Best Practices May Not Be the Best Approach
It is a well recognized management maxim in today’s world that each business activity should find “best practices” and seek to achieve at least that level of performance. While this might seem like a good idea, it may lead to several undesirable outcomes.
Some of the more apparent limitations to an across the board, unilateral best practices approach include:
• It ensures that each of your practices will be no better than the best you can identify. Even if you are able to find the true best practices, simply emulating those practices may be insufficient to achieve a competitive advantage.
• Following best practices ensures you a position as a follower, not a leader. Finding valuable new management methods can give you a significant competitive
• A corporate philosophy of mimicking best practices can create a culture that does not seek better than “best” practices.
Beyond these three, there is a fourth and possibly more important issue: knowing what to do first. As any good production shop manager knows, to improve the throughput of any system requires an understanding of where the constraint to throughput resides. A “mindless” focus on best practices ensures that investment is made everywhere in an attempt to improve everywhere. While continuous improvement is a proven management principle and is necessary to maintaining a competitive position in today’s world, it is not sufficient. Missing in the analysis is an understanding of where to apply additional resources first to improve results.
In your shop, the use of constraint theory tells you that applying additional resources to an unconstrained process element will not increase throughput. Therefore, investing in so-called “best practices” across the board in your business is unlikely to be the optimal approach. It is analogous to attempting to increase output in your shop by maximizing the output of each work cell. This will absolutely maximize output. It will also maximize work-in-process and all related costs. Similarly, attempting to improve the performance of your company by maximizing the performance of each business activity is unlikely to be the optimal approach. The key is in understanding where the constraint to improved performance in your company is today, and focus on relieving that constraint first, then moving to the new constrained activity. This process continues indefinitely resulting in continuous improvement and optimal results.
Where are your bottlenecks today? For many shops it is lack of work. Not enough customers are buying as much product as you would like to supply. Part of that is from the economic uncertainty in today’s world and much of it is because there is, and likely always has been, excess capacity in your area. It’s not that there is not enough work, it’s that too many shops want it.
If you have your unfair share of the available work, then investing to get more may not be the best use of your funds. If, on the other hand, there is enough work, but too many shops are competing for it, then the investment question is what will get you your unfair share of the business that is out there?
Your business needs to make the right investments at the right time and make those investments pay off. Thinking about what it takes to increase throughput (revenue) is the first step. The second step is deciding where to invest. Only then can you know where you need to have best practices to make you successful.
Best practices and benchmarking are useful tools to set a minimum standard of performance. However, they should not be the ceiling. To adapt current best practices or to find ways to create best practices involves significant investment. That investment won’t pay off: If it is applied to an activity that is not a constraint to your company’s performance. To adapt another old maxim: First strive to understand what to do, then focus on the most efficient way to do it.