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Best Practices for Operational Excellence | Luca-dellanna.com

Best Practices for Operational Excellence Luca Dellanna

@DellAnnaLuca Luca-dellanna.com

First edition December 2019

Luca Dell’Anna © 2019 – All Rights Reserved

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Best Practices for Operational Excellence | Luca-dellanna.com

Introduction It is very satisfying to observe an organization having achieved Operational Excellence. The managers are focused, working on the tasks where they have the most leverage; long are gone the days where they were running all over the place fixing emergencies. The workers are proud of their work, each owning his role and trusting his manager. The workplace is a good environment to work in: little dangers, everything is at its place, everyone knows what the company is doing and cares about it. Unfortunately, Operational Excellence is being practiced in few companies only, for two reasons. First, few managers know how to achieve it. And second, most managers do not have it as their priority. While they are interested in the benefits of Operational Excellence, they are not convinced that such benefits are worth the efforts required to achieve them. There are many selfish reasons to implement Operational Excellence. Managers of a team with a culture of Operational Excellence are less stressed (they do not spend their days running after emergencies), work less hours (when you are effective, you don’t have to work overtime), are more fulfilled (they become respected by both their subordinates and their boss), are more valuable (they and their team become able to consistently hit milestones), are more employable (being able to manage a team effectively is a rare and valuable skill), and are richer (as their team hits their bottom line results, more money becomes available to be distributed in the form of bonuses).

Achieving Operational Excellence is not complex. It does take a limited amount of focused effort, but the benefits begin to show very fast, if you know what to focus on. The first part of this book provides solutions to the problem: what to focus on. It will tell you which actions matter and which do not, so that you won’t waste

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Best Practices for Operational Excellence | Luca-dellanna.com your time and energy on things which will not bring you any good. It will show you which are the few actions that, if taken, will have a disproportionate impact on your working life. The second part of this book provides you with Eight Best Practices: quick tools you can begin using today to change the way your team operates and to get evidence that things can change: unmotivated employees can become motivated, unproductive ones can become productive, and previously unreachable objectives can be attained. In the third and last part of this book, you will find a roadmap to extend the change to scopes larger than your direct subordinates. For example, your plant, your office or your organization. I’ve been working in the field of Operational Excellence for more than seven years and, while it might not seem much, I’ve seen hundreds of companies and consulted dozens. I’ve witnessed problems and solutions. I know what works and what doesn’t. This book is the result: a practical guide to help you becoming a more effective manager and to solve most of your problems at work.

ACHIEVING OPERATIONAL EXCELLENCE Operational Excellence is not an abstract concept which lives in the theories of academics. Operational Excellence is what happens on the work floor, on the production lines and in the warehouses. How employees work when they are actively supervised and when they aren’t. On the good days and, especially, on the bad ones, when everyone is tired or rushed. Achieving Operational Excellence is not a complex endeavor. A few right actions applied with enough consistency are enough to turn a company’s operations around in just a few months, as I’ve witnessed with my own eyes in the companies I worked with. However, this is not easy. The difficulty in achieving Operational Excellence is not in the know-how required for it to happen, but in getting the time, systems and proactivity needed by the managers to transform the Four Principles of Operational Excellence into 3

Best Practices for Operational Excellence | Luca-dellanna.com concrete actions that will change the way workers operate. This book will help you with this. But first, let me begin with a story of change. … At the crossroad of the 17th and the 18th century, a French chemist by the name of Éleuthère Irénée du Pont had to leave the country in a hurry. He had been a student of renowned chemist Lavoisier, but things recently changed. Due to political controversies following the French revolution, to escape jail and, perhaps, the guillotine, Éleuthère du Pont took a boat and sailed to the New Continent. On the 1st of January 1800, he landed in Delaware. Equipped with his chemical know-how, he began operating a gunpowder factory on the shores of the Brandywine River. As he would soon learn, gunpowder factories have an undesirable property: they tend to explode frequently. Facing increased incidents, injuries and deaths, he decided something had to be done to reduce the explosions. How he solved the problem shaped the future of Operational Excellence. Éleuthère du Pont took two initiatives1 . First, he required that the Director (himself) lived inside the factory with his family. He put his life on the line. If something blew up, he and his family might die in the process. Skin in the game. Second, he established the rule that every new machinery had to be operated for the first time by members of top management. If the machine blew up, the manager would suffer the consequences on his own skin. Needless to say, the safety of the plant increased overnight. Leadership demonstrated through visible costly actions is powerful.

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Source: “Two Centuries of Process Safety at DuPont”, James A. Klein, 2009, Wiley InterScience, DOI

10.1002/prs.10309

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Best Practices for Operational Excellence | Luca-dellanna.com The gunpowder company slowly grew into one of the largest industrial conglomerates in the world, DuPont. Its destiny would eventually cross mine two centuries later. … Even though I graduated as an automotive engineer, I never worked as one. On a hot summer day in which I was writing my final thesis, I received a call from who would become my first boss. He asked me to join his consulting team in Frankfurt, Germany. Excited and without knowing a single word of German, I accepted. I became an employee of DuPont2. While there, I learned a lot. At the time, DuPont was considered the leading world expert in Workplace Safety consulting. I had the chance to work with some of the top experts on this planet. I saw tens of companies: our clients. I learned from hundreds of managers, and thousands of workers. I listened to their words, their problems and their aspirations. I experienced their best practices. I analyzed failures. I came up with solutions. I followed their implementation. I internalized Operational Excellence. A few years later, I left to start my own consulting practice. I spent some months reading as much as possible about Operational Excellence, learning as much as I could and talking with old experts and new clients. Then, I developed a framework to help any manager improving the Operational Culture of his company. I now run my own consulting practice, helping managers (mostly in Europe and Asia) developing their employees and running their operations to the best of their potential.

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I did not and do not endorse DuPont’s stance or action on many matters, included on OGMs, which I

strongly criticize. At the time, I was ignorant on the topic and did not know about their risks. While working there I wasn’t involved in any of these matters – I only worked for the consulting division which helped other companies working better and safer.

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Best Practices for Operational Excellence | Luca-dellanna.com However, helping managers one-by-one limits my leverage. I can only help so many people face-to-face. I needed to find a way to impact more people. Therefore, I decided to write this book.

OUTLINE This book is divided into three parts. In the first part, you will learn the Four Principles of Operational Excellence

to be leveraged in order to create an Operational Culture worth working in. In the second part, I will detail the Eight Best Practices to transform the Four Principles into visible actions, which you can carry out starting today in your

organization. I will provide detailed lists of steps and comprehensive examples to facilitate their execution. In the third part, I will provide you with a roadmap for planning a plant-wide or company-wide change initiative, for achieving Top Management buy-in, for its effective roll-out and for its long-term sustenance.

But first, let’s take a look at the importance of Operational Excellence and at the costs of a mediocre Operational Culture.

OPERATIONAL EXCELLENCE AND MANAGEMENT The first part of this book – the Four Principles of Operational Excellence – talks about management, not about best practices, which are the subject of the second part. This is necessary, as no best practice will be followed by the employees of your organization, if the managers are not able to do their job of setting clear personal objectives and holding them accountable in a fair, transparent and predictable manner. I would urge you to give your maximum attention to the first part of this book, even if you feel you already know about management, as the concepts contained here are not the usual boilerplate and not having internalized them is the real bottleneck to Operational Excellence. Looking for one more best 6

Best Practices for Operational Excellence | Luca-dellanna.com practice to implement while you do not have a solid foundation of performance management will only bring short-lived satisfaction. The real changes in your working life will come from mastering The Four Principles.

A MAP When you look at a map describing the roads in your city, you do not see every single building and every single tree. Not describing the full territory is not a defect of maps, but a feature. By leaving out some details, they allow the reader to focus on the information present and to take effective action. Similarly, this book does not pretend to explain everything there is to know about Operational Excellence – it would take a hundred books to do so. Rather, this book describes most of what you need to know in order to be able to take effective action to improve the Operational Culture of your team. If you have any question whose answer is not contained in this book, you can always drop me a short3 email at the contact listed in the author section at the end of this book.

TERMINOLOGY In this book, I use the following definitions for roles: “Worker” refers to any employee who does not manage any subordinate, “Supervisor” refers to any employee who manages workers, “Manager” refers to any employee who manages subordinates of any kind (workers, supervisors or other managers) and “Top Management” refers to the CEO and other top executives such as Csuites and Vice-Presidents. Unless specified otherwise, by “subordinates” I intend those who report directly to person being referred to. For example, “your subordinates” would include your direct reports, but not your reports’ reports, if any.

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My answer time will be inversely proportional to the length of the email.

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DISCLAIMER The contents of this book consist in the learnings the author made based on his experience. While he genuinely thinks that this book should help most of its readers, its contents are highly contextual. Only you know what’s best for you. Always use your common sense and reach out to experts whenever appropriate. None of what is written in this book is to be considered medical advice, financial advice, investment advice, or advice of any other kind. The author shall not be held liable for the consequences of the application or misapplication of the contents of this book.

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The Costs of Lacking Operational Excellence Achieving and maintaining a great Operational Culture costs time and money. However, such investments are cheap compared to the costs of a mediocre Operational Culture, plagued by structural problems, demotivated employees and lack of clarity and trust. Let’s first see the costs for managers like you. •

Overtime: in companies with mediocre Operational Culture, action is

slow and problems aren’t addressed without constant attention by the manager. In companies with great Operational Culture, instead, there is no need for micromanagement, and managers are more likely to (and are encouraged to) leave their work on time most of their days. •

Lower bonuses: teams with mediocre Operational Culture fail to

achieve their business goals or bring minimum impact to the bottom line. Instead, teams with great Operational Culture effectively contribute to the success of the company, which has then the funds and the reasons to distribute large bonuses or raises. •

More stress: it is stressful to work in a team with mediocre Operational

Culture, where new and old problems surface every day. Instead, teams with great Operational Culture take care of problems once and for all, allowing their members to work in an environment mostly deprived of toxic stress. •

Less energy: managers of teams with mediocre Operational Culture

spend their days “putting out fires”, running from one place to another solving urgent problems, an activity which would quickly deplete anyone’s reserves of energy. Instead, in teams with great Operational Culture, problems are solved by individual team members, leaving the 9

Best Practices for Operational Excellence | Luca-dellanna.com manager free to work on a few important problems rather than on many urgent ones. •

Less trust: in teams with mediocre Operational Culture, career

advancements are based at least partially on factors other than results. Behaviors such as servility, adulation and backstabbing go unpunished at best and are rewarded at worst, creating an environment where it is impossible to trust most colleagues. Conversely, in teams with great Operational Excellence, people are rewarded to act in accordance to Core Values and objectives – both defined in objective terms – and punished if they exhibit any toxic behavior. The result is an environment where everyone can trust each other. •

Less satisfaction: for all the reasons above, to work in a team with

mediocre Operational Culture is consuming, tiring, stressing, and not worth it financially. Instead, working for a team with great Operational Culture is rewarding, both from the financial and the mental point of view. Just like a mediocre Operational Culture is bad for managers, it is also expensive for companies. These are the direct costs of lacking Operational Excellence: •

Defects, which lead to scrap, rework, customer support and recalls.



Poor logistics, which lead to transportation, storage and capital

immobilization costs which do not add any value to the customer. •

Injuries, which lead to stopped production and worker benefits.



Environmental problems, which lead to fines.



Unethical workplaces, which lead to fines, rogue employees and key

personnel being fired for ethical violations. These direct costs are dwarfed by indirect ones: •

Defects lead to brand issues, making it more expensive to acquire and

retain customers.

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Best Practices for Operational Excellence | Luca-dellanna.com •

Poor logistics lead to stopped production in case of delays in the

supply line, in unhappy customers or in customers having to source another supplier (a competitor of yours) to protect themselves from your delays. •

Injuries lead to poorer quality and operations (as less experienced

workers have to substitute for injured ones), lower morale and higher insurance costs. •

Environmental problems lead to brand incidents (damaging the image

customers and potential hires have of the company) and risk of losing the permit to operate. •

Unethical workplaces lead to brand incidents, difficulties in hiring

and retaining talent (most people do not want to work for a company with a poor work environment and must be overpaid to do so). •

Poor management leads to employees having a lower morale and

motivation, underperforming in all other areas, and key employees leaving the company. Summing it up, companies with poor Operational Culture lose their good employees (to injuries, burnouts, competitors) and remain with bad employees only (low-talent or unethical ones), which further lowers the Operational Culture, creating a vicious circle from which it is difficult to exit.

For all the reasons listed above, it is beneficial both to managers and companies to strive to implement Operational Excellence in their organization. Let’s see how.

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Managing difficult employees Before entering the core of this book and describe the Four Principles of Operational Excellence and the Eight Best Practices to implement them in your organization, let’s explore three problems most managers like you face: managing difficult employees, getting the time to do everything and creating an environment of trust. They’re not an exhaustive list of course – there are more urgent and more important problems – but these are the three problems which will be covered as the introduction to the core of this book: the Four Principles of Operational Excellence. By “difficult employees”, I refer to those who appear to chronically lack any motivation, to those who seem to resist any attempt to change their ways of working, to those who have adversarial reactions to attempts to train them, or to those who lack the discipline required to work in a team. The reason why these four seemingly different groups are classified under the same umbrella is that they have a common root cause: the employee does not know that good individual outcomes follow achieving objectives (or he forgot about it, or got taught otherwise by working under bad managers, or believes that it is not true in your company or under your management). In some cases, the employee never got to learn the link between achieving objectives and good individual outcomes because he has always lacked the skills to do the former or because he only encountered teachers and managers in his life who never rewarded him with the latter. In other cases, the employee happened to spend the last months or years working for a manager who failed to set any attainable objective, or who failed to provide him with the skills and supports required to achieve it, or who was inconsistent in rewarding him for

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Best Practices for Operational Excellence | Luca-dellanna.com having achieved his objectives, to the point that the employee forgot that achieving objectives is followed by good individual outcomes. In a few cases, the root cause is instead that the employee did not get to learn the link between doing something bad and bad individual outcomes. This happens when the employee, for any reason – at work, or in his early years at school – did something which was bad, did not get punished and reaped benefits instead. For example, the employee might have been arriving late at meetings and experienced no material consequence, thus learning that bad behavior goes unpunished.

Problem

The root causes of difficult employees Consequence

They never got to achieve any objective

They did not experience that achieving objectives leads to positive individual outcomes

After achieving objectives, they didn’t get to experience the rewards

They now believe that achieving objectives is not necessarily followed by positive individual outcomes.

After failing to achieve objectives, they still get to enjoy benefits as if they did achieve them

They now believe that productive behavior is unnecessary.

In rare cases, there are other reasons underlying underperformance or bad behaviors, but the reasons listed above cover the large majority. Difficult employees behave as such because they experienced a paradigm where bad behavior is more advantageous than productive behavior.

The solution, therefore, is simple (though hard): the manager should let them experience a different paradigm, where bad behavior consistently leads to 13

Best Practices for Operational Excellence | Luca-dellanna.com negative individual outcomes and good behavior consistently leads to positive individual outcomes. The key word is consistently. It’s not that most managers do not reward achieving objectives. They do. However, often, they do it less consistently that they let having achieved objectives go unrewarded. Unfortunately, people are more likely to remember that one time where their efforts went to waste rather than those nine times where they got rewarded. Unless the manager is obsessively consistent in making sure that the consequences he promises (both good and bad) take place, his words will not command attention. Inconsistent managers debase their authority. Respect, trust, and authority are all gained by being consistent, and one single moment of inconsistency might ruin months of consistency and create motivational losses. Many managers feel like they do not have the time and resources to be fully consistent in rewarding their employees. The next chapter, “Getting the time to do everything”, will address this issue. When facing an indifferent subordinate, the manager should teach him again that good outcomes follow good performance and that such good performance is attainable for him. The manager does not need to teach a demotivated

subordinate to produce results; he needs to teach him that producing results brings good individual outcomes. These are two completely different concepts, and a manager focusing his efforts on the former while the bottleneck is the latter is setting himself up for frustration. (Of course, in case skills are the factor limiting the performance of the subordinate, and not motivation, then the manager will have to focus on ensuring he gets the required know-how.)

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CATCH HIM RIGHT The way to teach the correct paradigm to your subordinates is by creating opportunities for them to learn that, if they fulfill their objectives, good things will happen to them and to their organization. This includes giving them small objectives and rewarding them for achieving them – mostly, with words of appreciation (as other kinds of rewards should be reserved for excellent performers). The manager should only reward achieved objectives; he should not reward effort which did not achieve objectives nor saying nice words even if the “difficult employee” did not achieve the objective. If the difficult employee fails to achieve the objective (regardless of whether he tried and failed or failed to try), then the manager should give him a smaller objective. But the manager should never stop proposing smaller and smaller objectives with the hope of catching him achieving one and rewarding him for that. There is an exception to the process of downsizing objectives until they are achieved – the risk that the difficult employee learns the wrong thing: that the less he does, the less he is asked. To prevent this, the process described above should always be accompanied by letting the employee know that his performance so far has been subpar and there are standards below which he will have to be let go, assuming that the local legislation allows it. If that is not possible, when he fails to reach an objective, do not lower the bar, instead increase the amount of time spent focusing on him. When he succeeds, do not raise the bar immediately – keep reinforcing the good behavior with words of appreciation for at least one or two weeks before raising the bar again. To some, the process described above might seem utopian, but I assure you it works. If your experience tells you otherwise, it is because the process above wasn’t implemented consistently enough or clearly enough. An employee’s performance is always capped to the lowest between his internal drive and the

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Best Practices for Operational Excellence | Luca-dellanna.com consistency with which he has been taught to expect good outcomes in case of good performance and bad outcomes in case of bad performance.

