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How to Use Operations Management Tools in Business
Classic Operations Management Tool
What are Operations Management Tools?
Back in the 1970s, W. Edwards Deming, the guru of Total Quality Management (TQM), discovered that 94% of all errors in business were caused by management, not by workers. And management can eliminate these errors by putting good operations management tools in place. When these errors are eliminated, the company makes 1/20th as many errors as it used to. Errors cause defects, create unhappy customers who go elsewhere, and cost lots of time and money. A company with effective operations management stays in business; a company without it loses to the competition. This is how Japanese electronics manufacturing took over the TV and photocopier industries in the 1970s. And US and European industries learned from the Japanese (who learned from Deming), improving quality and implementing network-based operations management tools in the 1980s and 1990s.
The easiest way to understand these tools is to picture two restaurants. One is an old-style diner, without operations management tools. The waitress writes up your order and posts it at a window to the kitchen. The cook reads it and prepares the order. If the waitress listened well, and the cook can read her handwriting, and he pays attention, and she watches the window or hears him yell "order up," then everything is fine. But if even one of those steps is missed, the order is wrong and the customer is unhappy. This old restaurant works well because the team has learned to work together. But what if the old waitress wins the lottery? There will be a lot of errors before the new waiter learns how to get all the details of an order right, and the cook learns to read his handwriting.
Now, compare this to a 21st century restaurant with web-based operations tools. Waiters and waitresses are trained in how to take an order and repeat it back to the customer, and then enter it into the restaurant Point-of-Sale (POS) system. (That's an operations tool.) The cook gets a printout of the order - no handwriting problems. There's a quiet signal indicating "order up"; no yelling. If an order goes in wrong, the system can tell management which waiter or waitress made the mistake. Waiters and waitresses can trade shifts from their iPhones, and management can be sure that enough people are coming to work. A restaurant like this can have 70 brand-new waiters on opening day and do good business. And it can quickly sort out the team members who want to do well from those who are not really trying to learn and succeed. There's plenty of information to use to help those who want to get better, and there's plenty of evidence of error if someone isn't working out.
Note: As a business consultant, I'm not a total fan of operations management tools, at least as they are often used. They can be used to create rigid, authoritarian environments, cutting costs at the cost of the real value, teamwork, loyalty, and contribution which make for true success. I am a total fan of operations management tools if they are used to build a great team and help everyone do a great job.
Before we get into Operations Management tools in depth, we need to understand Standard Operating Procedures, and the attitude that creates a successful, team-oriented company or department.
Standard Operating Procedures and Continuous Improvement
Operations management tools - whether on paper or on the Internet - embody a standardized way of working that prevents errors. A standard way of doing a task in operations is called a Standard Operation Procedure, or SOP. By and large, American managers and workers hate SOPs. Our attitude toward them is captured in an episode of the TV show ER (Emergency Room), where the ER has to be evacuated because of a toxic leak. A nurse asks the head doctor, "Where is the evacuation manual?" and he says, "It's in a black binder in the office." The camera turns to the office, which has black binders falling off every shelf. They never find the manual, and they evacuate any way they can.
In the US, by and large, an SOP manual is left on a shelf somewhere. By the time we find it, it will be hopelessly out of date. When SOPs are followed, it is a struggle to keep up to standard.
The Japanese approach is very different. This approach is called kaizen, which means "continuous improvement." Dr. Masaaki Imai, founder of the Kaizen Institute, says, "A standard operating procedure is the worst way we ever do a job. We always meet the SOP, and, each day, we try to improve on it." The manual is a living document of improving methods. Whoever finds the best way to do anything improve the SOP for that task, and then everyone learns from it and does it in the newer, better way.
Operations management tools are computer software systems that make it easy - and mandatory - to follow SOPs. If we do this with the attitude of kaizen, working as a team to improve and excel - then these tools are a powerful way to become, and remain, the cutting-edge leader in your field of business.
