IDENTIFICATION OF LEVERAGE POINTS
for the
Improvement of Organizational System Performance

The improvement of organizational system performance can be said to be most effective if it is focused on those functions from which the greatest return in terms of profitability can be realized, on the other hand initially focusing on those functions which can also benefit the quality of work life of the employees can build enthusiasm for the process, demonstrating in practical terms that it is not a threat to their continued employment, thus laying a foundation for more effectively achieving profitability results on the second cycle of performance improvement.

This paper will attempt to address techniques for identifying points of leverage appropriate to corporate objectives.


Frank H.Ryder
B.Sc.M.Eng.P.Eng
(SM)IEEE C.Eng FIEE
Senior Member Institute of Industrial Engineers

September 22, 1992

IDENTIFICATION OF LEVERAGE POINTS
for the
Improvement of Organizational System Performance

One hundred and sixty years ago, in early May of 1832, my great great grandfather landed by ship, here in St.Andrews. Retired from the British Army he had come out to Canada to take up a grant of land and to seek his fortune. The grant of land turned out to be 100 acres of swamp about 20 miles north of town and on the far side of a major river. Fortunately he was a saddler by trade and was soon employed.By 1840 he had established his own business in St.Stephen which operated continuously by his son and grandson for 100 years.

Now you're sitting back there asking yourself what has this got to do with Performance Management, and I'll now try to make the connection. - and it's not that auto mechanics have displaced harness makers, though that is true.

As you know early 19th century England was visited by such dramatic performance improvements, primarily through innovation, that it was called the industrial revolution. Needless to say not everyone enthusiastically embraced these innovations. Taking their name from one of their numbers, the Luddites went about by night breaking into factories and wrecking the new machinery. The government's response was to craft a nebulously worded public order law and to enforce it they sent in the army.

The focus of the Luddite Rebellion, as it was known, was Yorkshire in northern England. One regiment mentioned almost continuously in these confrontations with the Luddites was the Second Regiment of Dragoon Guards, the Queen's Bays.

Now the regiment of which my great-great-grandfather was a member was the Second Regiment of Dragoon Guards, the Queen's Bays.

So I guess it can be said that I learned the first principle of Performance Management from my great-great-grandfather , Send In the Cavalry!

Today I wish to address the issue of the identification of leverage points for the improvement of organizational system performance. I wish to discuss five techniques:

Identification by an Industrial Engineering Consultant.

Identification by a facilitated project team.

Identification by modern Internal Audit.

Identification by use of the Total Factor Productivity Model.

Identification by Comprehensive Organizational Analysis.

and I wish to talk about the strengths and weaknesses of each technique.

IDENTIFICATION OF LEVERAGE POINTS

THE INDUSTRIAL ENGINEERING CONSULTANT

In authoritarian organizations no one can have a performance improvement idea but autocratic middle manager known as "the boss", and I'm sure you have, as I have, exercised the psychological communication necessary to define a problem and to communicate it's solution in such a way that the boss thinks it's his idea. We've all worked in such an organization at one time or other.

Performance Improvement if it is to be accepted in an authoritarian organization must be performed as an independent service to the boss, so his authority is not threatened, and it must be perceived by him to be the product of an expert consultant. Whether that consultant makes use of performance improvement ideas that exist in the organization, or merely applies their own universal fit-all recommendations is irrelevant. They effect a one time step change performance improvement and if the boss wants more he has to bring them in again.

The identification of leverage points in such an organization depends primarily on the expertise of the Industrial Engineering Consultant in:

Identifying performance improvement opportunities that are significant, and

Identifying performance improvement opportunities that can work in the authoritarian culture of the organization.

For example a currently significant performance improvement in most organizations is made by shoving the decision making process as low as possible in the organization to speed up that process and to more quickly satisfy customers; this concept will not go down well if the organization's culture requires that the boss make all the decisions.

There are significant limitations to performance improvement in authoritarian organizations. Consultants will not be thanked for identifying those limitations or for identifying performance improvements which impact those limitations.

THE FACILITATED PERFORMANCE IMPROVEMENT TEAM

At the other end of the spectrum we have the facilitated performance improvement team. The scope of this improvement process is limited only by what it can demonstrate to be economic. Management of an organization in which this process may function is characterized as bottom line driven. While it is open to performance improvement ideas from anywhere, those ideas must have a documentable positive effect on the bottom line. The team functions to:

Identify the improvement opportunity and

Document the changes,

the economic impact thereof,

the action plans to achieve the result, and

the measures by which performance improvement may be proved after the fact.

Management then finds itself in the comfortable position of making a decision on a well documented recommendation, on the one hand giving away the process but on the other hand, retaining control of the results.

This process has been documented in the paper by Farr and Ryder "Improving the Performance of the Performance Improvement Process in the July 1991 issue of Industrial Engineering Magazine.

The identification of leverage points may be made by the facilitator, the project team or the employees. The only limitation is that it's difficult to propose improvements that may impact on functions outside the department under study, particularly if those other departments are under authoritarian rule. In simplest terms the boundaries of the study may pose a problem.

MODERN INTERNAL AUDIT

Internal Audit has been characterized for years by a focus on financial matters, by the prevention of and the detection of fraud, and on compliance with policies, procedures and standards.

Nowhere is anything said about the adequacy of policy!

In more recent times the focus of internal audit has become more comprehensive in nature. The concept being to focus on the Company's mission and vision, then on the policies and procedures, and finally on the what the people are actually doing; to address criticism not just at the employees but also at the adequacy of the policy and procedure to achieve the mission and vision. Internal Audit thus becomes a powerful force for the identification of leverage points in the broadest possible sense, both in terms of subject and in terms of organizational scope.

