off. Thus, it represents the status before putting the idea into practice. In companies which regularly use scenario planning, this scenario should already be available and therefore ready for use.

Nominal Scenario

The nominal scenario represents the development of the company if the project is completed as assumed. Usually, such a description is part of the initial project proposal and can be taken from there. The difference between the reference scenario and the nominal scenario represents the expected benefit of the project.

Risk Scenario

The risk scenario is a combination of the nominal scenario and the latest project risk evaluation. This scenario highlights the expected developments based on the identified and evaluated risks and opportunities.
The benefits of such an approach are obvious. By including the risk information in a scenario, all effects on the company are considered – and not only internal project effects. A comparison of the risk and the reference scenario shows the benefit which can be expected from the project. In addition, the difference between the nominal and the risk scenario highlights how far the project deviates from initial assumptions.
These three elements help to avoid faulty decisions like those in the above example. As a result, this approach is essential to successful risk management and, in the end, to economic success.


On hearing “continuous improvement”, many people thing of the Deming circle or PDCA: plan an improvement, implement it (do), check the results and act upon the them. Once the cycle is completed, it starts anew and thus realises continuous improvement. The second thought, however, may probably be something like “But it’s not that easy!” or “The theory is fine – but it never works that way in real life!” – and considering all the failed initiatives to implement continuous improvement, these thoughts are understandable.

Nevertheless, PDCA is an effective tool to implement continuous improvement. As in many cases, the problem is that this instrument is applied in the wrong way: surveying failed process improvement projects, one comes to the conclusion that mostly the use of tools is responsible for their failure – and not the tools themselves.

Process optimisation as cause-and-effect chain

Process optimisation along the lines of PDCA basically follows the logic of a cause-and-effect chain. An existing process is deliberately modified (= cause) and as a result the efficiency or effectiveness of the process improves (= effect). This sounds trivial but, far from it, actually significantly impacts the approach to process optimisation.

Causal relationship between cause and effect

If process optimisation follows the logic of cause-and-effect chains, then there is a causal relationship between cause and effect. This relationship is created by the process which is to be improved and the interfaces with other processes.

Generally, these causal relationships are not just linear dependencies but form complex networks. These networks are normally not limited to the process to be improved but linked to other processes and activities by interfaces.

Explicability of the effect

Another consequence of process improvement as a cause-and-effect chain is that you can explain the effect of any process modification. Causal relationship provides a rational explanation why a certain effect results from a given cause.

The rational explanation may be used in two ways. If the causal network is known, the effect of any modification can be predicted. Likewise, if both cause and effect are known, the causal network can be reconstructed.

Optimising causal networks based on PDCA

Given the implications of process optimization as a cause-and-effect chain, PDCA is ideal for continuous improvement. In this context, the respective steps are:

Start

Before first applying PDCA, the optimization target needs to be defined (see „How to optimise internal business processes“ [Link: https://rno-consulting.com/en/how-to-optimise-internal-business-processes/]). The target should be clearly defined and quantified whenever possible.

Plan

Based on the current understanding of the process, i.e. its causal network, an optimisation step is worked out which modifies to process depending on the defined target. Having done so, both the necessary measure (= cause) and the expected outcome (= effect) have to be described.

Do

The described step is implemented, with a constant monitoring of the resulting effects on the process.

Check

Once the optimisation step is implemented, the actual effects are compared with the expected ones. If the observed results match those expected in the plan-step, the PDCA iteration is completed. In case the overall target is met, the optimisation cycle is completed, otherwise another iteration begins (i.e. plan).

If the observed results were not expected, the current process knowledge needs to be adjusted. To allow for such an adjustment, it is essential to understand why the implemented change resulted in the observed effect.

Act

Once the causal relationship between the implemented measure and the observed effect is established, the knowledge about the process needs to be updated accordingly. The updated knowledge will then serve as a basis for another PDCA iteration.