21st Century Operations Management Tool
Save Money and Reduce Risk with Operations Management Tools
If we define effective business procedures, then set up a computer system that makes those procedures easy to learn and follow, we can save money and reduce risk in our business. Let's illustrate this with the example of the two restaurants, above:
- A computerized POS system calculates the customer's check automatically: There are no billing addition errors.
- Errors in reading hand-written tickets are reduced, reducing food waste.
- Errors in taking orders are automatically tracked, so waiters and waitresses can be trained to be more precise.
- If a waiter or waitress leaves, a replacement can be trained quickly, reducing the risk of costly errors while training new employees.
- An automated system allowing wait staff to go online to confirm shift times and replacements reduces the risk that the restaurant will be understaffed if someone can't or won't make it in to work.
Please note that these tools can be used badly, in which case they backfire. If the system is set up without proper alignment to business practices, then it creates hassle for people trying to do good work. We've probably all been to restaurants that couldn't handle a special order, or tried to buy an item on two-for-one sale, and heard a frustrated waitress or cashier say, "the system won't let me do it." I walk out of stores that have that problem, and never go back. A poorly implemented or poorly maintained system loses us customers. With regards to staff, if the information in the system is used in a punitive ways, instead of for training purposes, team members become resistant and slow down work, or even quit. And the cost of that churn - high employee turnover - is often enough to put a company out of business.
As we move forward and look at the design and implementation of automated operations management tools, let's keep in mind effective business practices and effective team building and team management.
The Sign That You Need a Better Operations Management System
Customizable, Web-Based Operations Management Tools
Operations management tools allow workers to receive instructions, work, and enter data very efficiently. The information flow guides the flow of products and services for the customers. This reduces the cost of serving the customer while reducing error. That produces higher quality results at lower cost, which is a competitive advantage.
Large companies, of course, can implement their own completely custom computer systems. But even that is rare these days. Most companies rely on customizable software, such as PeopleSoft or SAP. Medium-sized companies use these as well, and small companies often find SalesForce useful in similar ways.
And, of course, there are also industry-specific tools, such as restaurant operations systems or supermarket POS systems, or engineering tools that turn CAD drawings into control programs that run robotic equipment.
The Ten Billion Dollar Problem
The Comptroller (chief financial officer) for a very large state in the United States was working to implement a custom, integrated tool for financial operations management. It required purchasing and integrating three different software tools - a front end for data entry, a processing and calculation tool, and a reporting tool. They put the system together and began testing. All went well until they tried a set of transactions that totaled over $9,999,999,999.99. When they did that, all the numbers came out wrong.
It took a while to discover the problem. It turned out that the middle piece of software wasn't designed to work with figures with over 12 significant digits - that is, calculations failed at the $10 billion mark. If the state had been using only one tool, this problem would have been discovered early. But since the three tools were tied together, the data going in looked fine, and the data coming out looked bad, and it took a lot of work to find the problem.
This is the kind of problem that large companies and governments face when building integrated solutions to create operations management tools.
Implementation Problems: Large, Medium, and Small
Operations management tools require effective implementation. Without it, they often reduce operational efficiency, increasing cost, adding delay, or locking the company into a system that works poorly. The problems created by poorly implemented operations management tools are different for large, medium-sized, and small companies. In my fifteen years of consulting with corporations, government organizations, and not-for-profits of all sizes - from the Fortune 500 down to one-person businesses - I've seen everything that can go wrong.
Implementation problems at large companies
A large is probably already working with either a generic operations management tool, an industry-specific (vertical market) tool, or a combination of both. And the system probably is probably built on a mix of information technology platforms: internal systems, intranet, and secure Internet services. For these companies, key issues are:
- Integrating different tools so the data moves seamlessly. See the sidebar, The Ten Billion Dollar Problem.
- Improving processes through advanced techniques such as Six Sigma, benchmarking, and development of best practices.
- Integrating systems after mergers and acquisitions - which can take years.