In the course of an audit, employees may say "I could better achieve this objective if only the policies permitted me to do it this way. By focusing on the mission and vision the auditor may come to support this observation and from his or her position of influence has the authority to identify it as a performance improvement opportunity whether the authoritarian middle manager likes it or not. The audit team can benefit from having seconded line personnel from similar function in other parts of the organization. This does two things, it helps keep the auditors focussed on real problems, and it gives some comfort of that fact to those being audited.

The result of this is an audit report that gives management comfort in the traditional sense but which also identifies broad scope performance improvement opportunities. Management can then address these, using whatever technique it wishes.

I wish to emphasize that the Internal Auditor only identifies performance opportunities and does not otherwise function to improve performance. Performance improvement is a function of management.

THE TOTAL FACTOR PRODUCTIVITY MODEL

A Total Factor Productivity Model in the purest sense provides measures of output for each defined element of input for the company. That means it can provide comprehensive identification of leverage points accross all functions of the company. For an individual company over time it can indicate trends. For a number of companies, after characteristic differences are accounted for, it can identify leverage points to be investigated further using Industrial Engineering techniques.

The most important concept of a Total Factor Productivity Model is that at one moment in time it captures a comprehensive set of measures of corporate performance. Because it must balance with the reported financial statements, it is unaffected by the creative accounting techniques sometimes used to make one department look good at the expense of another.

The Canadian Electrical Association Total Factor Productivity Model, with the participation of all Canadian electric utilities provides a good basis of comparison between each utility and the composite and between individuals or other groups of utilities.

There is a limitation to the use of a Total Factor Productivity Model. It is one of detail. The level of detail that is required must be defined in advance. it's not easy to go back and redefine the data to a lower level of detail at a later date. An attempt by CEA to capture employee counts using the TFPM structure last year ran headon into this problem. Personnel records are not normally kept according to TFPM data definitions. While the extract of records in that format can be done, it's not a trivial task.

My advice to the keepers of any TFPM system is to keep it pure. Keep focussed on the original objective of the model. Report on that model in it's entirety on a regular basis, not just the things that are currently of interest. Don't clutter it up with all sorts of other things that while they may by nice to have, add to the burden of maintaining the model. Make them stand on their own. Benchmarking on a project basis offers a good alternative; data gathering requirements disappear when the project ends.

This leads me to the final element of my talk:

COMPREHENSIVE ORGANIZATIONAL ANALYSIS

Comprehensive Organizational Analysis for Performance Improvement is a service offered by many of the major accounting firms and management consultants. Issues that can be addressed, on a coompany wide basis, in such an analysis include:

* Are efforts being duplicated

* Are efforts excessively fragmented through proliferation or misplacement

* Are critical jobs underleveraged

* Is management cost / worker cost appropriate

* Is the span of control optimal

* Is management's work focused on the corporate mission

The approach taken by most consultants best fits the autocratically managed organization. A large number of data gatherers are employed by the consultant to determine in a systematic manner what all the company employees are doing, then a team of experts in consultation with top management identify the issues, and the response to be made to them.

When the consultant goes away the company has a report containing the recommendations of changes to be made.

Conceptually if we could combine the global aspect of this Comprehensive Organizational Analysis with the analytical power of the Facilitated Performance Improvement Team we would I think have a winning process. A process that could endure beyond the day when the consultant last goes out the door. A process that could give top management comfort that all potential leverage points for performance improvement were in fact being identified.

The General Electric Company has developed a program product, Introspect, which they have licensed to Power Technologies Inc as Introspect+ for general distribution.

This program product in my opinion comes close to achieving the objective of a Comprehensive Facilitated Performance Improvement Process.

Introspect+ is available from PTI as part of a management consulting service or the product can be licensed from them just like their power systems analysis programs.

Introspect+ provides:

* A Database with data definitions of work tailored to the client organization.

* A procedure for gathering data defining the work performed.

* A software package to display the results in standard reports.

* A resource of facilitators to help identify performance improvement opportunities, and to help train client personnel in the technique.

Some of the weaknesses I identified in the other processes may now be addresses:

One of the problems I mentioned with the facilitated performance improvement team approach is the boundary problem with other responsibility areas. The comprehensive nature of data captured by Introspect+ can eliminate this problem.

One of the advantages of the facilitated performance improvement team approach is that it develops the ability of the organization to effectively manage change. Introspect+ uses the facilitated team approach for it's data gathering process. It could form the basis of the analysis process also, if management so wished.

With over 200 studies completed there is a basis of comparison with other classes of industries as well as gas, telephone and electric utilities. Broad comparisons on a benchmark basis will in the future become a necessary part of performance improvement.

In Summary Comprehensive Organizational Analysis offers the means to identify leverage points for the Improvement of Organizational System Performance on the broadest possible terms and to the desired depth in the organization.

Combining that technique with The Facilitated Performance Improvement Team one can realize a process for comprehensive continuous performance improvement.

CLOSURE

The identification of leverage points for the improvement of organizational system performance is a continuing challenge. As easy problems are solved more complicated ones must be addressed. More sophisticated tools must be employed to do that.

This paper has been an attempt to describe techniques available to identify leverage points for performance improvement in organizations of various culture and with various degrees of comprehensiveness. It has attempted to address the strengths and weaknesses of each approach. Finally it has recommended a combined technique of comprehensive organizational analysis and participative performance improvement.