The Fourth Principle of Operational Excellence will discuss this concept more in depth. Rewards should always be of the appropriate size given the objective. The

manager should not give an excessive reward, especially when compared to those given to employees who worked harder or better (otherwise those employees will soon learn that working sloppily is the more convenient choice). For this reason, the reward to small objectives should generally be some sincere words of praise and respect, such as “good job”; nothing more. If the objective, even though small, was indeed of help for the team, the manager should also remark this, with words such as “good job, this was helpful because…”. If the manager manages to catch the “difficult employee” achieving an objective and rewards him in a fair way (not too much), then the employee will learn, at least partially, the link between fulfilling objectives and good outcomes happening. In some cases, catching him right once will be enough to start a virtuous circle of work ethic. In other cases, it will be necessary to catch him right a few times, perhaps even 10 or 20. As a manager, you should never reward effort; only results. Otherwise, you will end up with a team in whose members focus on signaling effort rather than bringing results.

Effort which isn’t conducive to the success of your organization should never be praised, not even with a “thank you”. It is respectful to acknowledge effort, though, with sentences such as “I noticed the effort you put, but you did not achieve the objective, and that is what ultimately matters.” Objectives should be human and sustainable – a topic discussed more in detail in the chapter on the First Principle of Operational Excellence. Sometimes, with difficult employees, it is effective to “carve a role” for them. Basketball fans can think of Dennis Rodman: a “bad boy” who excelled at a 16

Best Practices for Operational Excellence | Luca-dellanna.com valuable yet ignored-by-others responsibility: rebounding. Find a skill or interest that the difficult employee has but others in the team lack. It might not be a skill required by the job description, but it has to be relevant to Operations. Then, try to assign to him some small objective related to it. Try to make him feel proud of his work ethic related to that skill or interest. Work ethic is contagious; it will spread to other aspects of his role. To summarize: 1) Give the difficult employee objectives he can achieve. 2) Catch him doing something right, such as fulfilling objectives or following rules. 3) If he does so, thank or praise him appropriately, then raise the bar – but not too much. 4) If he does not, lower the bar and try again – but not too much. Remember: one key part of Operational Excellence is to bring clarity and inevitability to the link between achieving objectives and individual outcomes.

MOTIVATIONAL LOSSES Every time an employee thinks he achieved an objective but does not get rewarded appropriately, he suffers a motivational loss. Some employees are more internally motivated and can withstand a few motivational losses without being affected in their day-to-day, but any employee has a “breaking point” where, after enough motivational losses, he will lose all enthusiasm and become a difficult employee or quit the company. It is therefore extremely important that managers avoid any form of motivational loss in their subordinates, and this includes avoiding ambiguous objectives. If the objective assigned to a subordinate is not clear, then it is possible that the subordinate equivocates and produces a work which he genuinely believes achieved the result he was tasked with. In this case, when the manager will 17

Best Practices for Operational Excellence | Luca-dellanna.com have to tell him that his work was not good enough, the subordinate will suffer a great motivational loss: he expected a praise and received a reprimand instead. Unambiguous objectives are necessary to avoid motivational losses (this concept will be the topic of the First Principle of Operational Excellence).

TOXIC EMPLOYEES The above notwithstanding, some employees are not just “difficult”. They are toxic. Whereas difficult employees just forgot (or never learned) the relationship between fulfilling objectives and good outcomes, toxic employees operate from a different set of beliefs and paradigms that are destructive to the Operational Culture of the team. Whereas difficult employees should be treated as potential assets and trained so that they become one, toxic ones should be treated as liabilities, and action should be taken to let them go, if allowed by the local legislation. In my experience, companies both overestimate the percentage of toxic employees (most are just difficult ones) and underestimate the need of letting them go as fast as possible, if allowed. Firing toxic employees might seem cruel, but keeping them in is more cruel: to their colleagues (whose efforts become devaluated), to the company (whose situation becomes harder, as it is burdened by the toxic employee) and to the employee itself (who could benefit for a change of environment or from a strong signal that his behavior has to change for good things to happen for him). Of course, firing should be a last recourse solution after having competently and wholeheartedly given him chances to change his behavior and support towards it, to validate the hypothesis that his toxicity is an inherent part of who he currently is and not a temporary reaction to an unconducive environment.

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SUMMARY If you have difficult employees, you need to get them to experience the link between fulfilling objectives and good personal outcomes. 1) Give them achievable objectives. 2) Catch them doing something right, such as fulfilling objectives or following rules. 3) If they do so, thank or praise them appropriately, then raise the bar – but not too much. 4) If they do not, lower the bar and try again – but not too much.

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Getting the time to do everything As a manager, you will most likely be haunted by days with too much to do and too little time. For many managers, the reaction is working longer hours. This might be needed in case of exceptional deadlines, such as the last days of the year, but is never a good idea when its application is too frequent – more than 6-8 weeks per year. Chronic overtime brings stress and jadedness, both of which increase the risk of mistakes and limit the professional growth of the manager. Moreover, whereas in companies with poor Operational Excellence working overtime signals commitment, in companies with good Operational Excellence it signals structural problems such as the inability to prioritize effectively and get stuff done. I once overheard an executive saying that he could not promote that employee who was working long hours because, if he did, the employee would find himself with too many responsibilities to juggle and would either have to increment his working hours to the point of a burnout, or inevitably “let some ball drop” and underperform. (Imagine the shock if the employee learnt that – he thought that working long hours would help his career!) Let me be clear: it is not working overtime which is bad. In small doses, it is good. It is systematically working overtime which is bad. The former represents taking care of unusual spikes in workload, whereas the latter represents working overtime to take care of the usual workload – an indicator of a structural problem. Being understaffed might be the temporary reason for a chronically high workload, but it is never the long-term reason. A good organization which finds 20

Best Practices for Operational Excellence | Luca-dellanna.com itself understaffed – due to the sudden leave of a few employees or due to a sudden increase in business – would quickly react and hire the missing talent. If it doesn’t, it might be for three reasons: the Top Management is not competent or committed enough, the business is horrible (your company operates in a shrinking or unprofitable market), or managers are not good at prioritizing. If one of the first two cases applies to your organization – consider changing company, to avoid fighting an uphill battle. If instead your case is the third one – bad prioritization – the rest of this chapter will be useful to you.

THE SOURCE OF PROBLEMS Each problem has a root cause. For example, your subordinates might continuously ask you for questions on a class of matters because the topic is not clear to them. If, when they ask you for advice, you answer their direct question without training them to answer by themselves, they will keep asking you the same questions all the time, causing you to spend too much time on it. In general, root causes keep generating problems. If you only solve problems without addressing their root cause, the root cause will keep throwing problems at you. Solving the root cause is the only action which will stop the flow of problems. Just like, in a sinking ship, throwing water overboard with a bucket

will accomplish nothing at all if there is a hole from which the water keeps flowing in. Every person with time problems has a prioritization problem. They only work on their superficial problems, on the urgent, waiting for the “perfect day” in which to address the root causes of their constant flow of problems. Sadly, that day will never come.

The day their problems will end will be the day they decide to work on the root causes of their problems, despite the problems they are facing.

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MANAGING THE URGENT Every day, there is something urgent to do. It is hard to find some time to work on the important – addressing root causes. However, the very important never looks urgent. Solving root causes will always appear less urgent than solving the problems they generated. Good managers aren’t fooled by urgency, and they know that their job is to work on the very important even when it doesn’t seem urgent, ignoring the urgent if they must. Companies with bad Operational Culture reward the managers who work on the urgent. Instead, companies with good Operational Culture reward those who work on the important. They do so by subordinating managers’ results on the urgent to their results on the important. This might seem counterintuitive,

but for example, Toyota reportedly had a policy where a manager could not get a promotion unless, regardless of the personal results he achieved, he also completed some goals regarding the personal development of his subordinates (i.e., taking care of the root causes). This does not mean that the urgent cannot be important. It means that what to work on should be chosen solely on the basis of importance, disregarding urgency. Policies and tools conducive to addressing root causes will be discussed in later chapters of this book; for the moment, the reader is invited to just focus on the following principle: the only way to solve your problems is indirectly by addressing their root causes; solving the problems directly will instead generate more problems.

GETTING MORE TIME It is possible that, to your eyes, each of your subordinates is a source of problems to solve. If you only work on the problems they bring to your attention, they

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Best Practices for Operational Excellence | Luca-dellanna.com will keep bringing new problems to your attention, with your availability as the only limit. I can guarantee that, if you spend more time today to train them to solve their own problems by themselves, tomorrow you will have much more time available, as they will not be depending on you anymore. Instead, if today you are answering their questions waiting for the day they do not have questions to train them to solve their problems by themselves, know that day will never come. Of course, today you won’t have the time to train all your subordinates on all matters – probably, you won’t even have the time to train a single employee on all his matters. However, you have the time to train one of your subordinates to solve one type of problems he might be raising to your attention. If you do that, tomorrow you will have a bit more time (because that subordinate will not be generate any more problems of that kind). You can use the time you saved to train a second subordinate on another class of problems, saving you more time during the following days. If you keep doing that, day after day, after a few months you’ll soon find yourself with much more time at your disposal. If your subordinates come too often to you with questions regarding the same topic which require context-based answers, consider having a subject matter expert. He is a senior employee knowledgeable on the matter who would be responsible for answering questions on that topic – freeing time for yourself to do your job. Let me debunk a myth here: having someone else do tasks which are not part of your job description is not laziness. It is lazy to do them yourself because you do not want to do the emotional work of putting yourself in the conditions of doing the tasks which are critical for your role. The same might apply to other problems you might have, coming from sources other than your subordinates. Perhaps, your customers, your boss, your peers, bureaucracy, and so on… For each problem that you repeatedly encounter in

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Best Practices for Operational Excellence | Luca-dellanna.com your life, acknowledge that there is a root cause that keeps throwing new instances of that problem to you; then, work on solving that root cause ignoring the problems it is throwing at you. That’s the only way to avoid having to face the same problems in the future.

Chronic problems are life’s way to tell you to do something you didn’t do yet.

A GOOD QUESTION If you keep spending your workdays like you’ve been doing recently, how will the Operational Culture of your team look like in a couple of years? How will your work life look like?

AN INTRODUCTION The content above is just an introduction to the topic of personal productivity and on the actions you should be taking as a manager. You will find more practical content in the core of this book.

ACTION POINT Make a list of recurring problems which are consuming your time and select the one which is consuming the most. Is there any action you can take today to reduce future wastes of time originating from that problem? Can you address its root cause?

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Creating trust As a manager, you want to have the trust of your subordinates. They will share more information with you, they will escalate problems sooner when needed – allowing you to tackle them before they become too big – and they will work on the objectives you assign them faster and better, without questioning them. However, trust is not a given; it must be earned. Below are some requirements for trust and how to achieve them. Competence: your subordinates will not trust your decisions if they do not

believe you are competent at your job. Three factors will influence the perception of your competence: your background (have you been working in the field for long enough? Do you have previous experience in Operations?), your achievements (did you achieve great results in the past? Did the teams you manage achieve great results?), and whether you listen to your subordinates and explain your decisions to them. You might have limited influence today on the first two points – background and achievements – but you can work on the third one. As a manager, you have a privileged point of view of the business, having access to much broader information than your subordinates. Therefore, you might “know better”. However, if you take decisions without listening to your subordinates nor explaining to them the reasons for which you took such decisions, they might not trust that you do indeed “know better”. Often, your subordinates will not agree on your decisions. However, if you gave them reasons to believe you genuinely listened to their full point of view, even if you end up taking a decision they disagree with, they will not resent you for it – at least not in the long term. Instead, if they are on the impression that you did not listen to them fully – regardless of whether you actually did – taking a decision they do not agree with will be perceived as incompetence and cause a break of trust. 25

Best Practices for Operational Excellence | Luca-dellanna.com In later chapters of this book, I will describe a few Best Practices which are designed to ensure that your subordinates feel listened to and trust your decisions. Visibility: your subordinates will not trust your decisions if they do not believe

you are at least somehow knowledgeable about their job. This requires you to spend at least part of your time at your subordinate’s floor, at their desks, with their teams. If you only meet them in your office or in conference rooms, they will have the impression that you do not really know what’s going on in their work life – regardless of whether this is actually the case. In a later chapter of this book, I will describe a Best Practice, “Management Walks”, which is designed to address this point. Fairness: as a manager, you should strive to enforce rules and evaluate people

in a fair way which is predictable and identical for all. No favorites, no exceptions, no “judging the effort” or “excusing the circumstances”. Judging everyone equally will prevent them from thinking that your decisions are personal. If, instead, you use double standards or subjective judgements, your subordinates will have the possibility to think you are making it personal and they will trust you less. Principled: counterintuitively, people cannot fully trust someone who is loyal

to individuals. What if he will have to decide between two people he swore loyalty to? People only trust those whose behavior they can predict4, and the behavior of those who are loyal to individuals is fickle. Instead, people who are loyal to principles are fully predictable and therefore can be fully trusted. If you consistently act and objectively evaluate people based on fair principles which are conspicuously known and do not change over time (so, no surprises nor lunaticity), your subordinates will be able to fully trust you. They will be able to predict how you will react to their actions. They will know that, if they 4

Or, more precisely: people only trust an individual if they can predict whether his or her behavior will be

in their best interests.

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Best Practices for Operational Excellence | Luca-dellanna.com come to you confessing a good faith mistake, you will not think less of them and will react appropriately. They will be more open with you and, eventually, will begin acting according to your principles too.

DO NOT WATER DOWN YOUR AUTHORITY Bad managers think that their authority derives from their title. This is obviously not descriptive of reality; using job titles as coercion only brings minimum performance and only while the boss is looking. Good managers know that their authority derives from their consistency in keeping their word, especially about the consequences of having fulfilled individual objectives or having failed to do so. A respected manager is a manager whose objectives lead to good things when they are completed (for the employee, for the team and for the company) and to bad things when they are not. Some examples of behaviors which water down the authority of the manager: •

Failing to appropriately acknowledge those who fulfill their objectives.



Setting objectives which, when completed, do not brings value to anyone (for example, asking to prepare a report which no one will read).



Asking to do something which, if not done, does not bring any negative consequences (for example, asking everyone to wear their safety helmets and then not caring whether the employees actually do it).

Some examples of behaviors which build authority: •

Setting an objective and acknowledging the result, rewarding or reprimanding the employee proportionally.



Setting objectives which, if completed, bring a tangible positive improvement to the team or to the organization. (“It was really important to work on.”)

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Best Practices for Operational Excellence | Luca-dellanna.com •

Never failing to follow-up on one’s word (“Yesterday I asked you to send me that report. You didn’t send it yet. That’s not good, because now I cannot use it for tomorrow’s decision. When I ask something, it is because it’s important.”).



Judging fairly (this gives authority to both the person doing it – the manager – and to the principles using for judging).

Authority is trust that one’s word is consequential, and that is mainly a function

of consistency.

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Part 1: The Four Principles of Operational Excellence

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The 1 st Principle of Operational Excellence:

Good managers set unambiguous, individual and rewardable objectives The most important task of a manager is performance management: setting objectives for his subordinates and holding them accountable for their results. Performance management impacts both the short-term performance of the team (directing and motivating the subordinates on their current tasks) and its long-term performance (powerfully communicating values and standards by rewarding desired behaviors and punishing undesired ones). When a manager fails to execute on performance management, he compromises the good results he might have obtained in other areas, such as

communication, hiring and decision making. Skillful managers will still find themselves with an underperforming team, if they did not demonstrate to them that individual outcomes consistently follow individual performance on the objectives they have been given and on living the Core Values of the company. Many managers have trouble with consistently holding their subordinates accountable in a fair and constructive way. Some are uncomfortable with telling their underperforming subordinates that they did a bad job, especially when it could be argued that “they did what they could”. Others fail to consistently reward the good performance of their employees, because they lack the budget or time to do so. And some fail to be fair in their evaluations,

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Best Practices for Operational Excellence | Luca-dellanna.com because they were not clear in how performance was to be evaluated or because they considered factors other than performance. There is one common trait shared by managers who have trouble with consistently holding their subordinates accountable: they do not set clear objectives. This is the cause of most of their problems with regards to performance management.