Benefits from PDCA process optimisation

Using PDCA for process optimisation requires thorough application, which may prove difficult in busy day-to-day operations. Most of all, the analysis of unexpected effects is readily skipped in favour of quickly implemented fixes.

However, by sticking to the steps described above, you will win twice: First, you will achieve the set targets for process improvements. Second, your knowledge about relevant processes will increase.

You surely know such sentences:

  • “We have to do it this way!“
  • “There’s no other option!“
  • “It’s the only way to get through this!“
  • “There is no alternative!“

Such phrases are often used to justify unpopular decisions, not only in politics, but also in companies, clubs, or schools, i.e. not only the decision makers Themselves, but also other people are affected by the consequences of a decision.

The attractiveness of presenting decisions as the only way

Presenting something as the only alternative, as it is suggested by such phrases, does have its advantage: it makes matters seem urgent, and urgency is a pivotal element in change processes [1]. Also, if deviating paths of action are excluded right from the beginning, those concerned are discouraged from thinking about other options. So for a decision maker, putting forth a decision for which there are supposedly no alternatives definitely has its pros.

However, deciding on a single-option basis has serious disadvantages. If there is only one option to choose from, the actual decision has already been taken elsewhere. Thus you can assume that the decision makers will not back up their “decision” as they would do if they had really taken a decision on their own. In the context of change processes, this will weaken the leading coalition and not strengthen it [1].

Another effect of signing off on a decision rather than sincerely taking the decision is that decision makers will not think about and discuss a matter as thoroughly as they should. Therefore, an option for which there is no alternative way of action is hardly sufficiently elaborated and regularly not the best option for the organization.

Developing single option strategies?

Unfortunately, decisions options without alternatives are often difficult to recognise. Whenever there is only one answer to a strategic question, only one solution to an entrepreneurial problem, only one option in a decision paper, someone is trying to apply the concept of no alternatives.

This may not be done out of bad will, but unconsciousness does not make this approach any better: Such a decision does not match the ultimate potential of the organisation. Important strategic decisions are taken without sufficiently discussing the underlying problems and searching for different courses of action.

Strategy development as decision process

You can easily avoid single option strategies by conceiving strategy development as a decision process which features a real choice [3]. The idea put forth by Lafley et al. is based on a simple jet effective approach: For each strategic decision, define at least two contradicting options to choose from.

The resulting success is enormous. Since there are two or more competing options, discussion on the decision become more intense, the pros and cons are thoroughly discussed, and assumptions are critically reviewed. The outcome is a higher quality of strategic decisions.

Improved strategic decision making

In order to leverage the potential for increasing the quality of strategic decisions, a four-step approach can be used:

  1. Define alternative options;
  2. Identify success requirements and obstacles;
  3. Analyse feasibility and prospects;
  4. Decide on one option.

First, the decision options need to be defined. It is important that there are at least two options. These should be formulated in a way that only one of them can be implemented as the process is about choosing the best option for the company and not arriving at a compromise.

After drafting the strategic options, the requirements for a successful implementation and its obstacles need to be worked out for each of them. By sketching out the respective requirements you create a baseline for further evaluation.

Next, data need to be collected which supports or refutes the strategic options. The data available at the end of this step should be sufficient to judge the success and implementability of each of the options defined in the beginning.

Once all information is available, the final strategic decision can be taken. As the different ideas have been thoroughly considered throughout the decision making process based on hard data, the resulting decision on the company’s strategy is better adjusted to the actual situation of the company.

[1] J. P. Kotter (2012). „Leading Change”. Harvard Business Review Press: Boston, USA.

[3] A.G. Lafley et al. (2019). “Die Kunst der Strategieplanung”. In: Harvard Business Manager, Edition 1/2019, pages 44-53.

