As a manufacturing manager in two distinctly separate industries, I learned the value of predictable processes, economy of resource allocation, division of labor and other elements of getting the best possible products created in the least possible time at the lowest possible cost with the fewest mistakes. Every planner, manufacturing engineer, production manager and cost accountant knows that efficiency is the Holy Grail.
“Well, is it efficiency we’re aiming for, or effectiveness?” the senior vice president asked.
“What’s the difference, in your view?” I countered.
He said, “Effectiveness is achieving the objective. Efficiency may be achieved, but either the goal is missed or the wrong goal is reached.”
I offered, “But if the goal was wrong, then the process to achieve that erroneous objective can’t be termed ‘efficient,’ since efficiency implies that the goal is actually appropriate. Thus all efforts to achieve that goal which reduce cost, time, waste, etc., are intended to create efficiency, which is effective. And if the goal is missed, then again, the methods used cannot be termed efficient,” I concluded.
“I can see your point,” said the senior vice president. “But haven’t you experienced really efficient business or manufacturing methods that turned out to be problems?”
I thought about that a few moments and discovered he was right, in one particular case. And that case is when creative, responsive, innovative ideas are needed to advance the organization’s cause. Let’s take the example of the need to standardize a business method in order to reduce risk. Suppose your company creates a product that must meet certain long-term quality and performance criteria, since the product is used periodically, over a two to three-year period before the container is emptied by the consumer. If the product doesn’t retain its performance and safety characteristics for at least three years, then people will quit buying it. To ensure that the product indeed stays stable over a three year time span, it is necessary to create the product to exacting specifications, reliably and repeatedly.
The raw material specifications, the manufacturing processes, the packaging and the quality testing are all designed to create the same thing, over and over again. If the recipe and the chef are completely efficient, the product will be made at a high quality, in the shortest possible time, produced at the lowest possible cost and sold at the highest possible price. All of the people involved in making the product will be rewarded by how closely to this efficiency perfection they are able to adhere.
If this same strategy for efficiency is applied in all business processes, however, the organization can achieve efficiency at the expense of success. Let’s take the case of a saturated market where all the providers are fighting for market share, giving up margin to gain the business and fighting each other daily just to maintain revenue, while profitability declines. All the competitors are striving for the most efficient methods, in order to give up price concessions and still make some money. As they say, it’s a race to the bottom.
What is needed in such competitively crowded markets is innovation, creativity. Performance differentiation and possibly product substitution are needed. This comes not from doing the same thing in the same way every day, but in experimentation. Adventurous exploring is anything but efficient, and can look very messy from the outside. Such experimentation still needs confining parameters, but it is a mistake to try to tie innovation down to the most efficient, standardized processes, because innovation only occurs when there is room to diverge from the norm. Thus, the cost of creative, innovative efforts includes the cost of mistakes made from inefficiencies. But if it weren’t for those inefficiencies, no innovation would be possible. Creativity is not guaranteed with loose, nonoptimized processes. But it can’t occur at all without the freedom to waste some amount of time, money, materials and effort.
This conflict between efficiency and creativity in an organization is legendary. Smart organizations learn how and when to actually promote inefficiencies. Some create “skunk works” that are messy, exciting “garages” where the Next Big Thing emerges out of the chaos as if you found a diamond ring in the kitchen junk drawer. Some companies try to standardize innovation, which simply kills it.
The solution is to let creativity occur in an inefficient, messy vessel, but risk significant resources only when an efficient and separate evaluation process has tested its commercial validity. In other words, don’t combine in the same business team both the challenge to innovate and the “production” methods designed to eliminate wasteful, creative variability.
Friday, January 7, 2011