THE 2 PROBLEMS OF SETTING AMBIGUOUS OBJECTIVES Managers who set ambiguous objectives have two problems. First, a performance problem. The more ambiguous an objective, the higher the chances that a worker misinterprets it and fails to fulfill it. Moreover, the more ambiguous an objective, the more wiggling room subordinates have to interpret the orders of the manager in a way that allows them to avoid doing the tasks they are uncomfortable with, ultimately affecting the end result. Second, the lack of clarity makes it challenging for managers to hold their subordinates accountable. The more ambiguous the objective, the more a subordinate who failed to achieve it can argue he actually did what was requested and therefore should not be hold accountable. This makes it harder for the manager to follow through with the appropriate consequences, such as negative feedback, reprimands or disciplinary actions. The consequences of a lack of clarity are negative even in the case in which the manager does follow up with consequences, as the subordinate may end up frustrated and lose motivation; moreover, there is a chance that he might if he thinks he has been unfairly judged. Because of the two phenomena described above, managers who set ambiguous objectives tend to have underperforming subordinates and are less likely to hold them accountable for their underperformance.

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THE VICIOUS CIRCLE OF LOOSE PERFORMANCE MANAGEMENT Failing to consistently apply individual outcomes to the performance of subordinates further exacerbates the problem. Once a manager has let someone off the hook, he sets a precedent for others, making it easier for them to argue that they should also be given a pass. This makes it even more difficult in the future for the manager to be consistent in the application of consequences and further deteriorates the Operational Culture of the team. Good managers are aware of this vicious circle. They prevent it by setting clear objectives and by being fully consistent in applying consequences. As a result,

their workers know what is expected of them and the managers themselves can be comfortable doing their job of performance management later. Bad managers describe objectives that can be understood. Good managers describe objectives which cannot be misinterpreted.

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THE 3 ATTRIBUTES OF GOOD OBJECTIVES Good managers set objectives with 3 attributes: Attribute

Description

Unambiguous

Good managers set unambiguous objectives by painting a visual description of what success looks like and asking their subordinates to repeat their understanding with their own words. This ensures that there is no way the employee can misunderstand the objective or later argue it wasn’t clear.

Individual

Good managers restrict the objective to something that the subordinate can impact with his individual contribution. This ensures that an employee cannot use his team’s lack of performance to cover or excuse his own underperformance.

Rewardable

Good managers set ambitious yet achievable objectives. If the objective is not ambitious enough, the manager could find himself in the situation in which all his subordinates fulfilled their own objectives and yet, doing so did not generate enough value for the company to justify rewarding them with raises or promotions. This leads to hard-working employees getting frustrated with the lack of rewards and ending up either demotivated or quitting their job. Instead, good managers set objectives which are ambitious enough so that, in case of success, the company makes enough profit to reward the subordinate with part of the windfall. Objectives also must be realistic. If the objective feels unattainable, most subordinates will act as if the potential reward is not even there. A few will instead overwork themselves to the point of suffering a burnout – an equally undesirable outcome.

Most managers understand the importance of the points above, but fail to consistently apply them in practice, for 6 reasons: 33

Best Practices for Operational Excellence | Luca-dellanna.com Objective is…

Cause

Explanation

Ambiguous

The manager is incompetent.

The manager does not know how to set clear objectives or why it is important to do so.

Ambiguous

The manager wants to retain political power.

The blurrier the objectives, the more the manager can be subjective in his rewarding and thus draw power from his ability to apply such subjectivity.

Ambiguous

The manager is afraid that he won’t be able to follow-up with rewards or punishments.

The blurrier the objectives, the easier for the manager to confabulate a reason for which consequences should not follow results or lack thereof.

Ambiguous

The manager is afraid that the team will not be able to produce satisfying results anyway.

The blurrier the objectives, the easier for the manager to justify to his boss why his team underperformed but neither him nor individual members should be hold accountable.

Collective

The manager dreads having any difficult conversation with individual subordinates.

The manager assigns responsibilities to groups only, so that individual responsibility is unclear and cannot be rewarded nor punished. This does not mean that good managers do not use group objectives but that doing so is not sufficient; it is necessary to also use individual ones.

Unrewardable

The manager does not respect the capacities of his subordinates or his own ones and ends up assigning too conservative objectives.

Objectives should not be set so that they are comfortable, but so that good things happen if they are achieved.

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Best Practices for Operational Excellence | Luca-dellanna.com In all but one of the rows above, when managers fail to set clear objectives it is not because of a lack of skills. Rather, it is because of some mental patterns of theirs that makes them believe that setting unclear objectives is the optimal choice.

One particular instance of this phenomenon is the vicious circle of bad management, described below.

THRIVING IN A DYSFUNCTIONAL CULTURE Often, managers find themselves immersed in a dysfunctional culture where clarity and consistency are missing. Many react with coping behaviors such as joining others in setting unclear objectives and letting underperformance go unpunished. Their reaction to a lack of clarity and consistency is to behave with a similar lack of clarity and consistency themselves. However, by trying to fit in, they dug themselves a hole which only grows deeper. Because they set unclear and unambitious objectives, they cannot reward those employees who performed and cannot punish those who didn’t. Consequently, their team underperforms and, because it underperformed, the

manager loses confidence in his capacities and in his team’s. Next time, he will set even more ambiguous, more collective and less rewardable goals. This is a vicious circle which happens whenever managers act reactively. Whereas bad managers are reactive and focus on coping, good managers are proactive and fight to create an environment worth working in. Even when immersed in a culture where clarity and consistency are missing, they do the work of setting unambiguous, individual and rewardable objectives. They know that this will make their follow-up job of performance management much easier and will break the vicious circle. Good managers do not wait for the perfect environment to do their work; rather, they realize that it is their job to create a conducive environment.

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GUILT AND SHAME Guilt and shame by a manager are symptoms of insufficient clarity, individuality or ambitiousness during delegation. The higher the possibility

that the subordinate might think he has done a good job when he actually didn’t, the more a manager feels uncomfortable in holding him accountable. If the manager had been perfectly clear while setting objectives, none of this would have happened. Good managers understand that each time they feel guilt or shame, it is because they have not been doing properly their work of setting unambiguous, individual and rewardable objectives. Good managers use these feelings as a signal that it is time to have an individual discussion with their subordinate, acknowledging that the previous objectives had not been set clearly, and setting new ones with the 3 attributes listed above. Bad managers react to guilt and shame with avoidance; good ones use them as a signal that they should bring more clarity into objective-setting. Management is an incredibly simple job, in the absence of shame. Clarity is what prevents the shame from becoming part of the equation.

LACK OF MOTIVATION When good managers spot a lack of motivation in their subordinates, they interpret it as a signal of a lack of clarity. Such lack of clarity might be of 3 kinds: - Lack of clarity of objectives: because the objectives are not clear, the subordinate is confused about what has to be done next. This undecidedness is often mistaken as a lack of motivation. - Lack of clarity of personal impact: because the objectives are not individual, the subordinate is unsure about the scope and importance of his personal impact and is less motivated towards taking effective action. Maybe, he waits for someone else in the team to take action. Or perhaps, he doesn’t want to risk

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Best Practices for Operational Excellence | Luca-dellanna.com overstepping on someone else. Either way, he doesn’t act proactively nor wholeheartedly. - Lack of clarity of individual outcomes: because the objectives are not linked to clear individual outcomes dependent upon individual performance, the subordinate is not motivated to act outside of his comfort zone.

GOOD PERFORMANCE MANAGEMENT EMPOWERS SUBORDINATES Managers who are relentless in applying the appropriate consequences to the performance of their subordinates are not selfish. On the contrary, good managers know that doing so is beneficial to the subordinates themselves. In companies where consistent performance management is missing, workers underperform. As a result, in the best case, their manager cannot show enough success to his superiors to justify getting the budget to offer bonuses, raises or promotions to his team. In the worst case, he has to lay off some of its members. Neither outcome is good for the subordinates. Moreover, good managers know that good performance management is a great way to help their subordinates to realize their potential. Often, a subordinate has to get out of his comfort zone to do what it takes to fulfill an objective. Unless he is exceptionally proactive and internally motivated, he will need external incentives in order to do so. His manager is responsible for providing him with them, in the form of a trustworthy promise of good individual outcomes if he completes his objectives and of bad individual outcomes if he doesn’t. Good managers know that every employee benefits from reaching his potential. This leads to higher job satisfaction, higher self-respect, higher salary and higher job security. Therefore, they know that it is helpful and generous to set clear and ambitious objectives and to guarantee fair consequences. Conversely,

it is those managers that are ambiguous in the definition of objectives and inconsistent in the application of consequences that are selfish. In order to feel 37

Best Practices for Operational Excellence | Luca-dellanna.com more comfortable with themselves, they prioritize their own emotional comfort over the personal development of their subordinates.

GOOD PERFORMANCE MANAGEMENT IS HUMAN Some managers are extremely consistent in their performance management but set excessively ambitious objectives. This might get a sudden increase in productivity in the short term, but always leads to disastrous performance over the long term, as employees are forced to throw the towel. This happens in two ways: some employees will feel like the objectives are unreachable or not worth the effort, whereas others will overwork themselves to the point of suffering a nervous breakdown. The consequence is the same: a team devoid of energy. Good managers know that objectives must be ambitious yet human. Sometimes, good managers might require a performance burst from their subordinates – for example, in case of a rush order from one of their best customers. In that case, they might set a very ambitious objective. However, they make sure of two things: first, the higher-than-usual burst of work has to be appropriately rewarded (a celebration, paid time off, a bonus, opportunities for personal development, etc.); second, this cannot become business as usual. Requiring overtime a few weeks per year is a sign of a healthy company which can absorb temporary spikes in demand; chronically requiring overtime (whether formally or informally) is a sign of a dysfunctional company which tries to compensate its structural problems by burdening its employees.

(Similarly, chronically making overtime is a sign of a dysfunctional manager who tries to cover his effectiveness problem with throwing more time and energy at problems which do not need it.)

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Best Practices for Operational Excellence | Luca-dellanna.com Good managers work with their subordinates in a way that is conducive for the long-term future of both: managing their energies and their subordinates’ 5 , ensuring that both their work and the consequences of their work are sustainable, behaving from a good faith principle. On the other hand, they are also relentless in making clear to subordinates of theirs who are not willing to adopt the same long-term collaboration principles that either they do embrace them or it is better to part ways, to save everyone’s time.

GOOD PERFORMANCE MANAGEMENT IS PROGRESSIVE It is common for managers to find themselves with one or more underperforming subordinates. In this case, it is extremely important that managers apply a progressive approach to performance management. Immediately setting ambitious goals would not be effective, for the underperforming subordinates might think that they are practically unreachable for them and thus react with indifference. Indifference and laziness are symptoms of having forgotten that good outcomes follow good performance.

There are two main reasons for this amnesia: first, having been taught by previous managers that good performance is unrewarded (or that bad performance goes unpunished) and second, having lost confidence in one’s own capacity to produce satisfactory levels of performance. When facing an indifferent subordinate, the manager should teach him again that good outcomes follow good performance and that such good performance is attainable for him. The manager does not need to teach a demotivated

5

In a measure; great managers also teach their own subordinates to manage their own energy (and then

accommodate their attempts to do so), as the subordinates themselves are ultimately responsible for it. More on this on the section “Negotiating objectives” in the next chapter.

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Best Practices for Operational Excellence | Luca-dellanna.com subordinate to produce results; he needs to teach him that producing results brings good individual outcomes. These are two completely different concepts, and a manager focusing his efforts on the former while the bottleneck is the latter is setting himself up for frustration. (Of course, in case skills are the factor limiting the performance of the subordinate, and not motivation, then the manager will have to focus on ensuring he gets the required know-how.) The right way to address an indifferent subordinate is by setting small, attainable objectives and using words of appreciation (or just a simple thank you) when they achieve it. The manager has to create the conditions to be able to “catch the subordinate doing something good” and rewarding him with words for it. If done consistently enough for a few weeks, progress will inevitably follow. Once the subordinate begins learning that good performance is attainable and rewarded, the manager should progressively raise the objectives and the expectations regarding his performance. If done correctly and consistently, the previously indifferent employee will reach a sustainable state of high performance and motivation.

OBJECTIVES AND ALIGNMENT Bad managers try to reach alignment through communication; good managers achieve alignment by rewarding the behaviors which are aligned with the objectives of the organization and by punishing those who go against it.

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MANAGEMENT DEBT Whenever a manager takes the “easy choice” and sacrifices clarity, fairness or consistency to avoid a difficult conversation or a difficult choice, he incurs “management debt”: a subjective short-term gain which will eventually have to be paid back with interest.

Management debt happens because employees adapt negatively to the lack of clarity, fairness or consistency. As both the negative consequences of taking the easy choices and the positive consequences of taking the hard ones seem now less certain, they react with taking easy choices themselves. The more the manager takes “easy choices” by sacrificing clarity, fairness or consistency, the more his subordinates will take “easy choices” themselves by sacrificing performance, quality and teamwork.

Management Debt is an expression coined by investment firm A16Z cofounder Ben Horowitz. In his book “The Hard Thing About Hard Things”, Ben lists three sources of management debt: putting two people in the same position of the organizational chart (“putting two in the box”), overcompensating a key employee because he got another job offer, and no performance management or employee feedback process. These three sources can be respectively mapped to lack of clarity, lack of fairness and lack of consistency, as explained in the table below.

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Best Practices for Operational Excellence | Luca-dellanna.com Source of management debt

Corresponds to…

Explanation

Putting two in the box

Lack of clarity

Assigning two people to the same position causes a lack of clarity about who is responsible for what and about whose orders and priorities are to be followed

Overcompensating Lack of an employee who fairness received another job offer

Undercompensating an employee until he is offered another job and then overcompensating him is doubly unfair: to the employee himself before he is offered the job and to the rest of his team afterwards.

No performance management / employee feedback process

Once clear objectives have been issued, performance management is mostly about consistency in applying consequences.

Lack of consistency

Good managers try to avoid incurring management debt as much as possible. They do so by always choosing to do the work of setting unambiguous, individual and rewardable objectives and by always requesting their subordinates to be accountable for them. Doing so helps a team and an organization to avoid far more costly and difficult situations later. It is easier to spend a career taking hard choices than spending it taking easy ones.

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SUMMARY Bad managers fail to set clear objectives because of mental patterns that make them believe that setting unclear objectives is the optimal choice. However, if they set unclear objectives, they remove the motivation for employees to complete them and make it less comfortable for themselves to follow-up with individual outcomes correlated to individual performance. Therefore, good managers spend a considerable amount of their time and energy to set objectives which are: unambiguous, individual and rewardable.

Failing to do so equals to fail their subordinates, who rely on their manager for clarity and direction towards objectives worth fulfilling – objectives which, when completed, are necessarily followed by good outcomes both for organization and for the individuals who contributed to them.

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The 2nd Principle of Operational Excellence:

Good managers always explicitly assign full accountability together with objectives In his book “High Output Management”, former Intel CEO Andy Grove shares the following allegory for delegation. Imagine having to delegate to a subordinate of yours the task of writing his name on a piece of paper. You tell him what is requested from him and hand him a pencil. However, you do not release your grip on the pencil. Your subordinate struggles to write the first letter: your holding onto the pen prevents him from moving his hand. You recognize the difficulty, and you offer to help. As he moves his hand to write the second letter, you try to help by guiding the pen. The result is a mess. Your subordinates cannot do what is required from them unless, after you provide them with the tools, you release your grip on them.

With this allegory, let me introduce the topic of delegation.

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DELEGATION When delegating a task, a manager can either prescribe the result or the method. For example, he can ask an employee to fix a broken machine (the result) or he can ask him to change that broken component on the machine (the method). The difference is that in the latter case, if the broken component is changed but the machine still doesn’t work or malfunctions again shortly after, technically, the employee completed his task. This is problematic, because it will result either in the employee ending up frustrated for having been told his job was not good enough even though he did what was requested from him, or in the employee being “trained” to ignore the results which matter (in this case, whether the machine works properly). If an employees’ task is to apply a method, he will have to apply it, even if he knows that the method is not appropriate to the situation at hand and even if he believes that the method will not be helpful in the long term. Instead, if an employee’s task is to achieve a result, he will choose the most appropriate method and, in case that would not reach a satisfactory result, he will try another one until the task is completed. Especially if he had evidence from the past that he will be held accountable, both in positive and in negative terms, for the ultimate result of his task. Prescribing methods removes accountability, whereas prescribing results enable it.

Assigning problems to solve (rather than tasks to complete) is a great way to ask for results without prescribing methods.