Active risk management helps companies to deal with insecurities, to reach operative and strategic goals and to improve the performance of the management system [1]. This makes it an important element in safeguarding entrepreneurial success. At the same time, risk management does not add direct, but merely indirect value, by avoiding risks or exploiting an opportunity.
Regrettably, legal requirements like the German Stock Corporation Act [2] do not provide sufficient hints how this task of optimisation can be solved by the individual company. However, the maturity concept for risk management offers helpful guidance as the model’s levels of development can be easily linked to the structure and characteristics of a specific enterprise.

Maturity Level 1: Linear companies

The first level of risk maturity is represented by companies characterised by linear structures. These companies are typically relatively small, have a limited portfolio of products and services, and their target market is clearly defined. As a result, the risks arising from the direct environment and internal processes can be easily handled by one person.
Accordingly, it is rather simple to meet the requirements for a risk management system in such settings. The only thing a company has to do is to make sure that there is at least one person who systematically keeps track of risks and evaluates them. Moreover, it must be guaranteed that this person takes a responsible part in decision-making processes and that relevant information about risks are duly considered.

Maturity Level 2: Ramified businesses

Businesses of the second level are marked by a ramified system of structures, resulting either from a division of labour (e.g. development – manufacturing – sales), parallel marketed products and services, or different target markets. This means that the company can no longer be controlled and managed by a single person alone, while each of the branches within the company structure still have the features of a linear enterprise.
Efficient risk management under such circumstances demands that it be shared: In each branch at least one person should adopt the role of a risk manager in charge of identifying, assessing and addressing risks in the respective area. If in all parts of a company this is to happen in more or less the same way, tools and processes for risk management have to be clearly defined and aligned with each other. Within these branches it is the risk managers’ job to make sure that the information about risks is sufficiently taken into account when decisions are made. To ensure that this is common practice even on the top management levels, a system of filing and transmitting information has to be created. In this way information collected on lower levels of a company will be equally accessible to higher levels.

Maturity Level 3: Matrix companies

Complex companies are characterised by a matrix structure. Communication and decision-making does not take place in a linear top-down or bottom-up manner, but both horizontally and vertically. As a consequence there are many interfaces where information has to be exchanged and decision-making is increasingly decentralised. Going along with this, information about risks has to be available at many different places. Decision-makers have to be capable of dealing with this information to handle risks and opportunities* effectively.
To meet these requirements, an effective risk management system must have tools and processes that run smoothly. It should be clearly defined where there are interfaces between different areas and how risks are transferred and re-evaluated in different settings. Also, information about relevant risks have to be accessible to all people who are responsible for making important decisions. At the same time, staff members need to have the necessary knowledge about risks and opportunities and the technical expertise for dealing with them. Their skills should comprise the ability to identify and assess risks, and to integrate them into decision-making processes. In this way the collected information about risks is sufficiently accurate and the information can be used efficiently and adequately.

Maturity Level 4: Risk-taking companies

Companies of the fourth stage have a high level of risk-taking, i.e. these companies systematically try to exploit opportunities by taking calculated risks, which, once a reality, can endanger the company as a whole or in parts.
It is an essential element of these companies’ business models to create an ideal balance between opportunities and risks. The requirements that matrix companies have to meet in terms of risk management have to be fulfilled for opportunity management as well. What is more, performance indicators should help to assess how efficient the respective risk and opportunity management strategies are. These indicators should of course be under constant surveillance and modified where necessary.

Maturity Level 5: High risk companies

The keyword “high risk companies” comprises two different types of enterprises: those whose main business is managing risks and those for which risks, once a reality, will have a desastrous impact on their environment.
In both cases it is essential to have effective risk management strategies. This requires that all risk management processes be systematically and constantly improved, on the basis of adequate performance indicators. Companies whose main job is risk management should also apply this to opportunity management.

 

[1] DIN ISO 31000:2018 Risk management – guidelines

[2] §91.2 AktG (German Stock Corporation Act)

*According to the definition [1], the term “risk” signifies both negative and positive effects of uncertainty on targets. In contrast, following the common usage, we here use “opportunity” for positive and “risk” for negative effects.