Implementation problems at medium-sized companies
Medium-sized companies face a different set of issues:
- Choosing between vertical-market industry specific tools and generic tools
- Implementing those tools effectively and at low cost
As an example of the second point, a major error that I've seen many times in the last fifteen years is a medium-sized company deciding to implement PeopleSoft or SAP or even the less expensive SalesForce, and trying to skip expensive customization of the system. This inevitably leads to disaster, followed by a complete re-build of the system - getting it done right the second time at a cost of tens or hundreds of thousands of dollars. Or - and I've seen this - the company dies from the mistake, unable to afford to do it too right, after losing money from not doing it right the first time.
Small business implementation problems
Small businesses either avoid automation too long, or rush in without good customization. They are then locked into a system that reduces efficiency or prevents growth. I know many small businesses that spend more time and money living with a bad computer system than they spend doing actual good work for their customers. Sometimes, we can solve these problems and save the company. See the sidebar, The Important Information is Elsewhere for an example.
The Important Information is Elsewhere
One time, I managed the migration of data off a dying computer onto a new, web-based vertical-market operations management tool for a stock photography company. The old system had a number of problems: It was on a German operating system, even though no one at the company spoke German; The hard drive was crashing and destroying data; and, as I discovered one day, the information that mattered wasn't even on the computer.
As I was analyzing the data with the small business owner, I saw some hand-written numbers on sales sheets that were circled. I asked what they were. The owner answered, "Oh, those are the most important pieces of information of all. Those are codes that track the type of company that placed the order, and the industry they are working in. We total up all those numbers each month, and that shows us where sales are growing, and where to focus our advertising."
"With a calculator. There's no place on the computer system to put the information."
Well, there was a place to put the information in the new system. I spoke to the seller of the vertical-market operations management software for stock photography that they were buying, and he showed me where to put the data. I named and configured the custom fields, entering the company's own codes, and setting up the reports.
With the new system, they didn't need a calculator any more. It generated the sales income reports by category, and sped up their marketing campaigns a great deal. The company grew while competitors were losing ground and going out of business.
Choose: Vertical Market, or Generic?
Let's say that you're in charge of a small company or a department that wants to automate. The key question is: Is your company better off with a vertical-market tool designed for your industry, or with a generic operations management tool, such as SalesForce. Note: SalesForce, is primarily designed to manage sales. But it is so flexible that it can actually manage client services and fulfillment, that is, operations, as well.
Here are some key questions that will guide your decision:
- Are you in a well-established industry that has at least one - and better, two or three - options for industry-specific software? (Restaurants and real estate are good examples.)
- Are you handling physical production of specialized items, or production of specialized imagery, such as high-resolution photos, music, or production video? (Engineering design with manufacturing, and stock photography are good examples.)
If the answer is "yes" to either of these questions, then take a look at software for your own vertical market.
If, on the other hand, you are in a company that handles paperwork and information, and it is a new industry that is changing rapidly, you are likely to be better off using generic software that you can customize to grow with the changes in your business.
Building a Simple Operations Management Tool
Let's say that you want to build a simple operations management tool. You've chosen a customizable, web-based platform. What's next?
The first key is to design business processes that actually reflect what employees are really doing. This takes time, but it it totally worthwhile. It can actually lead to the improvement of business processes: See the sidebar, The Computer That Was Never Purchased as an example. And, if it is not done, there is an inevitable push-back. Most often, workers barely use the system, and the information that really matters to the company is tracked on post-it notes that are stuck onto people's monitors and desks. That's what happened before I arrived on the scene to create the problem I found and solved, as told in the earlier sidebar, The Important Information is Elsewhere.
Also, be sure to hire a competent systems analyst, not a programmer who thinks he knows what he is doing, but doesn't understand data. If the data is not properly organized into relational structures that represent the real information you are working with, then your company is doomed. Later on, you will discover that:
- It is impossible to generate useful, simple business reports from your own data.