HOW TO PROVIDE INSTRUCTIONS An employee’s job is to complete whatever objective is set by his manager. If an employee is prescribed a result, then his job becomes to achieve the result. Instead, if the employee is prescribed a method, such as a list of instructions, then his task becomes to follow a list of instructions. This is okay if and only if 45

Best Practices for Operational Excellence | Luca-dellanna.com there is absolute certainty that following the instructions is sufficient for reaching the desired result. In the real world, this is seldom the case. This does not mean that the result cannot contain instructions or boundaries that cannot be overstepped, such as a budget to be respected or an action which has to be carried in a certain way. However, a manager should only prescribe the instructions and boundaries as part of the result, never as the result itself. This

is the difference between prescribing “fix the oil filter and make the machine work again” (good) and “fix the oil filter” (bad). At the end of this chapter, you will find some example scripts that will show you how to correctly delegate tasks. Bad managers are unclear about the result they want. They spend too little time talking about the result and too much time talking about the methods, to the point that they induce their subordinates to think that the objective of the task being delegated is the method.

The subordinates of such managers are both puzzled and frustrated when their boss (or their boss’ boss) doesn’t seem happy for their results even after they fully followed the instructions they’ve been given. Instead, good managers spend most of their time talking about results. If they do also talk about methods, they make clear that they are not the results. Sometimes, to mark the difference, good managers outsource the explanation of the methods to someone else, such as an experienced employee. However, they always make sure to never outsource the definition of the results. For example, a CEO would rarely be the one delivering safety trainings to his employees; however, a good CEO would talk for a few minutes to his employees before the start of such a training to communicate his expectations about what they should get out of it (or, in large companies, he would personally send a company-wide email mentioning that trainings will take place over the next weeks and that employees are expected to learn this and that).

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Best Practices for Operational Excellence | Luca-dellanna.com For example, a great CEO would send a sales-team-wide email reading “over the next couple of months, all members of all sales team will be invited to follow a training on how to price maintenance service in commercial proposals. I expect every single member of the sales team to attend one of such trainings by the 1st of March, and I expect that the number of contracts where maintenance service brings a negative contribution is reduced to 5%. Starting from next year, unprofitable maintenance service on their contracts will affect the personal bonuses of all salespeople and of their managers.” Some comments on the text above: •

It sets clear expectations about who is supposed to do what and by when.



It paints a clear image of what is considered a success (5% contracts where maintenance service brings a negative contribution).



It sets clear individual consequences.



It creates a chain of accountability (not only the employees who should attend the training will be held accountable, but their managers as well – the topic of the chain of accountability will be explored more in detail in the following pages).

DELEGATE PROBLEMS, NOT TASKS If you delegate a task to a subordinate, the underlaying problem will get solved, but only if the subordinate is competent and proactive enough. An incompetent or reactive subordinate will limit himself to complete the task regardless of whether the underlaying problem is solved. Instead, if you delegate a problem to solve, it will get solved, regardless of whether the subordinate is competent and proactive. An incompetent subordinate will have to acquire the necessary skills or enlist the help of someone who has them; a reactive subordinate will have no choice but to solve the problem, because there is no doubt that that’s what’s being required from him. 47

Best Practices for Operational Excellence | Luca-dellanna.com If you delegate tasks other than problems, you’re basically crossing fingers on whether completing the task will achieve meaningful results.

A FULL ASSIGNMENT OF ACCOUNTABILITY Good managers perform the assignment of full accountability immediately after assigning the objective. They do so in an explicit way, by describing how, when and by whom results will be evaluated. They explicitly mention that the subordinate is accountable for the results. Good managers always assign full accountability to the subordinate for the objectives he is given. This does not mean that the manager isn’t accountable as well for the results – he is, to his own boss – but that the manager being accountable together with the subordinate does not result in the latter being left off the hook. Contrary to popular belief, multiple people can be accountable for the same result, as long as they are on the same vertical hierarchical line (one is the manager of another) so that there is exactly one single person accountable at any given level of the hierarchy. This is a rather counterintuitive concept, so let’s see three examples. In companies with poor Operational Culture, accountability is not defined. In good-but-not-great companies, there is a single person accountable for any given area. This is good in the measure it avoids situations in which “everyone is accountable so no one is”. On the other side, if the company is large, a tradeoff must be made. Either the person accountable is at a low level, with little ability to move the necessary resources to achieve the objective, or he is at a high level, and in this case the problem is in ensuring that the low-level employees which will be tasked with carrying over the task will be motivated towards an effective action – something which could only be achieved by making them accountable. In great companies, objectives are tricked down from the CEO and accountability for a given objective is owned by everyone on the hierarchical

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Best Practices for Operational Excellence | Luca-dellanna.com line from the CEO to each employee whose actions might influence that objective. For example, the CEO is accountable for safety; he delegates this

objective to the COO (between others), who delegates it to each plant manager, who delegate it to their Operations Manager, who delegates it to each Line Supervisor, who delegate it to each line worker. Individual objectives are scaled down accordingly, for example: •

CEO & COO: less than 10 serious injuries company wide.



Plant Managers & Operation Managers: less than 3 serious injuries in their plant.



Line Supervisors: no serious injuries in their line.



Workers: no serious injury.

(Do not focus on the specific numbers, as they are heavily dependent on the industry being considered, the team size, etc. Instead, focus on the concept of trickling down objectives across the whole hierarchical line.) In this case, if a line worker breaks his leg while at the plant, each of these people on the hierarchical line of the worker who injured himself, including himself, should be hold accountable for the injury. This would mean: the line worker himself, the Line Supervisor, the Operations Manager, the Plant Manager, the COO and the CEO. When I present this concept to my clients, some react with skepticism. Why should the line worker be accountable for his own injury? Or why should the CEO? My answer is always the same: both should be accountable, together with everyone in between, not to allow any blind spot. The line worker should be accountable, because he has both the ultimate responsibility upon his actions and because he has the ultimate knowledge of the place he operates in. The CEO should be hold accountable, because otherwise he could set competing priorities or orders which could be interpreted as superseding other priorities (if the CEO is accountable, he will be more likely to remind everyone to behave safely also during a production sprint to fulfill a rush order, for example). Everyone in between the CEO and the line worker should be 49

Best Practices for Operational Excellence | Luca-dellanna.com accountable too, both to remove any gap in accountability and because only someone’s boss has both the technical knowledge and the authority to spot an employee taking a shortcut which can compromise long-term objectives (for example, a CEO might not know when an employee is rushing production in an unsafe way, but his direct supervisor should). This idea seems at odds with the concept, taught in many management courses, that exactly one person should be accountable for any given task because otherwise, if two people are accountable for a failure, then they can blame each other and escape negative consequences.6 The solution is to make it clear that, if two or more people are accountable for a given result, it means that they will all be affected positively if that result is achieved and negatively if it is failed, no matter whose fault or merit. Skin in the game for everyone. Once the possibility of excuses and blame is ruled out, the participants involved will be strongly incentivized to work together and ensure that the objective is achieved, no matter what. I’ve heard of excellent companies where, for example, every single employee had an objective on safety – theirs and of all their subordinates. For example, if a worker injured himself, he would miss part of his bonus for the year. His direct supervisor would miss part of his bonus, too. If enough employees in a plant would injure themselves, the plant manager would miss part of his bonus too. And so on. Full incentives alignment.

GOOD MANAGERS SHOW WHAT A GOOD RESULT LOOKS LIKE Often, ineffective managers describe the result too blurrily or too narrowly. These descriptions are easily gameable. The employee might achieve the result 6

Another common objection I receive is “If more than one people are accountable for something, how can

people know who to contact when they need information or support?” The thing is: even if more than one person is accountable for something, for a given something at a given level and at a given location there is a single person accountable.

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Best Practices for Operational Excellence | Luca-dellanna.com using shortcuts which are formally correct but effectively terrible. For example, if a manager gives the task to “increase the output of the line to 90 pieces per minute”, a result which yields 90 pieces per minutes of which only 70 are of satisfactory quality is formally good but effectively terrible. Good managers paint visual, explicit, unambiguous and clear descriptions of what a good result looks like. They spend at least 20-30 seconds, perhaps even

a minute or two. They use examples. They mention who will use the output of the task and how. They use adjectives. They ask their subordinates to repeat how a good result looks like. They ask them to verbally express examples of good results and of bad ones. Good managers do not let any room for misunderstanding. If you manage people who manage people themselves, I would urge you to set standards for how descriptive your subordinates should be in describing results when delegating them to their own subordinates.

WHAT IF THE SUBORDINATE LACKS KNOW-HOW? If the subordinate is new to his role, he might lack some of the know-how which is required to complete the task he has been assigned. In this case, his manager can provide such know-how directly, by showing him how he would solve the task at hand (or a similar enough one), or he might provide such know-how indirectly, by referring the subordinate to some colleague or book/manual where he can get the information he needs. In particular, during the first few days of a new employee, it can be effective to have him passively observe a colleague in the same role (a task called shadowing). However, the manager must always make clear that, even if he is helping his subordinate to obtain some know-how, the objective is always to achieve some kind of result and never simply to collect the know-how. The know-how is a tool for completing an objective, never the objective itself.

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Best Practices for Operational Excellence | Luca-dellanna.com If the subordinate lacks some know-how but has already spent at least a few months in his current role, then the manager should restrain himself from directly helping the subordinate (unless it is something which could be explained in just a few seconds) and should instead reconfirm that the subordinate has been given a task to complete, which includes proactively finding out how to solve it. The manager can give him some pointers, such as “why don’t you ask Mr. Whitestone who was in charge of something similar last year?”, but he should never take himself action instead of the subordinate. Doing so would teach the subordinate that he is not responsible for solving his own problems. There are three notable exceptions to the paragraphs above: the know-how related to regulations, to newly installed machines and to newly adopted processes. In these cases, the manager might be responsible for getting an expert (which could be himself, if appropriate) to teach his subordinates the related know-how.

LOCAL KNOWLEDGE In general, a manager will have more knowledge regarding what results are needed by the company, whereas an experienced line worker will have more knowledge about how to achieve such results. This is because of the different kind of information each of them is exposed in their day-to-day work: the manager spends a sizable amount of his time participating to meetings and reading reports, whereas the line worker spends most of his time completing hands-on tasks. This is not a problem when neither role oversteps the other one and everyone does what they know best. The manager, who is responsible for setting objectives, has a better overview of what the company needs; the line worker, who is responsible for completing objectives, has a better knowledge of what to practically do to achieve them.

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Best Practices for Operational Excellence | Luca-dellanna.com However, in some cases, the manager might know better than the line worker how to achieve the objectives. This is the case of a newly hired line worker who is still undergoing training or of a newly promoted manager who used to do the work of the employees he now manages. In such cases, the manager has to be careful not to use his superior knowledge to prescribe instruction, for two reasons. First, the more the manager exploits his superior knowledge to assign instructions together with objectives, the more restricted the perception of a role will his subordinates assume7. The subordinates will come to believe that their role is to follow instructions rather than to achieve objectives. This will become a problem unless the job of the subordinates entirely consists in following a list of instructions with no chance for variations or incidents to take place (almost no job is like that). Second, it is very rare that the manager knows the environment in which his subordinates work. Most often, they know the environment in which they themselves used to work when they were in their subordinate’s position. In industries in which processes and technologies change very fast, a manager who thinks he knows the job of his subordinates quickly becomes a hindrance to the performance of his team, preventing its members to adopt new approaches and new tools. The faster the rate of change in an industry, the more the manager must assume he doesn’t know (anymore) how his subordinates should complete their tasks.8 This does not mean that a manager should always let his subordinates figure out it entirely by themselves. He can figure it out with them, but he should never figure it out for them.

7

Former Intel’s CEO Andy Grove describes this concept in his book “High Output Management”.

8

This does not apply to cases in which the manager’s job description includes finding new ways of

working, but these cases are limited.

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Best Practices for Operational Excellence | Luca-dellanna.com If I had to summarize this chapter in a single sentence, it would be: do not do anything which might decrease the accountability of your subordinates.

THE LOWEST COMPETENT LEVEL Good companies acknowledge that, whereas objectives have to be set from some level of overview, the decisions related to how to complete them are complex and require specific, fast-changing, low-level local knowledge. Therefore, great companies strive to have decisions taken at the lowest competent level.

For example, they know that in supermarkets the local store manager should be the person who decides which products to shelf 9 . Not (only) because empowering him would motivate him and would make him grow, but because he is the best-placed person to take that decision. He is the one who best knows how his customers behave and how a change would affect the complex processes in which he spends his day-to-day. The person in the highest position might have access to more information, but this is a reason to give access to such information at a lower level, not to take decisions at the higher level. This does not mean that the lowest competent level’s decision should not be vetted by higher levels before being executed; in some cases, this is necessary to prevent mistakes which might endanger the company. Similarly, this does not mean that the lowest competent level necessarily coincides with the lowest level (regardless of competence). In the example above, the decision on which products to shelf can perhaps be taken by the local store manager, but not by the newly hired cashier. Too often, companies take decisions at the highest competent level instead. Sometimes, this is due to the ego of the executives involved. Other times, it is

9

As some European supermarket companies reportedly do.

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Best Practices for Operational Excellence | Luca-dellanna.com due to a genuine yet incorrect belief that competence is correlated with rank for any kind of decision. In general, the rule of thumb is: decisions on what objectives to pursue should be set at the highest competent level and then trickled down. Decisions on how to fulfill the objectives, instead, should be taken at the lowest competent level.

THE 20% RULE FOR KNOWING WHEN TO SHUT UP Author Marshall Goldsmith proposes the “20% rule”: do not give a suggestion if it doesn’t improve the original situation by at least 20%. The rationale is that each suggestion decreases the ownership of the original idea or problem, therefore making the subordinate less motivated to take action. The amount of motivation lost per suggestions is usually constant (let’s say, 20%). Then, it makes sense to only propose suggestions which dramatically improve the outcome and to shut up otherwise, when the gain in effectiveness would not be enough to offset the loss in motivation. That said, there is a situation in which the manager should always speak up: if he sees a subordinate committing the same mistake over and over. The risk is that the subordinate will end up frustrated and demotivated by his inability to overcome the recurring problem. In this case, the manager should be proactive in pointing out that the current approach is leading to nowhere and should suggest another one.

WHAT IF THE SUBORDINATE LACKS MOTIVATION? Assigning accountability is not something that managers only do with alreadymotivated employees. Rather, it is how good managers make their employees motivated. If a manager does not assign accountability, he relies on his subordinates already being internally motivated. This is not a given. A good manager puts his subordinates in the condition to be effective regardless of whether they are internally motivated or not. 55

Best Practices for Operational Excellence | Luca-dellanna.com Accountability is not the result of motivation, but its cause. A certainty of good

individual outcomes in case of good performance and of bad ones in case of bad performance is enough to motivate most employees. Please note that the sentence above is not about a certainty of good individual outcomes in case of good performance or a certainty of bad ones in case of bad performance. Both are necessary. Experienced managers know that most employees are sensible to only one of the two. Ambitious employees chase rewards whereas unenthusiastic or insecure ones avoid punishments. A full spectrum of outcomes is necessary to cover all levels of motivation and of performance. Moreover, only ensuring good personal outcomes in case of good performance without also ensuring bad personal outcomes in case of bad performance invites some employees to take excessive risks in a gamble to grab rewards without suffering consequences if things go wrong. Hence the need to set both positive and negative consequences.10

MANAGERS AND MOTIVATION It is my belief that most individuals are born motivated. If a worker seems demotivated, chances are that he lost his motivation at some point of his career, for one of two reasons. First reason: the worker has been deprived of ownership on his tasks. Someone – his boss or a colleague of his – keeps micromanaging him, providing him with suggestions or doing his work. His reaction has been to assume a fully passive role. Second reason: the worker has been deprived of accountability on his tasks. Perhaps, he completed some task exceptionally well (or, due to blurry objectives, he believes he did so) but did not enjoy a positive outcome out of it. Or perhaps, he failed some task but did not suffer a negative outcome. Either 10

A point made by Nassim Nicholas Taleb in his “Skin in The Game”.

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Best Practices for Operational Excellence | Luca-dellanna.com way, he learned the following lesson: no one cares. He might get taught to think: “If the results do not change, at least let’s spend the least amount of energy possible.” Regarding to motivation, I do not believe in the role of managers that is depicted in movies: inspiring speeches and charismatic personalities. I believe that managers do not have to motivate employees. Rather, they must prevent the conditions that might lead to them becoming demotivated. This consists in two practices: avoiding depriving them of the ownership of the tasks they have been assigned and keeping them accountable for the objectives they have been given.11 Sometimes, a manager is given subordinates which are already demotivated, because of the actions of one of their previous bosses (or, in the case of freshly graduated employees, of one of their parents or teachers). In this case, the manager has an additional task: to show to the subordinate that he really owns the tasks he is assigned and that he really will be held accountable for his results, both good ones and bad ones and to try to catch as often as possible the demotivated subordinate doing something good and rewarding him for it – even just with a “thank you”. If the subordinate is so passive as not to do anything positive, then the manager should somehow find a way to have him doing something good, in order to then be able to reward him for it.

NEGOTIATING OBJECTIVES One common problem I noticed afflicting most young project managers is a deep-rooted belief of efficiency being superior to efficacy. This is true for student life (often, students are constrained in their resources and try to “make the most of what they have”), but it is not always true for companies, for which “achieving results no matter the cost” is often more important.

