If organisations were ships, many of their captains would be unaware of the constant firefighting going on below decks to keep things running.
Ships depend on numerous routines, tools, and systems to ensure that everything is running as expected so that the destination is reached safely and efficiently.
The routines, tools and methods used to ensure that business processes run as expected are generically termed: “Management Control Systems” (MCS).
Organisations, like ships, need well-designed MCSs to run efficiently and reach their goals. While most organisations have MCSs, they have often been evolved and are not well designed or managed in a systematic way. As a result, they may find themselves lurching from one emergency to another, hitting icebergs that seemingly come out of nowhere.
An MCS is concerned with the governance of the process. To govern a process, we need forecasts, plans, controls and reports.
A forecast asks: What do you want to do?
Before the ship leaves a port, it needs a destination, it needs to know the distance, how much fuel will be required – will the weather make for headwind that means we will need more fuel? What speed and fuel efficiency will we attain? And so on…
For most organisations, a forecast usually means financial projections of sales revenues and budgets, but that’s not all we mean in the context of an MCS.
The forecast should include how a company’s strategy will be translated into reality; it should be a strategy planning tool. Typically, organisations have a mission to verbalise why a company exists, a vision which describes what long-term success will look like, and key strategic goals, or end-states, set at 10-, five- and three-year horizons. These goals should then be translated into quantified objectives (KPIs) and targets for the year ahead – for all units and individuals in a company. That’s what we mean by a forecast in the context of an MCS.
A plan asks: How are we going to do it?
We now have a destination. But how do we get there? Do I have an able-bodied crew that is sufficient in numbers and knows the ropes? Do I have the maps, instructions, spare parts and tools to maintain a safe and steady course?
In the plan, we go from a high-level, bird’s eye view and head closer to the ground as we translate forecasts into concrete directions.
This means asking, “How are forecasts rolled down from the annual targets into monthly, weekly, daily and even hourly targets across the different departments?”
This includes the acquisition and allocation of resources, and the scheduling of work.
For ships, the lack of adequate planning can be deadly. The RMS Titanic left port with only 20 lifeboats that could only accommodate 1,178 people. There were 2,208 souls onboard.
The concept of controls is an abstract one. By control we ask: What is the best way to do things? And are we doing them in the best way?
Whilst the weather is fair, the crew follows well-known routines, such as the monitoring and maintenance of equipment. And if a storm approaches, the crew knows how to batten down the hatches and ensure everyone’s safety. But if those routines are not followed things can quickly become dangerous. An engine failure due to poor maintenance in the middle of a gale is not what you want!
That is why stringent protocols or “controls” need to be in place to ensure the correct, efficient and safe ways of working.
The Titanic sank because it was too foggy to see the iceberg. For organisations, it's often "too foggy" to see what's happening on the shop or office floor. The cause is not weather but lack of process visibility. This is especially problematic for business processes. In manufacturing, a supervisor usually has live performance metrics. Often, these are entirely lacking, or reviewed on an ad-hoc basis in support and service functions. As a result, "icebergs" or problems seem to appear out of nowhere. The truth is, the problem has always been there, merely concealed by the thick fog of inadequate measures and inefficient processes.
When recruiting a sailor, you would expect that the ability to swim is one of the selection criteria. Yet in the business world, often the approach to manning a station is “sink or swim”. Lack of on-the-job coaching is another culprit of poor control. It’s depressingly common how workers are thrown in at the deep end when starting a new job. The front-line workforce is where resources are consumed, and value created – insufficient attention to the competencies and practices at the front line is a major reason for low productivity and loss of competitiveness.
Knowledge and experience must be passed down methodically, and this can be done via work instructions (documents that describe how to conduct the work properly) and on-the-job coaching. Supervisory routines must also be established to detect and address variances to procedures.
A report asks: How did we do? And how can we do better?
A ship’s fuel consumption is massively affected by the weather. The captain depends on a series of reports, whether digital or analogue, to ensure that the ship is not going to run out of fuel.
The adage: “You cannot manage what you cannot measure.” Is an apt one. All too often when we look at performance measures, what management is focused on are what we call output indicators – these are the outcomes of the processes, such as number of parts made, or sales revenue achieved. The problem with these measures is that they are lagging indicators that lead to reactive management. The weather report the captain uses to anticipate his likely fuel usage is an example of what we call an input indicator. For our examples on parts made and sales revenue, input indicators could be raw material inventory levels and number of booked sales calls – these are "leading" indicators that help us predict how well processes will perform.
This is something of a confusing concept – reports have to include indicators that tell us not only how well we have done, but how well we are going to do so that we can anticipate a problem before it happens.
All indicators, of course, need to be regularly reviewed against target levels. Any gaps in performance should be investigated, root causes identified and corrective actions put in place.This is how we move from “firefighting” to “fire prevention”.
In our experience, companies with poorly-designed MCSs are missing some of the elements listed above. The impact of this is very real; organisations become less productive and lose profits and competitiveness in the market.
If an organisation is constantly waging war with broken processes or bogged down by red tape, it can be a sign that its MCSs are broken.
But this can be turned around.
We have built and installed MCSs successfully across all industries, all over the globe. This is almost always transformative for many of our clients. They become more efficient and productive, and this results in cost savings and bigger profit margins.
The effort in building MCSs is always worth it.
Learn more about building MCSs in our white paper, Priming Business Processes for Excellence: Digitising Management Control Systems.