- It is impossible to make changes to your system that match improvements and changes to your business.
- Business growth is impossible without scrapping your entire computer system and starting from scratch.
A good systems analyst working closely with the actual workers, though, can work wonders. He can build an operations management tool that actually makes everyone's job easier. And he can show you and other managers how to go into the system and create custom reports that show you exactly what you need to know to grow your business.
The key is that a good operations management systems places crucial business intelligence into the information system that people use every day. This can be as simple as correct drop-down menus and easy-to-use pop up screens. It is simple when it is done. But it takes a lot of time and attention to get it right the first time.
The Computer System That Was Never Purchased
This is an old story from the 1960s, when companies were installing mainframe computers. A very smart consultant was hired to speed up claims processing at an insurance company by putting in a computer system. Before he started, he taught the company owners the GIGO rule: Garbage In, Garbage Out. He insisted that they review all their forms, calculations and data, cleaning them up before putting them on the computer. They groaned and moaned about the cost, but did what he said. After all, he was the expensive expert.
He also asked them for metrics. How many claims could they process now, and how much improvement did they expect from their $500,000 investment? How many errors were there, and how many errors would be okay from the new system. They worked up the numbers.
He worked with analysts and calculators to clean up the paper process. When he was done - without a computer - he showed the company that they had already reached their goal. By cleaning up their business processes - without ever getting a computer - they could process many more claims per day, with many fewer errors.
He saved the company the cost of a computer and pocketed his fee.
The lesson: Computers don't make better businesses; better business processes make better businesses.
Automation and Scalability
If you have built - or are lucky enough to inherit - a well-designed, database-driven operations management system, then you are poised for both continuous improvement and growth.
Continuous improvement relies on the ability to ask new questions of your existing data. This is the field of custom report generation, data analysis, and, at the high end, knowledge management and data mining. It also relies on the system being customized frequently. As better methods are developed, they can be implemented by changing drop-down menus, adding screens, and improving online instructions. That way, every good idea discovered one week becomes a better way of working for everyone in the company the next week.
That same well-designed, database-driven system is scalable. That means that it can be made bigger or smaller, as needed. The computer system that runs one store can be replicated, and, all of a sudden, the store is a franchise. Or the system that handled 100 customers at a time is implemented in a large call center and handles 10,000 customers a day. Or the small high-tech manufacturing plant is a prototype for a new industry giant.
The concept behind automation and scalability is this: Your business information and processes are assets. You want to be able to use them, replicate them, move them, and grow them. If your information and business processes are trapped in an outmoded, confusing, poorly documented computer system, you are in trouble. If you want to stay in business, pay the cost up front: analyze your data and get it ported to an effective Internet-based operations management tool as soon as you can.
Operations at Your Business
Which of these best describes operations where you work, or at the business you own?
Where Your Business Will End Up . . .
Your Next Steps
Now that you've learned about how to use and improve operations management tools in business, grab a pad - or an iPad - and answer these questions. You'll be defining the issues you want to address to improve your operations and make for better tools.
- Does your company or department have standard operating procedures. Or does each person do things his or her own way?
- Do people like the computer system, or resent and avoid it?
- Are you able to get the reports you need from your own system?
- Are you able to make improvements to your system when you want to?
- Is the system running on reliable, current technology?
Be honest. If your answer is "I don't know," that's okay. And it's time to do some research and learning. Find out how your team is working and where your information assets are.
Any "no" answer should lead to the question: Would my business run better - fewer errors or lower cost - if I fixed this problem? And any "yes" answer here points to your next project: Improve or upgrade the system to an effective Internet-based operations management tool that will make your company a leader in the business.
The bottom line is that a poorly chosen or poorly designed operations management tool can cripple your company. A well-chosen, well-designed tool will do for your company what bionics did for the former test pilot in The Six Million Dollar Man: "We can make him better than he was ... better . . . stronger . . . faster." And, these days, that's what it takes to stay in business.