11

Some would include a third practice: removing any obstacle that might prevent their subordinates from

doing their own work. While good and sound, this last practice is not a substitute for the first two.

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Best Practices for Operational Excellence | Luca-dellanna.com Don’t get me wrong: efficiency is very important for companies too, but there are situations – such as winning a huge contract or satisfying a critical customer – where efficacy trumps efficiency, and Top Management would be much more satisfied with a “I achieved 100% of the objective spending120% of the budget” than with a “I achieved 80% of the objective with 50% of the budget”. In my experience, young employees are particularly susceptible to encounter difficulties in internalizing this. To avoid situations like the one above, great managers teach their subordinates how to negotiate objectives. They explain to them that, if they have too much on their plate, they should be the one raising the hand and saying, “I have too much on my plate and cannot do everything well, what should I prioritize?” Seasoned managers know that this is very preferable compared to trying to achieve everything and then failing, as the latter might catch everyone offguard and start a chain of negative events. Young employees do not know this and must be taught it. Similarly, objectives can be negotiated regarding budget, internal support, external support, training, etc. The only thing which cannot be negotiated, especially after it’s too late, is the desired outcome.

THERE CANNOT BE ANY MISUNDERSTANDING ABOUT WHO IS ACCOUNTABLE FOR WHAT Good managers understand the subtle difference between “it can be understood” and “it cannot be misunderstood”. The former assumes skill and motivation in the listener. The latter doesn’t assume anything; it simply works. Good managers strive for the latter. Instead, bad managers are content with simply mentioning or implying accountability. When, inevitably, one of their subordinates misunderstands or forgets, they blame him. However, by blaming their subordinate for not having understood, they imply that not understanding is an option. This will have cascading consequences, as it is not that difficult to argue that an instruction 58

Best Practices for Operational Excellence | Luca-dellanna.com was unclear. Earlier or later, someone will argue that, because instructions were not clear, he should be left out the hook. As discussed in the previous chapter, this is the beginning of a vicious circle which ends in mediocrity. To avoid this, good managers are so explicit in their communication with their subordinates that no one can possibly argue that there could have been a misunderstanding about them being accountable for the result of the task being delegated. In order to reach this unwavering level of explicitness and clarity, good managers are relentless in making the implicit explicit, even when doing so would seem an insult to the intelligence of their interlocutor. They do not let

their politeness and their ego get in the way of the clear accountability assignment that is needed for their subordinates to perform at their best. Words are not enough; the attitude is important too. If a manager mentions to one of his subordinates that he will be held accountable for an objective but keeps micromanaging it, he is retaining accountability for himself. Just like the manager who would not release his grip on the pen in the opening paragraph of this chapter. Good managers spend a lot of time with their subordinate during delegation time, but then let them relatively free. They do check-in regularly on whether the task is on track to achieve the desired results (unless the subordinate proved himself exceptionally reliable in the past), but even during those check-ins, they are always relaxed enough to let him know that he will be accountable for the result. They do not provide suggestions, unless asked or unless the subordinate is clearly off-track. Even in this case, they point out that the current methods might not achieve the desired result; they strive not to prescribe the new method to be used, in order not to steal ownership of the task. At no point good managers risk being ambiguous about who owns the results: it’s always the subordinate. Good managers never assume an attitude which signals that they own the tasks they delegate.

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Best Practices for Operational Excellence | Luca-dellanna.com … Bad managers keep themselves accountable for the tasks their subordinates should be accountable for. Because they feel personally accountable for the tasks they delegated, they offer suggestions. They prescribe methods. They do not release their grip on the tools their subordinates will use. They do not let them feel accountable. Accountability cannot be shared. The more the manager feels accountable for the tasks he delegates, the less his subordinate will feel accountable. The less the subordinate feels accountable, the more likely he will be to use the prescribed tool in the wrong way. The more likely he will be to stop at the first bump. The more likely he will be to shut himself to innovation and collaboration. The more likely he will be to prioritize the short-term (executing the instructions he received and nothing else) and to neglect the long-term (the result to be achieved). Accountability is the soul of the effective employee. By keeping accountability for himself, the bad manager transforms his subordinates into a group of mindless zombies who drag their limbs onto the workplace. Instead, the good manager shares the accountability with his subordinates. He gifts it to them. He makes them alive. He gives them brains. He might feel a little less alive himself, but he is rewarded by a vibrant entourage.

GOOD MANAGERS ARE EXPLICIT ABOUT HOW RESULTS WILL BE EVALUATED, WHEN AND BY WHOM A subordinate needs to know how the result of his task will be evaluated, when and by whom. Otherwise, he might get frustrated by an evaluation which does not conform to his expectations.

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Best Practices for Operational Excellence | Luca-dellanna.com For example, a subordinate might be asked by his manager to complete a given task by Friday. The task takes a couple of hours to complete, so he schedules it for Thursday afternoon, expecting to be evaluated for the results not before the end of Friday. If the manager pops by on Wednesday and asks for a progress status, the employee will be frustrated. “The manager told me I have until Friday, and now he expects me have already began?” Good managers are explicit about when results will be evaluated, including when progress updates will be asked. For example, they might say: “I expect you to finish this task by the end of the month, but I will check your progress every Monday, to ensure that you’ll be on track.” Similarly, good managers are explicit about how results will be evaluated and by whom. The reason is not only to make the goal clearer, but foremost to prevent surprises and frustration by subordinates who might think they have been unfairly judged. (“Unfairly” is often a synonym with “a rule not stated in advance”). The most effective way to prevent frustration during evaluations is

by clarifying before the beginning of the task how the results will be evaluated, without leaving any wiggle room that might allow the subordinate to imagine a different way in which the results could be evaluated.

THE MOST DIFFICULT PART ABOUT DELEGATION Even if you completely internalized the contents of this chapter, chances are that you will still not delegate as much as you should. You will be effective at delegating the tasks you do not like. However, if you are like most managers I know, there is at least one task from one of your previous roles which you still enjoy doing. That task will be the hardest one to delegate. When managers are promoted, often, releasing their grip on the tasks they used to perform but are not necessary anymore is just as big a challenge as grasping the new tasks which are required for their new role.

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Best Practices for Operational Excellence | Luca-dellanna.com I once heard a manager calling this phenomenon “dopamine withdrawal”. I’m not sure about the neurological correctness of the term, but it does paint a clear idea of what’s going on here. Working on that task used to be pleasant or used to create a “rush”, something that made you feel alive. Managers that successfully delegate that task away begin feeling “withdrawal symptoms” from not being able to perform the task and feeling the “rush” again, and often relapse by grabbing control of that task or micromanaging the subordinates they delegated it to. While I do understand the feeling – it probably used to be one of my major weaknesses, and sometimes it still is – this behavior is problematic for your team. They need to have operative control on the tasks that are of their competence. Release your grip on the tasks that used to be yours, and delegate them away. If you manage to do so for about 2-3 months, the “withdrawal symptoms” will disappear, as new tasks proper of your new role will begin taking the place of the old one as “rush providers”. You just need to trust that they have the potential to do so.

EXAMPLE OF BAD DELEGATION Bad managers tend to delegate as follows: “I need you to organize an event for potential B2B customers. Rent a meeting room at the Alps Hotel. Invite this list of people. Send them a letter and then call them after two weeks to make sure they received it. Tell our salesmen Blackman and Clear that they should prepare a presentation.” This is bad delegation, for many reasons. It does not provide targets. How many attendees are a success? 5? 20? 50? Also, it does not provide a budget. Why does the meeting room have to be at the Alps Hotel? Does it have to be booked at any price? Could another hotel be used, especially if it would have better or cheaper facilities, or if it would be easier to reach by the attendees? How were the people in the list chosen? If the salespeople have other people to invite, can they? If the event is a failure, whose fault it is? (If the instructions provided

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Best Practices for Operational Excellence | Luca-dellanna.com during the delegation are followed and the event is a failure, it is the fault of whoever came up with the list of instructions: the manager.)

EXAMPLE OF GOOD DELEGATION Good managers would delegate as follows: “You are responsible to organize by the end of June an event to extend our sales to potential B2B customers. You will also be the one inviting the leads. Here is a list of potential customers to begin with. Our salesmen Blackman and Clear might know more. You should call them, but feel free to ask other colleagues as well. I will consider the event a success if it will lead to at least 10 successful commercial proposals. Based on our experience, about 30 customers attending the event are needed because only a third of them converts into a proposal. Last year we organized a similar event at the Alps Hotel. Your colleague Bells ran it. You can call him to ask what we learned from that time. You will have a budget of $7000 to organize the event. If you manage to invite more than 30 leads, I can increase the budget by $2000. We need the sales. I can always increase the budget, but make sure you get enough solid prospects to attend. Get Blackman to deliver the presentation to the clients but also bring a few other salespeople to talk with the clients. I will hold you and the salespeople responsible for generating 10 proposals. Any questions?” This is an example of good delegation because it clearly states both the rationale behind the task and the metrics on which the subordinate will be held accountable. It provides options rather than prescriptions. The manager never tries to retain responsibility for the task. From the first sentence to the last one, it is clear that the task is delegated together with its results. No room for misunderstanding. Similarly, the objective is clear: 10 proposals. No room for wiggling. There is a clear deadline and a budget. Budgets are great because they allow the subordinate to make considerations and trade-offs. The priorities are explicit: getting the prospective customers to attend. This is shown through costly trade-offs: the manager makes it clear that an event which would cost one third of the budget but deliver half the proposals would be considered a 63

Best Practices for Operational Excellence | Luca-dellanna.com failure. Effectiveness over efficiency. At the end of the conversation, the subordinate clearly knows what he is responsible for and what space he has to operate (budget, time, options). It is likely that he will achieve the objective.

SUMMARY When delegating, make sure your subordinates understand that they will be held accountable for their result on their objectives, no matter what might happen. Avoid any behavior which might introduce ambiguity on whether they will be judged for their result on their objectives.

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The 3rd Principle of Operational Excellence:

Good managers demonstrate priorities with visible costly actions Most companies genuinely want their Core Values, such as sustainability, safety, or respect for people, to be a reality. However, too often, the day-to-day behavior of their employees fails to embody them. In this chapter, I will describe the one thing that great managers do to faultlessly get their subordinates to internalize the Core Values of their company.

CORE VALUES ARE COSTLY The reason why Core Values are so difficult to adopt in the day-to-day of Operations is that they represent short-term costs. “Sustainability” means that

environmentally friendly products and machines have to be sourced, at a higher purchasing cost. “Safety” means that workers must wear their Personal Protective Equipment and respecting safety procedures (a time cost). However, over the long-term, practicing Core Values has high returns. Sustainable companies improve their image, benefiting in sales and in a lowered risk of regulators imposing fines or removing their permit to operate. Safe companies tend to be better places to work in, with lower employee turnover and higher quality of output – safe environments are also more

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Best Practices for Operational Excellence | Luca-dellanna.com orderly and conducive to efficient work; moreover, the benefits of having learnt to follow safety procedures includes having become better at following any kind of procedure. Companies practicing “Respect for People” or “Diversity” find it easier to attract and maintain talent. However, whereas the costs of practicing Core Values take place in the shortterm, its returns only materialize in the long-term. This promotes two behaviors: workers acting lazily because the returns of practicing Core Values are distant in time and space (“Will I ever gain anything out of it?”) and managers caught into a production deadline or a costs-cutting initiative criticizing those workers who, by practicing Core Values, generate costs. This chapter talks about the second phenomenon: employees hesitating to embrace Core Values because of fear of being punished for generating costs before the returns arrive. Imagine a maintenance worker tasked with repairing a broken machine. He notices that, one meter away, there is another one, in function and with a lot of moving parts: an injury risk. He would ask the line supervisor to temporarily shut down the second machine so that he can safely perform the maintenance of the broken one. But he also knows that the supervisor would reply that it cannot be done, that it would be too expensive, that production must go on. Therefore, not to incur a certain short-term cost – being reprimanded – he decides to perform the maintenance without stopping the second machine, thereby incurring the risk of a possible personal injury. Of course, his managers wouldn’t want him to do that. They know that if Safety does become a practiced Core Value, good things will follow. Less injuries means higher morale and less need to have insufficiently trained workers replacing injured ones: both leading to better-maintained machines. However, these benefits only start to show after a few months or years. His managers, in their day-to-day, feel the pressure of production deadlines and temporarily forget these benefits. They only see the costs and benefits that materialize today. What matters to them today with a production deadline is that not stopping a machine to safely perform maintenance on the one nearby is a cost. Similarly, the maintenance worker, in his day-to-day, does not feel the benefits 66

Best Practices for Operational Excellence | Luca-dellanna.com of Safety as a Core Value. For him, an injury is a distant possibility. Instead, getting scolded by the Line Supervisor if he takes too long to repair the broken machine is a close reality. In the paragraph above, I emphasized the word feel. The Line Supervisor and the maintenance worker in the example above are competent professionals who know that incidents are a possibility if maintenance is performed next to a machine in movement. However, they do not feel it. Or, to be more precise, they do not feel it respect to how much they feel the more immediate and certain cost of stopping production. Or, they feel it in some contexts only (perhaps, those in which a severe incident recently happened) but not in others. Or, they feel it enough to voice their concerns but not enough to do something about it. In my experience, I’ve noticed that Core Values get adopted if and only if the managers go first and make visible tradeoffs that publicly show that the shortterm costs of practicing the Core Values are a worthy investment which will bring future long-term benefits. For example, they are the first ones spending time to wear a helmet whenever they visit the factory floor, trading productive time for safety. Managers making visible investments towards the future every day (practicing the Core Values) remind both themselves and their subordinates in a tangible and conspicuous form that Core Values are worth being stewarded every single time. Good managers know that one of the reasons employees do not practice Core Values is because they are fearful of potential punishments for not having been productive in the short-term. Therefore, good managers personally take visible actions incurring these costs, to show that they are truly worth paying and that everyone is expected to do so.

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Best Practices for Operational Excellence | Luca-dellanna.com A good manager who diligently spends some of his precious time to wear his safety shoes before walking in the plant sends a clear message: “Safety is a cost worth incurring. Safety is good for business.” Conversely, a bad manager who walks on the production line without his safety shoes sends an opposite though equally clear message: “Safety is a waste and has to be cut below what’s strictly necessary.”

PLAUSIBILITY Not all workers think that Core Values are costs to minimize. Some genuinely believe in them. However, believing in a Core Value is not enough to practice it. A worker has to know that his manager practices it as well. In other words, he needs to know that he won’t be reprimanded by his manager for having incurred the short-term costs of having practiced the Core Value. The only way to know this with certainty, is by seeing his superior incurring such costs himself. This provides the worker with the plausibility to say: “Yes, I’m costing the company by embracing Safety, but my superior is doing the same. I’m following his example.” He will not fear being held accountable for having incurred a cost. Words can be misinterpreted (“I didn’t really mean this”), actions cannot. Because they are visible and material, they are conspicuous. And, because they are conspicuous, they become norms. A good manager who spends some of his precious time to follow safety procedures sends a clear message: “You won’t be punished for doing the same.” A bad manager who instead skips safety procedures sends another message, just as clear as the previous one: “I only allocate my precious time towards actions that contribute directly to the bottom line, and you are expected to do the same.”

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COST AS A SIGNAL The costlier an action, the stronger the signal it sends. Diamonds are an effective signal of commitment precisely because they are costly. Bad managers use words to communicate Core Values. Words are cheap, and their effect is limited. Good managers use both words and actions. The costlier the action, the stronger its effect towards getting Core Values internalized.

Costly actions are valuable for they change people. In this context, by cost I intend time, money and emotion. Some examples: purchasing some good-quality Personal Protective Equipment is a financial cost; halting production for ten minutes to talk about Safety is both a time cost and a money cost (missed profits from missed production), and having the consistency to have a monthly Safety Meeting even when things are rushed is both a temporal and emotional cost. Bad managers who did not internalize the importance of Core Values try to hide the costs of practicing them. They think that the lower the cost, the better. However, by hiding the cost of an action they also hide its importance. They miss an opportunity to positively influence their subordinates. Good managers are not shy about these costs. They make them visible. Not in a transactional way – e.g., “We paid $15 each for the new safety gloves, you guys better use them now.” – but in a way which is humble yet transparent, e.g. “We paid $15 each for the new gloves, it’s a lot but we think this is well spent money, because Safety is just that important.” The more visible the costs and the higher they are, the more they will demonstrate to the workers the importance of embracing Core Values. Do not misread the above and think that artificially inflating costs is a good thing: it is not. If a pair of good-quality safety gloves costs $15, saying that they cost $30 to your subordinates or buying a more-expensive-yet-just-as-good pair

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Best Practices for Operational Excellence | Luca-dellanna.com will only pass the message that you are a poor purchaser. The point is not to overspend, but to be transparent with costs.

