March 1998 • Volume 8 • Number 3
Consultants Forum:
Management Process and Accountability:
The Key to Continuous Improvement
By Michael E. Kane, CPIM
Most companies have undergone some type of major business improvement initiative within the past 10 years. The names of the programs are as varied as the results and include total quality management, employee empowerment and, most recently, reengineering. Mounds of research exist from academia and the consulting arena which evaluate the success of business improvement programs. The consensus of the research finds that less than 25 percent of all business transformation efforts are successful in attaining their goals. Most of the companies that attain the program goals find that results diminish within one year of the effort's conclusion. Although the research is detailed in touching businesses both large and small, it does not explain why the initiative fails so that others may benefit from experience. Inability to attain predetermined goals and dissipating program results are not reflective of the effort expended. They reflect the level of management accountability present in the business, specifically in the area of management processes.
Management processes are the decision linkages that unite the day-to-day transactions of a business. Businesses that have undertaken a transformational effort have undoubtedly attacked management processes as a means to reduce cost, better manage capital or sell more product. Examples of management processes include product rationalization, inventory stratification and polices, transportation rationalization, customer rationalization, and customer repair and return management, to name a few. The critical nature of management processes can be illustrated through a customer rationalization, which identifies unprofitable customers either seeking to renegotiate terms in order to develop a win-win relationship, or terminate the alliance. Certainly, this is not an activity that needs to occur daily. Effectively deploying management processes ingrains the business strategy in the organization's operational activities and ensures that each portion of the business operates in the best interests of the company rather than its own area.
The characteristics of management are:
Management processes typically yield large, one-time results for businesses. However, failure to assign accountability means making the activity part of a manager's job, creating the expectation for performance and following up to assure that desired results are achieved. How many businesses staff a director of production rationalization? How many sales managers have job descriptions that include: "Perform an annual customer rationalization"? How often are decisions made in meetings that assign accountability for customer dispute management? The answer to these questions is certainly: not many.
Management processes tend to be project-related activities. However, their results permeate the day-to-day activities of a business. For example, an electronic circuit board manufacturer struggled with poor cash flow for years. The terms for payment were net 45 days. That is, payment should be received from customers 45 days after they receive their order. In reality, payment was received more than 80 days after the customer received their goods. The customer base was comprised of large, reputable businesses able to pay upon demand. However, their behavior mirrored that of distressed companies with poor cash flow. The new division president brought in a consultant to assist in improving the cash flow problem. The president expected to find problems in the order management and invoicing system. He was not disappointed, as the business transformation team identified more than 100 changes from the order receipt to the cash in the bank process. However, the president was surprised to find that the greatest gains would come by assigning accountability for the management process from order receipt to cash in the bank. The chief financial officer, who was responsible for cash, left terms up to the vice presidents of purchasing and sales. The vice president of purchasing was unaware of the policy and left payment terms to individual buyers negotiating contracts. The sales vice president believed the receivable terms were flexible because finance never told her that a problem existed. Therefore, terms of sale differed on a customer-to-customer basis. Never were the accounts receivable terms sold at less than 60 days. Each individual operated in the best interests of their area, which is not uncommon. Cash flow was virtually cut in half. The circuit board manufacturer illustrates the danger of allowing management processes to be accomplished by default. Effectively deploying management processes creates accountability within each area of the business to operate in the best interests of the corporation.
Management processes have a large impact on all aspects of a business. Accountability for individual management processes, as with all business activities, is the key to success in aligning and ingraining the individual processes with the strategic direction of the company. They include human resources, financial management and even information technology. The speed and ease in which information is processed can play a large role in a company's competitive position by improving productivity. Equally important is the accuracy of information processing. Looking at your company, which top manager is responsible for information accuracy? How was their plan identified? What are the consequences for noncompliance?
Defining individual management processes can be a challenging undertaking and should be accomplished before a business improvement effort is initiated to create an awareness to the strategic deployment necessary to improve the company's competitive position. However, more important than the definition of management processes is the assignment of accountability which provides the impetus for accomplishment. After all, business improvement efforts are judged by the results accomplished.
Contributors Note:
Material submitted for this column must be original and no more than 650 words in length. Include a proposed title, short statement establishing your credentials, your name, company, business address and telephone and fax numbers. Send to: Henry Jordan, APICS Consultants Forum, 900 Secret Cove
Michael E. Kane, CPIM, is a principal in the consulting practice of Price Waterhouse, LLP.
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