Praise the Fundamentals
By
Dave Edwards
Senior Consultant
Based on our ongoing conversations, by and large, Nolan Company clients
are an optimistic group; despite 2010 proving to be a test of that
important characteristic. As optimists ourselves, we believe 2011 will
justify that outlook and present us all with opportunities based on a
more certain business-operating environment.
What this should mean to senior executives, and operations leadership in
particular, is a need to expand our focus from market-share retention
and maintenance of static or incrementally lower expense ratios to
include a more aggressive, comprehensive approach to achieving
operational excellence. That value proposition has elements formally or
informally embraced by nearly all companies, but its comprehensive
adoption has become more urgent for all companies. This is because of
the painstakingly slow pace of the economic recovery for all companies
and for health care firms in particular, which are now operating under
dictated medical expense ratios and strict definitions of the
composition of medical spend.
But, as you prepare to again make optimal use of your managerial
muscles, exploring the development or purchase of
market-differentiating capabilities, we think it’s worthwhile to
pause briefly and consider the state of your operations’
fundamentals. Sustained excellence in nearly every field—sports,
construction, the arts, and the military, to name a few—mandates
sound fundamentals before higher-order expertise and capabilities
can be developed. Business operations, whether in property/casualty,
health care, or banking, are no different. There are three questions
to ask:
- Do we have a clear, universally-understood, and
consistently-utilized operations-improvement process?
- Do we know what relative benefits to generally expect from the
economic elements of the improvement process?
- Have we subjected our key functional operations to this process
to ensure that any new capabilities are built upon a solid,
efficient, and effective foundation and that contemplated new
capabilities cannot be developed internally on a more cost-effective
basis?
If those are good questions to ask, I recommend immediately
taking steps to swiftly and thoroughly answer them. The following
chart illustrates one approach to answering those questions in the
affirmative: a 10-step, continuous-loop operations-improvement
process. The process begins with a vigorous value analysis,
exercised under the over-arching guidance of clear customer
identification, strategies to satisfy customer needs and exceed
their service expectations, and an unqualified statement of each
function’s essential purpose and value proposition (a distilled
declaration of why the function exists and a statement of the
function’s approach to executing its essential purpose,
respectively).
The process appears straightforward; but, as we all know from our
management experiences, “straightforward” does not always mean
simple. To assist those charged with managing this process, we’ve
found four rules that, if knowledgeably applied, will provide some
discipline to the effort and, usually, help optimize results.
- Settle upon the correct essential purpose for the function
under discussion. If this brief declaration of the reason for
the existence of the function (a noun-verb phrase or short,
single-sentence statement) is not accurate, results from the
succeeding improvement process steps will be sub-optimal.
- Thoroughly execute each step of the process; even the
difficult ones. Consistent, thorough execution of the entire
process helps to institutionalize it as "standard operating
procedure" within the organization and provides a common
process-improvement vocabulary.
- Execute improvement process steps in the order illustrated,
resisting the temptation to jump to what may appear to be
obvious technical or structural solutions to business problems.
- Recognize that most business challenges require
multi-faceted solutions and that all elements of the solution
are not created equal with regard to their impact on quality,
timeliness, and expense.
It’s easy to grasp the likelihood of multi-faceted solutions
for complex business problems; however, quantifying the sources
of benefits and managing benefit level/source expectations are
thornier challenges. An approach I’ve found useful in managing
expectations for a generic, multi-issue operations improvement
effort is displayed on the chart, highlighting four typical
improvement sources and their relative value, assuming an
improvement target of 20%.