EXAMPLES OF COST AS A SIGNAL A16Z’S fines. Silicon Valley Venture Capital firm Andreessen Horowitz

(A16Z) charges its employees $10 per minute if they’re late at meetings with entrepreneurs (their “customers”). What a wonderful way to signal to everyone that not wasting time and caring about customers is a Core Value of the company! Amazon’s doors. During the first months of life of the retail giant, when cash

was not abundant, CEO Jeff Bezos and the rest of the employees used to work on desks made of a wooden door horizontally placed over two stands. The practice of using doors as desks continued for several years, even as cash became more available. Why? So that, when a new employee would join the company and ask why he is supposed to work at a desk made with a door, his manager could reply something along the lines of “here at Amazon we look for every possible way to keep costs low and offer our customers the best price”. What a wonderful way to impress a Core Value in the memory of a newly hired employee! DuPont’s phone-at-the-wheel ban. Industrial conglomerate DuPont banned its

employees from using the phone while driving. This is another costly signal: these employees, especially if sales managers, could have used the phone to call customers or colleagues during long time-wasting journeys. Instead, the company would rather have them doing nothing productive rather than risking their safety. What a wonderful way to promote Safety as a Core Value!

CULTURE IS CREATED BY VISIBLE COSTLY ACTIONS Culture is not made of perks and terminology, but of time- and cost-expensive rituals which are conspicuously perceived as worth it.

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WHAT SHOULD BE THE UNCOMPROMISABLE CORE VALUES OF YOUR COMPANY? This is up to the Top Management to decide. Here are some options worth considering. Safety is a great choice. Safe Operations are cost effective (less downtime, less

employee turnover, less insurance fees, less legal costs, no need to substitute injured employees with less experienced ones, etc.). Moreover, in my experience, as soon as Safety is internalized in a company, improvements in related areas begin to appear: a safe warehouse is an orderly one, leading to improvements in logistics; a conscious worker who learnt to follow safety procedures also tends to follow other kind of procedures; the less injuries, the higher the morale; and so on. Ethics is another great choice for a Core Value. Being ethical has some upsides

(candidates, suppliers and clients will trust you more, lowering your recruiting, sourcing and sales & marketing costs) but being unethical has huge costs. A single rogue employees can cost your company millions in litigation fees. An unethical decision might cost your company the right to operate. For companies with a heavy environmental impact, Sustainability is another great choice, for the same reasons as ethics. Moreover, it is usually a good choice for a company to choose a Core Value which is part of their brand and of their competitive advantage. Some examples: customer experience, reliability, speed of response, quality, cost-savings, etc. It is important not to pick too many of these choices; ideally, only one. Core Values are never to be compromised. Therefore, they should be chosen so that they do not overlap. For example, it is possible to run great Operations without compromising on Safety and Ethics and Quality, but it is nearly impossible to run a company without compromising on Safety and Quality and Cost-Savings. It is likely that the latter two would somehow clash. You never want any employee of yours to have to decide which Core Value is more important,

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THE NEED FOR UNCOMPROMISABLE PRIORITIES “Building a great company requires that great decisions are made at all levels; not just the top. As a company grows, the number of decisions and the number of people making them proliferates. What to do? […] the principles behind a decision are as important as the decision itself. I’ve observed that a sound decision is more likely when conversation and documentation is encouraged about the why and the what.” – Stripe’s Brie Wolfson Hence the need for uncompromisable priorities: tools to enable employees at all levels to take decisions that are aligned with the organization’s long-term goals and to ensure that supervisors and managers evaluate the work of their subordinates in ways that grow the right principles in them.

WHOSE ROLE IS IT TO DEMONSTRATE UNCOMPROMISABLE PRIORITIES? Taking visible costly actions which demonstrate the importance of Core Values is part of the role of every manager and supervisor. Ideally, this should start from the CEO. The highest officer taking visible costly actions sets the example which demonstrates to the whole company that Core Values are to always be followed, even if costly. Sometimes, in my consulting engagements, I do not get to work with the CEO. For example, if a company is American but I get hired to improve the Operational Excellence of the Italian manufacturing plant only. In such cases in which the scope of change is geographically limited, action should start from the highest resident manager at a given physical location. Most often, the Plant Manager.

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Best Practices for Operational Excellence | Luca-dellanna.com If you read this book and are neither a CEO nor a Plant Manager, you can nevertheless begin demonstrating the Core Values of your company to your subordinates by taking visible costly actions, hoping to achieve a local change in how things are done here. This might or might not work, depending on your skills and on whether your own superiors are likely to personally interact with your subordinates, implicitly expecting them to compromise on Core Values to achieve short-term gains such as higher production this week and thus sabotaging your efforts to instill a strong respect for your company’s Core Values. If this indeed happens, then you will have to get your superiors onboard. First, you can try explaining to them what you read in this chapter. If necessary, you can download a free excerpt of the relevant parts of this chapter at the following link www.luca-dellanna.com/third-principle and show it to them. If this is not enough, you will have to do the same with the highest resident manager at your location (for example, the Plant Manager). In the unfortunate case that nothing of the above works, well, you will have to live with your superiors sabotaging your efforts. As bad as it seems, it doesn’t mean that it will not be possible to achieve Operational Excellence in your team. It just means that you will have to be extra consistent in explicitly requiring every subordinate of yours never to compromise on Core Values, even when it seems that a superior of yours would be okay with that. Managers spend most of their time at their office because it’s where the urgent tasks usually take place. However, ultimately, a company’s destiny is shaped by its employees’ performance at important tasks, not at urgent ones. And, regarding Operational Excellence, all important tasks take place in front of the workers, at their workplace. That’s why good managers spend a lot of their time there. In the second part of this book, Best Practices #1 and #2 will describe how managers should spend time at their subordinates’ workplace. CEOs (and Plant Managers) have a superpower: they are the most visible person in the company (or in the plant). Therefore, they are the ones whose 73

Best Practices for Operational Excellence | Luca-dellanna.com example gets followed the most. By hiding in their office or in conference rooms, they waste their superpower.

SUMMARY Core Values are difficult to implement because they are costly. Core Values have short-term costs and long-term benefits. Even though the short-term costs are outweighed by the long-term benefits, employees must be confident that they won’t be punished in the time frame between the costs and the benefit materializing by a manager who would only consider the former. Core Values succeed when it is conspicuously admissible to pay their costs.

Visible costly actions are the only way that a manager can pass both of the following messages: “there are long-term benefits that justify paying the shortterm costs of practicing our Core Values” and “you will not be punished for incurring a short-term cost because you will always be able to point a finger at me and saying ‘I was doing like him’”. Cost as a signal. Words are cheap; actions are costly. Bad managers hide the

costs of their actions; good managers show them, without transactionality. Conspicuous actions. Words can be misinterpreted (“I didn’t really mean this”),

actions cannot. Because they are visible and material, they are conspicuous and likely to become norms. Culture is created by visible costly actions, not by perks and terminology.

Culture is made of time- and cost-expensive rituals which are conspicuously perceived as worthy.

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The 4th Principle of Operational Excellence:

Good managers are obsessively consistent in holding their subordinates accountable In this chapter, I will talk about reward and punishment, praise and reprimand: how to apply individual outcomes to the performance of your subordinates. When I mention rewards and punishments, I do not limit myself to raises, promotions, awards and disciplinary rulings. I include them, but also consider nice words, assignments to desirable or undesirable projects, letters of merit, opportunities for personal growth, and so on. Similarly, when I mention praises and reprimands, I do not only intend public exhibits of appreciation or disapproval, but also 1-on-1 conversations. Managers have a whole range of tools at their disposal to apply individual outcomes to the actions of their subordinates, and they should always choose the most appropriate one, as explained further below. Let me make clear one thing: applying individual outcomes to the performance of your subordinates against their objectives as consistently as possible is not about squeezing every single bit of productivity out of them. It is about treating them fairly and giving them the opportunity to work in a place where good work is useful and rewarded, where they will never have to feel bad because their manager didn’t notice their work or where a colleague who is slacking is treated just the same as them.

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Best Practices for Operational Excellence | Luca-dellanna.com The objective of performance management is not compliance or short-term productivity. Performance management is about avoiding motivational losses, so that long-term productivity can become a worthy goal, for the employees too.

The difference between squeezing every single bit of productivity and treating employees fairly is in setting humane objectives, which are ambitious yet attainable and do not require workers to go in self-destruction mode to complete them. This point will be further explored in the next chapter, “The Role of The Manager”.

GOOD MANAGERS ARE CONSISTENT Once a good manager communicates a standard to his team, he consistently measures the performance of its subordinates against that standard. He never applies double standards nor he makes exceptions. He understands that if he did, he would compromise the integrity of the standard, which would then become pointless, just like a single hole can compromise the usefulness of a whole boat. Bad managers are volatile in the application of the standards they set. They believe that workers respond to the average application of the standard. Instead, workers remember the extremes. If a bad manager holds accountable his

subordinates only nine out of the ten times they failed the standard, they will remember that one time. They will remind him: “but boss, Jack did the same last month and you didn’t care”. Failing to hold workers accountable to the standard even just once opens the door to a hundred new transgressions.

GOOD MANAGERS ARE CONSISTENT IN REWARDING GOOD WORK Good managers try to catch their subordinates meeting the operational standards. When they see one of them doing a good job, they do not fail letting him know. 76

Best Practices for Operational Excellence | Luca-dellanna.com They do not need to praise their employees every day, but when they do, they make sure it is clear that they noticed it all. “Thank you, John, for doing such a good job, it’s been a few days you’ve been excellent!”. Managers know that an employee who gets praised every single day might grow complacent. Bad managers react by praising inconsistently. This leads to confusion and frustration in their subordinates. “Doesn’t he care anymore?”, they might think, “is good work not important anymore?” Instead, good managers fight complacency in well-performing subordinates by setting larger timeframes for evaluation (“So far I’ve measured your work daily but since you’ve been consistently excellent, I will measure it on a weekly basis now”) or by raising standards. The point is to never compromise on consistency, even when fighting complacency. Once a standard for performance and a protocol for evaluation are set, subordinates must be hold accountable accordingly and consistently.

CONSISTENT JUDGEMENT IS WELL PERCEIVED Good managers know that only inconsistent judgement or judgement on unclear objectives can be perceived as unfair. Consistent judgment on unambiguous objectives whose specifics have been clear since the beginning cannot be unfair. An inconsistent application of rules, including “good faith exceptions”, opens the doors to thoughts such as “I have been judged unfairly”, “this rule is unfair”, “this rule is wrong” and “my manager has something against me”. All this thoughts will harm future performance and team chemistry. Instead, applying rules consistently without exception focuses the employees on how they can achieve better results. A side advantage of applying rules consistently is that people who do not agree with them will be fast to quit the job or avoid being hired, saving both the employer and themselves a waste of time. 77

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GOOD MANAGERS CHOOSE APPROPRIATE REWARDS AND PUNISHMENTS Managers have a whole range of tools at their disposal to apply individual outcomes to the actions of their subordinates: words of appreciation, letters of merit, one-time bonuses, promotions, assignments to better projects, enrollment to trainings, honest feedback, verbal warnings, formal warnings, disciplinary letters, and many more. Managers should select the most appropriate reward or punishment based on the magnitude of the consequence of the action of the subordinate. For example, a “thank you” should be sufficient to reward an employee who successfully completed a small objective, whereas the same would not be sufficient to reward an employee who introduced an amelioration to the production process which is saving hundreds of thousands of dollars per year to the company – a sizeable financial bonus and a letter of merit should be the bare minimum. The principle is to appropriately pair the individual outcomes to the magnitude of consequences of the objectives which have been successfully achieved (or of the consequences of trespassing a Core Value), so that each individual subordinate can feel he is being fairly treated at his current level of performance. For example, someone who achieves the minimum required objective for his position should be given some words of appreciation, whereas someone who greatly exceeds his objective or who achieved a personal objective higher than most people in his position should be rewarded with a financial bonus. In general, employees tolerate well being treated differently but fairly; what they do not tolerate is being treated unfairly.

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GOOD MANAGERS NEVER REWARD TRESPASSING CORE VALUES Good managers never reward trespassing Core Values, even when doing so brought results, especially when doing so brought results. They know that if a good result is celebrated when it was obtained by trespassing Core Values, then it will become acceptable – or even expected – to trespass Core Values in order to achieve results.

GOOD MANAGERS NEVER REWARD EFFORT (THEY REWARD RESULTS) If managers reward effort, eventually, their subordinates will spend their time showing effort rather than getting results. Therefore, while good managers do

acknowledge effort, they never reward it. They use sentences such as: “I noticed that you worked very hard, but you did not achieve the results that I asked you, and that is what matters.”

THE NATURE OF OBJECTIVES If your subordinates do not trust that completing the objective you assigned them will not bring positive individual outcomes, they will not treat it as an objective. If some behavior of theirs is rewarded, performing it again will become their objective. Objectives are what influences individual outcomes. Performance management is necessary to ensure that the objectives you set are internalized as objectives and acted upon.

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GOOD MANAGERS ARE SPECIFIC, IN ORDER NOT TO PASS AS LUNATIC Managers who reward results regardless of efforts face the risk of getting labeled as “lunatic” by subordinates who genuinely worked hard to achieve what they thought was the objective they have been assigned, only to be told that they missed the target because, while they did achieve results, they did not achieve the results that were requested from them. To avoid these situations, good managers spend a considerable amount of time applying the First Principle of Operational Excellence: setting unambiguous, individual and rewardable objectives. Because their objectives are unmistakable, no subordinate of theirs feels they have been judged unfairly or believe that the manager “changed his mind”.

GOOD MANAGERS SET HIGH STANDARDS Entrepreneur Ben Horowitz wrote: “In good organizations, people can focus on their work and have confidence that if they get their work done, good things will happen for both the company and them personally.” Employees have the implicit but rightful expectations that if they do their work satisfactorily, good things will happen to them. For example, once in a while, raises and promotions. Bad managers set low standards. Then, they run into troubles because some of their employees will consistently meet those standards and yet no raise, promotion or increase in responsibility can be granted, because their team did not add enough value to justify additional resources being spent in compensation. Instead, good managers set high standards. Standards high enough that, if they are met, so much value will have been added to the company that it necessarily will have the funds to grant a promotion or a raise to the well-performing employees.

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Best Practices for Operational Excellence | Luca-dellanna.com Good managers set targets high enough that their completion brings enough windfall that some can be redistributed across their team.

GOOD MANAGERS ARE CONSISTENT IN NOTICING WHEN STANDARDS AREN’T MET Good managers understand that even their best subordinates will, sometimes, do work which is not up to standard. Good managers understand that failing to notice that the work was subpar will, counterintuitively, lead to their best subordinates getting demotivated. Failing to tell them “this piece of work

wasn’t up to standard” can be interpreted as their work not being important or as the manager not caring. Double standards are always bad for the subordinates, even when they are in their favor. Instead, good managers always tell their subordinates when their work is not good enough. And they do so in a way which is motivating. They do not say: “Your work is terrible.” They say: “Your work has always been good, but in this instance, you didn’t live up to the standard. What happened?”. Good managers understand that new employees come to the company with an abundance of motivation (or of potential motivation), and that they lose it after facing events in which “the manager doesn’t care” or in which “double standards are applied”. Good managers understand that their role is not to motivate their subordinates, but in avoiding that they become demotivated. They do so by being careful not to apply double standards and by avoiding any circumstance which could be interpreted as “the manager doesn’t care” or “the manager isn’t fair.” Good managers focus on avoiding motivational losses. Demotivated people are not people who cannot see the upside of doing work that matter. They are people who did not receive that upside at some point of their life when they deserved it. The motivated and the demotivated are both right in their interpretation of work based on their past emotional experiences. The managers’ job is to change them, by constantly rewiring experiences. 81

Best Practices for Operational Excellence | Luca-dellanna.com Whenever a manager is not fully consistent and fair, a bit of motivation dies in each of their subordinates. And that might be their company’s most valuable asset.

GOOD MANAGERS OBSESS ABOUT CONSISTENCY An operations manager had a problem. Mechanical parts and components were all around the floor. Employees even had trouble walking properly without stepping on something. For months, he repeated to his employees never to leave parts on the floor and to always store them properly. They never did. The problem was that the warehouse was too big and the manager too busy to consistently enforce the standards he asked his employees to follow. So, he decided to restrict the area of change to a single point of the warehouse, and to obsess over it. He chose the area next to a machine. He held a stand-up meeting with the employees of the warehouse and told them that the area next to the machine always had to be clear of all parts. He told them to immediately clear it. He didn’t leave the warehouse until that area had been cleared. For the next month, he made a point of visiting the warehouse multiple times a day and, first thing there, look at the floor next to that machine to see whether it was clear. If not, he would immediately stop whatever he was doing, walk to the nearest employee, remind him that the area had to be clear, and stay there until it was. He obsessed over it. After a week, the warehouse employees learned that the machine area was to be left clear. After two weeks, the employees began noticing that the area next to the machine was easier to walk in, and parts there were easier to find. After three weeks, the magic happened. The employees began to clear the other areas of the floor, of their own account.

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Best Practices for Operational Excellence | Luca-dellanna.com By focusing change over a small area, obsessing over it, and letting others see the benefit of the change, the manager achieved what he couldn’t before. This is the magic of obsessive consistency. Once the workers understand that they can change faster than their manager, they will. Once they understand that if they change, good things happen, they will. Good managers know the effectiveness of obsessive consistency.

GOOD MANAGERS AIM TO REACH CRITICAL MASS Good managers know that habits need a critical mass to form. Some experts say that an action becomes a habit once it has been repeated for 21 straight days. Others say that an action becomes a habit once everyone in a room performs it at once. Both groups of experts recognize the importance of reaching a critical mass of action – both on the temporal dimension and on the social one. Consistency is important for two reasons. First, it helps achieving that critical mass which leads to action being converted to habits in our brain. Second, lack of consistency kills habits. The first time that you allow an employee to perform below standard without consequence, you open the door to him doing it a second time or to others doing it for the first time. He and his peers will interpret is as a signal that no one cares if someone performs below standard.

It doesn’t matter whether it is true. What matters is the perception that is created. Because good managers know the importance of reaching critical mass, they restrict the magnitude of the change to be achieved at a time. Instead of asking

their subordinates to adopt 5 new habits this month, they ask them to adopt only one. Otherwise, they would have to divide their limited time between noticing, praising or reprimanding 5 habits or lack thereof. By focusing on noticing, praising or reprimanding a single habit, good managers decrease the

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Best Practices for Operational Excellence | Luca-dellanna.com likelihood of missing an instance in which a subordinate failed to express the required habit. Because they know the importance of reaching critical mass, good managers restrict the number of people that must adopt a new habit at a given time. Instead of requiring their whole building to adopt a new habit, they focus on one or two teams at a time. This way, they won’t have to spread their attention too thin. They ensure that no bad habit will go unnoticed, and no good habit unreinforced. They know that employees watch how their colleagues are treated. If they see a colleague failing to adopt a new habit and nothing happening, they will learn that they can do the same. Good managers, by obsessing over a single new habit of a small group of people at a time, ensure that no such occurrence takes place.

THE TRICKY PART The tricky part about the Fourth Principle of Operational Excellence is that it won’t begin to work when you begin to use it; it will begin to work when there is no instance in which you don’t apply it.

SUMMARY Good managers find the time to consistently reinforce change by restricting it to a single new habit and a few new people at a time. They find the energy to do so by acknowledging that consistency is the most important attribute of a good manager. Great companies promote consistency of management as a Core Value and make it trickle down from the top through costly tradeoffs performed by the Leadership, thus ensuring that no manager misunderstands its importance Good managers are fair, not loyal. Workers say that they want loyal bosses, but

what they really want is fair ones. This because someone cannot be loyal to everyone at all times, but he can be fair to everyone every time.

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Paradigm shifts The Four Principles of Operational Excellence introduce four paradigm shifts. The First Principle introduced a paradigm shift from “understanding objectives is the subordinate’s responsibility” to “assigning unmistakable objectives is the manager’s responsibility.” The Second Principle introduced a paradigm shift from “compliance brings results” to “compliance alone doesn’t bring results; accountability to results does.” The Third Principle introduced a paradigm shift from “management has to be efficient” to “signals must be costly to be effective.” The Fourth Principle introduce a paradigm shift from “taking right decisions is a matter of pragmatism” to “whether a decision is right is determined by how it will influence the future behavior of employees.”

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The Role of The Manager Before moving on to the Eight Best Practices, it is worth spending a few pages on the role of the manager.

GOOD MANAGERS ARE PROACTIVE “Lead proactively, do not manager reactively.” – Keith Rabois Good managers do their job well today, because yesterday they planted the seed for effective management: clarity. Bad managers take decisions based on how they influence their world today. Good managers take decisions based on how they influence the future behavior of their subordinates.

LEVERAGE Doing the work of one of your subordinates is a low-leverage action: spending ten minutes of your time creating the same output as ten minutes of your subordinate’s time. Training is a high-leverage activity. If you spend 1% of your time training your 8 subordinates so that their output improves by 1% each, your action had an 8x leverage. The higher the leverage of the activities you spend your time on, the higher your contribution to the effectiveness of your team.

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Best Practices for Operational Excellence | Luca-dellanna.com Avoid spending your time in low-leverage activities (your subordinates’ job, reports, etc.) and spend it on high-leverage ones: long-term decisions, training, improving clarity, preventing motivational losses.

OVERCOMMUNICATION You only communicated something when it feels you overcommunicated it. Managers are smart people who do not want to question the smartness of their subordinates by repeating. Therefore, the expectation that managers must overcommunicate has to be made explicit to avoid politeness getting in the way of effectiveness. I like management consultant Patrick Lencioni’s definition of overcommunication 12 : “employees understand how they contribute to the success of their organization. They do not spend time speculating on what executives are really thinking.” Don’t feel bad repeating yourself, it is worth it. Overcommunication has to be costly: a footnote in a slide deck won’t do. Show up in person.

MAKING THE IMPORTANT CONSPICUOUS During the discussion of the Four Principles of Operational Excellence, a great deal of emphasis has been placed on making the important conspicuous: making sure that everyone knows the important (Core Values and their uncompromisability, their personal objectives, the fact that individual outcomes will inevitably be applied to them based on their performance against those objectives) and making sure that everyone knows that everyone else knows it as well.

12

From his book “The Four Obsessions of an Extraordinary Executive”.

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Best Practices for Operational Excellence | Luca-dellanna.com Your main tasks as a manager are making the important unmistakable and conspicuous, and consistently rewarding people based on their result against their personal objectives and on stewarding Core Values.

COMMUNICATING MEANING Employees work well when they work on something meaningful and they know it. Almost any job is meaningful, for it enables others to enjoy products and services. For example, in a memorable 1960 speech to Hewlett-Packard employees, cofounder David Packard said “in those areas where we are making instruments, we are supplying about one third of the country's total requirements […] it indicates that we have a responsibility, in that we are making a very major contribution to the total technical effort of this country. Your efforts are not only worthwhile but you are doing something which is really significant in terms of total technical effort. You have seen photographs of important scientific work being done – and those photos include HP instruments. Those of you who visit the labs of our customers find our instruments are being used in very important work; the advancement of science, defense of our country, and many other areas. So, don't overlook our responsibility.” You can do the same as Mr. Packard did in his speech above: explain to your subordinates how the products of your organization contribute to the life of their users. Do not assume that your subordinates already know how their efforts contribute to others, and do not assume that telling them is an insult to their intelligence. People need to be explicitly reminded of the worth of their efforts, even if they know it already. They need to be reminded every month, so that

once they have a bad day, frustration does not find any fertile ground to grow onto.

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Best Practices for Operational Excellence | Luca-dellanna.com It is the job of managers and supervisors to let their subordinates know about the meaning of their work in an emotional way: what emotions do the products produced by your organization create in their users, directly or indirectly? As a manager, it is your job to help your subordinates understand the meaning of their work and to ensure that they are, in turn, helping their own subordinates do the same.

GOOD MANAGERS ARE AWARE OF HOW EMPLOYEES ADAPT A good manager knows that employees mostly react to the incentives, explicit or implicit, that they have been trained to expect as per their individual experience.

Therefore, a good manager takes actions not for their direct result, but for how his subordinates will adapt to them. He knows that every time he applies fair individual outcomes to his subordinates’ performance, they adapt, in the right direction. He also knows that every time he fails to do so, they adapt as well; this time, in the wrong direction. Therefore, he is obsessively consistent in holding them accountable for their performance; and he does so without remorse, because he set humane objectives and he has been unmistakably clear about what they represent.

GOOD MANAGERS COMMUNICATE INCENTIVES Good managers know that values are downstream of incentives and, therefore, to communicate values they need to communicate incentives. Consequently, they are relentless in reinforcing the behaviors of those who steward Core Values and in punishing those who trespass them, regardless of their intention and of their short-term contribution to the bottom line.

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GOOD MANAGERS ARE IN FOR THE LONG RUN Good managers know that employee turnover is bad, both from a personal point of view (it takes time to know another person, to build trust, to learn how to manage him or her effectively, to learn to appreciate his or her work, to integrate him or her in the team) and from the operational point of view (it takes time to find, hire and train a new employee and for him to learn how to work effectively in his new role, team and company). Therefore, good managers take care of removing as many reasons as possible for which employees leave due to frustration: •

Useless effort: employees receive motivational losses when they were

expecting a reward or acknowledgement for their work and did not receive it (because the manager is too busy or because the manager didn’t set a clear enough objective so that there is a misunderstanding about what constitutes a satisfactory result) or when they produce an output which is later shown not to contribute to the success of the team or of the company (e.g., they worked for a week on a report no one will read). •

Unfairness: employees receive motivational losses whenever they feel

they are treated unfairly – for example, when they see that an employee providing less value is paid more than them or when they take the time to follow effortful procedures and another employee skipping them is not reprimanded. Of course, sometimes such resentment is unmotivated – for example, when the better-paid employee is providing value that they cannot see – but in this case it is almost exclusively because the manager did not do a good job of setting a clear and conspicuous picture of what a good result looks like, so that there could be agreement about who is providing value and how much. The First, Second and Fourth Principle of Operational Excellence are about being so clear in setting objectives and consistent in rewarding them 90

Best Practices for Operational Excellence | Luca-dellanna.com that the two sources of motivational losses described above won’t apply to your subordinates. Similarly, good managers are also effective at removing the root causes that lead to employees leaving the organization due to burnout: •

Chronic overwork: as mentioned in the introduction, whereas

occasional periods of increased workload are normal and signal a healthy business, chronic overwork is a symptom of structural problems. •

Unrewarded overwork: overwork which brings rewards – a bonus, a

sense of accomplishment, etc. – generally does not cause burnout, except in the most extreme cases, but overwork which doesn’t bring rewards does cause burnout, and rather quickly. A specific case of burnout-causing overwork is the one which is potentially rewarded, but the performance threshold to get these rewards is so high that it is either too consuming or too unattainable. Therefore, good managers make sure that they do not cause their subordinates to do chronic overwork and that when they cause them to undergo occasional spikes of workload, they appropriately reward them for it. Please note that I did not use the words “ask”, but “cause”. This is because managers cannot hide behind the excuse of “I never asked my subordinates to work overtime, they just happen to do so.” Chronic overwork is the symptom of either a bad business, a lack of willingness to hire enough employees, a lack of willingness to train them effectively or a lack of effectiveness in managing them – and these are all responsibilities of the management.

DO NOT PROJECT I’ve seen many managers becoming an issue for their team by projecting their own problems and insecurities on them. Perhaps it’s you too. Or perhaps not. Either way, when you have a problem, work on it yourself or with your own manager; do not project it on your team. 91

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THINGS BAD MANAGERS DO Bad managers spend time on unimportant things or on things one of their subordinates could take care of. Bad managers proud themselves of their problems; they focus on signaling busyness and effort over effectiveness. Bad managers project their problems over their subordinates, to the point that they see them as problems rather than opportunities. Bad managers do whatever it takes to achieve short-term results. Bad managers are pragmatic and ready to compromise Core Values if the payoff is large enough. Bad managers are more competent than their subordinates at their subordinates’ jobs.

THINGS GOOD MANAGERS DO Good managers obsess over figuring out which objectives and behaviors are important for the long-term success of the organization, focusing everyone’s attention on them and then rewarding them for turning them into reality. Good managers ignore noise and instead focus on signal in everything they do, in everything they pay attention to, in everything they punish and in everything they reward. Good managers are obsessed stewards of Core Values.

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Conclusions of Part I Operational Excellence is about selecting, reinforcing and sustaining in your team those mental patterns which are conducive to autonomous individual action which is aligned with the long-term objectives of your organization.

Setting unambiguous, individual and rewardable objectives, unmistakably delegating full accountability, taking costly actions and being obsessively consistent is most of what you need to focus on. Only this way, you will avoid creating fertile ground for motivational losses and for circumstances which will dilute your authority and your organization’s Operational Culture.

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Part II: Best Practices In the first part of this book, I presented the Four Principles of Operational Excellence. 1) Good managers set unambiguous, individual and rewardable objectives. 2) Good managers always explicitly assign full accountability together with objectives. 3) Good managers demonstrate priorities with visible costly actions. 4) Good managers are obsessively consistent in holding their subordinates accountable. In the second part of this book, I will present the Eight Best Practices which good managers use to transform those principles into visible actions. The reason they are called Best Practices is that they have to be practiced, over and over, week over week, for the organization to benefit from it. Just like physical fitness is not something that takes care of itself once it is achieved but requires a constant practice at the gym or doing your favorite sport, Operational Excellence requires a constant practice of the following 8 activities.

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Best Practice #1:

Management Walks If a manager does not know what goes on in his own Operations, he will not be able to manage them properly. If the subordinates of a manager do not see him spending time where Operations take place, they will not trust that he can manage them properly. For these two reasons, it is critical that managers spend time where the work they manage takes place. The Toyota Production System (TPS) has a term for this, Genchi Genbutsu – “Go and See”. According to the TPS, in order to truly understand a situation, one needs to go to “genba” – the “real place” where work is done. However, getting a practical knowledge of operations and being seen getting a practical knowledge of operations are only two of the three reasons why good managers spend time at the place where work is done. Taking visible actions is the third one. Decisions taken in the managers’ office remain in there. They do not have the power to affect how their subordinates work unless the manager translates them into visible actions at their subordinates’ workplace.

In order to do that, good managers use Management Walks.

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MANAGEMENT WALKS Management Walks are regular instances in which a manager takes the time to physically walk where his subordinates spend their time. This includes both their direct subordinates and, most importantly, everyone else below them. Even the CEO, to be a good manager, should spend at least one hour a month on the factory shop floor, observing the workers there and directly interacting with them with visible actions to show them what the priorities of the company are. Other Operational Excellence systems have similar practices called “Gemba Walks”, “Line Walks” or “Observations”.

WHAT HAPPENS DURING A MANAGEMENT WALK? During a management walk, the manager performs the following set of steps: 1. He walks near where the workers are working and silently observes them. He takes care of following all required procedures (e.g., safety procedures such as wearing a helmet), in order to set the good example and to convey the message that no one is exempt from following them. 2. He tries to catch something good, something bad, or something he does not understand. “Good” and “bad” refer to having followed the rules and the Core Values of the company. 3. If he notices something good, the manager personally thanks the worker for having done it. 4. If he notices something he doesn’t understand, the manager asks explanations to the nearest worker. He is careful to adopt a posture of humility and openness. He avoids making any suggestion before having fully understood why things are done the way they are. 5. If he notices something bad, he walks to the worker who is working in a way which breaks the procedures, rules or Core Values of the company. He politely interrupts him when it is safe to do so and asks him why he is acting the way he is. Perhaps there is a good explanation. 96

Best Practices for Operational Excellence | Luca-dellanna.com A good manager doesn’t assume that he knows better than his employees, unless he ascertained so. If there is a good explanation for the behavior breaking the rules and procedures, then the rules and procedures must be rewritten to accommodate the circumstance. Otherwise, the behavior cannot be excused. The manager proceeds to remind the employee the proper way of working and asks him to immediately comply with action. This way, he can verify correct understanding and allow a physical habit to form in the mind of the subordinate. Finally, the manager thanks the worker for his time and collaboration. It is important to note that the manager should not let any behavior which violates rules, procedures or Core Values untouched. Either the rule or procedure has to be rewritten, or the worker has to acknowledge he shouldn’t have acted that way. There is no grey area in between, no one-off exception. Letting an exception pass once is how exceptions become the new norm. Good managers never allow that.

Begin with openness to the possibility that the rule is wrong but, once you ascertained that it is not, be categorically inflexible in its application. In case the worker had a good reason to act the way he did, and the rule or procedure has to be rewritten, the act of immediately ordering the rule or procedure to be rewritten is a Visible Action that shows that exceptions cannot exist. Either the rule or procedure is always right or it is wrong. No such thing as “a procedure to follow most of the times” should be allowed.

WHO PERFORMS MANAGEMENT WALKS? Everyone, with different frequency. Top management, including the CEO, should perform a minimum of a Management Walk a month. Managers should perform one at least once a week.

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Best Practices for Operational Excellence | Luca-dellanna.com Supervisors should perform one at least once a day. This might seem a lot, but it is necessary to achieve Operational Excellence. OpEx trickles down from clarity and from visible example, and Management Walks are the perfect tool to cover the second part of the equation.

SHOULD WORKERS PERFORM WALKS TOO? In a company where Operational Excellence is an internalized concept, yes. However, if your company is still at the beginning of its journey towards Operational Excellence, it is advised that only managers perform them. Only once the line workers internalize the concept of Walks from their managers, they can be given the task to perform them as well – once a week or once a day. When line workers do the Walks, they either perform them in their own workplace (observing their teammates) or in areas adjacent to it, such as nearby production lines or warehouses. Having workers performing the Walks observing their own teammates promotes peer accountability, whereas having them performing the Walks in nearby areas allows for cross-pollination of Best Practices and prevents complacency – seeing the same workplace every day might cause them to stop noticing chronic problems and treat them as normal instead.

WHAT TO LOOK FOR DURING A WALK? There are two categories of situations to look for during a Walk: conditions and behaviors. Some drops of oil on the floor are an unsafe condition; a worker walking on the shop floor without the safety shoes is an unsafe behavior. Similarly, a poorly maintained machine is an unsafe condition, whereas a worker using a tool the wrong way is a bad behavior. Bad managers only call out bad conditions and behaviors: situations which are unsafe or otherwise wrong, according to rules, procedures, standards and Core

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Best Practices for Operational Excellence | Luca-dellanna.com Values. Instead, during Management Walks, good managers call out both good and bad conditions and behaviors. Here is a (non-exhaustive) list of common conditions to look for: are there tools out of place? Are the walkways encumbered? Is any object placed where it could fall easily? Are the shelves messy? Is the space dirty? Is there any nonlabeled machine or button? Is there any unlabeled container? Here is a (non-exhaustive) list of common behaviors to look for: are the workers breaking safety procedures? Are they rushing? Are they multitasking? Are they walking or standing where they are not supposed to? Are they observing their mobile phone when they’re not supposed to? Are they using the wrong tools, or misusing the right ones? A more comprehensive checklist of conditions and behaviors to look for will be presented in the next chapter, called “Best Practice #2: Audits”.

LOOK FOR BOTH THE GOOD AND THE BAD Behavioral theory suggests that positive reinforcement (praising or rewarding someone for a good behavior) is more effective towards the formation of habits than negative reinforcement (reprimanding or punishing). This does not mean that negative reinforcement is not to be used. For the sake of consistency (the Fourth Principle of Operational Excellence), a manager cannot supersede on any violation of rules, procedures, standards or Core Values. It means that, to maximize effectiveness, both positive and negative reinforcement must be used. Good managers look out for both the good and the bad, and act on both of them.

TALKING WITH WORKERS Once they see a good or bad condition or behavior, managers should immediately initiate an interaction with the relevant worker. Praises and reprimands are most effective when given instantly after observing the object

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Best Practices for Operational Excellence | Luca-dellanna.com of the remark. In case an immediate interruption would compromise the safety of the worker, managers should wait for the first moment in which it would be safe to interrupt. If the manager observed a good or bad behavior, he interacts with the worker having performed it. If the manager observed a good or bad condition, he instead interacts with the closest employee to the location where the condition has been observed. Some examples: -

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If the manager observes a sharp tool left on the floor on the walkway next to an unattended worktable, he is to interact with the worker assigned to that table. If the manager observes a sharp tool left unattended on the floor on the side of the warehouse, he is to interact with the closest worker to the tool that he can see in that moment. Even if that worker is just “passing by”, to demonstrate the concept that rules, standards and Core Values are a shared responsibility. Keeping an eye open for them is everyone’s responsibility. Holding peers, subordinates and superiors accountable for rules, standards and Core Values is everyone’s responsibility.

Some more on the last line. People are responsible both for achieving results and for stewarding Core Values. Whereas accountability for the former has to trickle down the hierarchical line (with the CEO setting the objectives for his direct subordinates and holding them accountable for the results; these subordinates setting the objectives for their own subordinates and holding them accountable for the results, and so on), values are everyone’s responsibility and everyone can and should call out any other person violating them – including executives, and including customers and contractors in case the violation happened on the company’s premises.

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ALWAYS CRITICIZE BEHAVIORS, NEVER PEOPLE When calling out something wrong, managers should always direct the feedback or the critique towards a behavior of an employee, never to the employee himself.

No one likes being criticized as a person. The reaction is likely to be anger, frustration or defensiveness. These emotions lead to ignoring the feedback at best, and to spreading demotivation amongst the team at worst. Instead, people are generally open towards receiving feedback towards their behavior, especially if they believe that the person providing the feedback took some time to understand their point of view. That’s why managers should always take a few seconds to observe the worker before initiating a discussion, and why they should ask “why were you doing that” before criticizing one of his behaviors. Asking before commenting will both provide the manager with valuable intelligence and will make the worker more likely to be open to feedback.

ASK QUESTIONS THE RIGHT WAY Managers should never ask questions from a point of arrogance, for doing so would only have negative consequences. Instead, managers should ask questions by giving the benefit of the doubt (perhaps there was a reason for the way the subordinate was behaving) but also being firm in refusing all excuses. In this context, every reason that does not require a procedure to be rewritten immediately or a disciplinary action towards someone else is an excuse. How questions are worded is very important. For example, I’ve noticed that asking questions such as “what would you change here?” is often replied with silence or indifferent comments such as “everything is fine here.” Instead, asking questions such as “if you were the line manager here, what would you change?” are usually answered with enthusiasm and intelligence. When asking questions, give your subordinates the authority to answer them.

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COMMUNICATING STANDARDS AND PRIORITIES Management Walks, like the rest of performance management, are about communicating standards and priorities in a practical and unambiguous way. Managers should keep this in mind at all times, never compromising on standards and priorities, especially during a Management Walk. That’s when the managers’ actions and priorities are the most visible.

SCRIPT FOR A GOOD MANAGEMENT WALK The manager walks on the factory floor. He looks left and right and sees a worker performing some maintenance on a machine without a helmet. He spends a few seconds observing him. He then walks towards him, signals his intention of speaking with him, and waits for him to come. (Better not to interrupt him too abruptly, unless in case of imminent danger. Abrupt interruptions might result in sudden reactions or losses of concentration which might themselves be dangerous.) Manager: “Hi. Thank you for taking care of our machines.” (Begin with a thank you, if possible. It should be genuine, related to an actual reason for saying thank you.) Manager: “I’ve noticed that you aren’t wearing the helmet. Is there any reason?” (Even if the rule is clear, the manager always tries to understand the worker’s point of view, both to gather information and to make the worker more open to feedback.) Worker: “Oh, sorry, it’s just a two-minutes piece of work.” Manager: “Two minutes might be enough to get an injury. Safety helmets must be always worn inside the factory. Your health is important.” (The manager reinforces the concept that rules are never to be broken, and Core Values such as safety are never to be compromised.) 102

Best Practices for Operational Excellence | Luca-dellanna.com Manager: “Please wear a safety helmet on”. (The manager asks the worker to comply immediately – not next time.) Worker: “Okay.” The manager waits for the worker to go take a helmet and wear it. (The Manager shows that his words are always followed by action.) The worker is now wearing his helmet. Manager: “Thank you for wearing the helmet. You’re an important member of your team and keeping you safe is in everyone’s best interest.” (Always thank the worker.) Manager: “Is there anything else you’d like to discuss?” (Every interaction is an opportunity to gather intelligence.)

SCRIPT FOR A GOOD MANAGEMENT WALK The manager walks on the factory floor. He looks left and right and sees a few machinery components on the floor, where they should not be. He looks around and begins walking towards the closest worker, raising a hand to catch his attention. Manager: “Hello. I’ve noticed that there are some components on the floor, blocking the walkway. Is there any reason?” Worker: “Mark just left them there temporarily, he will pick them up in an hour, when the rest of the components are ready.” Manager: “I understand, but the walkway has to be left fully accessible at all times.” (The manager is inflexible and treats Core Values as priorities: never compromising on them.) Manager: “Could you please put the components at their right place?” Worker: “I will tell Mark to do that as soon as possible.” 103

Best Practices for Operational Excellence | Luca-dellanna.com The manager looks around and sees that Mark is not in line of sight. Manager: “Please do it yourself now, it’s important. Safety is everyone’s priority.” (The manager does not risk that the worker forgets to tell Mark with the result of the components remaining there for long, telling everyone who sees them that components can be left out of place. Moreover, the manager reinforces the idea of peer accountability.) The worker reluctantly moves the components to where they belong. The manager helps him or watches him. Either way, once the worker is done, the manager thanks him. Manager: “Thank you for helping to keep the plant safe and the rules respected. They are here for a reason, and we should never compromise them.” (The manager knows that the point of Management Walks is not only to spot what’s being done wrong, but more importantly to reinforce the importance of procedures and Core Values with visible and costly actions, such as spending a few minutes together with a worker to ensure that rules and procedures are respected.)

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ACTION POINTS 1) Create a schedule for your Management Walks: book a 30-minutes slot in your calendar once a month if you are a member of Top Management, once a week if you are a manager, and once a day if you are a supervisor. 2) If you are a manager or a member of Top Management, schedule a meeting with your subordinates in which you will ask them to implement Management Walks in their routine too. During the meeting, set unambiguous objectives on what constitutes a successful Management Walk (according to the First Principle of Operational Excellence) and describe how the objective will be evaluated (as per the Second Principle of Operational Excellence). I suggest that you accompany them during their first Management Walk, coaching them as they do it.

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Best Practice #2:

Audits Audits are scripted Observation Walks. Instead of having the observer simply walk in an area and perform free observations, Audits use a checklist. Later in this chapter, you will find some examples. The person performing the Audit walks in the area being audited with the checklist in his hand and, one by one, for each point of the checklist, it checks whether it is being observed or not. If it is observed, he marks it accordingly on the checklist and compliments a nearby worker for it. If it is not, he marks it as incomplete and interacts with a nearby worker as he would do during an Observation Walk. At the end of the Audit, the checklist is sent to the supervisor of the area being audited and to the local HSE manager (even if just part of the audit covers safety). The result is annotated somewhere visible, such as a chart on a wall of the plant or of the office, where progress can be tracked. Before going into the details of how an audit is performed, by whom and how often, let’s first see an example checklist.

AN EXAMPLE AUDIT CHECKLIST The checklist below is purely for illustrative purposes. Each company should make their own so that it fits their own processes. Unsafe Habits: Is anyone going down the stairs without using the handrail? Is

anyone without their PPEs (Personal Protective Equipment) (sub-checklist: helmet, glasses, gloves, mask, ear plugs / muffs, protective suit, safety shoes, harness, sensors, etc.?) Is anyone taking a shortcut? Is anyone performing 106

Best Practices for Operational Excellence | Luca-dellanna.com maintenance on electrically powered installations without Lock-Out-Tag-Out (LOTO)? Is anyone not wearing a seatbelt? Lack of focus: Is anyone multitasking? Does anyone have his mobile phone in

hand (when he shouldn’t)? Any signs of fatigue? Any signs of rushing? Any signs of frustration? Any opposing priorities? Disorder: Is 5S observed?13 Is any tool out of place? Is any item in precarious

equilibrium? Is any walkway missing clear boundaries? Is any walkway obstructed? Is any emergency exit obstructed? Is any fire extinguisher inaccessible? Is there any unprotected sharp surface? Is any area excessively dirty? Is the floor wet? Is the room too dark? Is any label missing? Tools: Is any tool inappropriate, deteriorated or broken? Is any tool misused? Is

any tool unergonomic? Is any tool out of place or left in precarious equilibrium? Procedures: Is any worker clearly not following the procedures? Is any work

permit missing? Audit: Did I thank the workers who are doing things properly? Did I interact

with the workers who aren’t doing things properly? Did I have them take any corrective actions? As you will see, most of its items talk about Safety. This is intentional. As described in the chapter dedicated to the Third Principle, Safety is a leading indicator for Operation Excellence.

WHO PERFORMS AN AUDIT? Audits should both be performed by Line Managers (they “own the area” and have the full technical knowledge and understanding to “see the most” during the Audit) and by all managers above Line Managers (to get them to spend time

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5S is a workplace organization method that uses a list of five Japanese words translated as “Sort”, “Set In

order”, “Shine”, “Standardize” and “Sustain”.

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Best Practices for Operational Excellence | Luca-dellanna.com on the work floor and to familiarize them with the Operations of their own organization).

HOW OFTEN SHOULD AUDITS BE PERFORMED? Line Managers should perform an Audit at least once every month. This goes in addition to performing at least one Management Walk per week. Higher management should perform at least one Audit a quarter, in addition to performing at least one Management Walk per month. Audits are always complementary to Management Walks, not alternatives. The checklist used in the Audit is a tool to make sure that the important conditions and behaviors are spotted, but it might constrain observation and prevent the auditor from noticing things outside the checklist. Hence the importance of performing both Management Walks and Audits. It might seem too much, but this is a book about achieving Operational Excellence, not about attempting it.

WHEN AUDITS FAIL In my experience, Audits fail when they become inconsequential, when they represent a checklist to go through and nothing more. In order to be effective, performing Audits should become a personal objective of anyone required to perform them, with the same significance of outputrelated objectives. If you are a manager, you should give your subordinates personal objectives on Audits performed and follow them once in a while on the field while they do them or talk with the workers affected to probe the quality of the Audits and ensure they are effective. As mentioned during the discussion of the Second

Principle of Operational Excellence, while you are giving your subordinates the personal objective of Audits, do not forget them to set a clear standard for what a successful Audit looks like and how you will evaluate them. 108

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ACTION POINTS 1) On Word, Excel, Google Docs, or a similar software, create an Audit checklist for the office or plant where your subordinates work at. 2) If you are a Line Manager or Supervisor, book in your calendar a monthly 30-minutes slot in which to perform the Audit. If you are a Manager, schedule a meeting with your subordinates in which you will ask them to perform regular Audits (make sure that you set clear expectations as per the First and Second Principle of Operational Excellence, and make sure that you consistently evaluate their performance at Audits as per the Fourth Principle of Operational Excellence). 3) Book a 30-minutes slot in your schedule 3 months from now in which you will evaluate your auditing process, making any necessary adjustment to the process. If you are a manager, invite your subordinates.

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Best Practice #3:

Weekly meetings To understand the impact Weekly Meetings and their role in shaping how things are done in the company, let’s see them from the point of view of its attendees. -

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Whether the meeting starts on time and what is the treatment reserved to the attendees who are late will inform the attendees upon whether time is considered an important resource in this organization. The first item on the agenda will inform the attendees on what should be kept in mind at all times during the rest of the week. Whether the organization’s Core Values are mentioned during the Weekly Meeting will inform the attendees on whether they are still relevant.

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Which tradeoffs are explicitly mentioned by the manager during the decisions (or communication of previously taken decisions) will inform the attendees about the tradeoffs they can make during their day-to-day work. In particular, what will be mentioned as noncompromisable by the manager (and demonstrated through his choices) will be considered as non-compromisable by the attendees too. Conversely, if some Core Value or standard has been compromised during the Weekly Meeting (for example, a decision showing that the Core Value or standard is not absolute), the attendees will deduce that it can be compromised by them too. Not taking the time to talk about a Core Value during the meeting counts as having compromised it.

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WEEKLY MEETINGS ARE OPPORTUNITIES FOR REINFORCEMENT The main function of Weekly Meetings is to reinforce the Core Values and Operational Culture of the organization.

If something is talked about during the meeting, it probably is important. If something is not talked about, it probably isn’t. Or, at least, this is what the attendees will conclude. Good managers know that organizational culture is subject to erosion, and that repeating the importance of some metric or Core Value does not imply putting into discussion the intelligence of their subordinates. People need to be repeated the importance of whatever is not the default state, for they progressively revert back to it otherwise. If a decision is to be taken during the meeting, whatever criteria is compromised in eventual trade-offs, its attendees will feel like they are expected to take the same compromise during the following week. For example, if a decision is made in which the manager considers appropriate to sacrifice quality in order to rush and meet a deadline, then the attendees will internalize the message “it is okay to sacrifice quality in order to meet targets”, and they will compromise quality in their future decisions.

WEEKLY MEETINGS ARE TOOLS TO DISPERSE DOUBTS Even if the manager and the company have been embracing Core Values over and over, chances are that its employees will always doubt whether they can embody these values when doing so would mean compromising their shortterm output, especially if in the past they have worked for a boss or company which never accepted short-term results to be compromised.

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Best Practices for Operational Excellence | Luca-dellanna.com Good managers disperse those doubts by using Weekly Meetings to confirm, each week, that the company’s and the team’s Core Values are still the same, and that its employees are still expected never to compromise on them. Good managers know that, no matter how many times Core Values have been mentioned during Weekly Meetings, if during a single Weekly Meeting they are not mentioned, doubt will rise again in its attendees. They might think:

“Why did the manager didn’t mention the Core Values while he was telling us what we should do this week? Does it mean we can or should compromise the Core Values, if doing so would help to complete this week’s orders?”

WEEKLY MEETINGS ARE TOOLS FOR CONSPICUOUSNESS Weekly meetings are exceptional tools for communication because the manager has the opportunity to talk to his whole team at the same time. Each attendee will know that whatever expectation has been set during the meeting, all the other attendees heard it as well.

For example, if the manager said that John has to complete a key task this week and everyone else in the team is supposed to provide him with whatever he asks for, then John will feel more confident asking for help. Conspicuousness – setting expectations in a way which is visible to everyone – is a great way to effectively influence the actions of others. Compare two

workers: one who understand what has to be done and thinks his colleagues know it too, and one who understands what has to be done but thinks others do now know or do not embrace it. The former will be more likely to ask others for help and to hold them to the operational standards, regardless of whether his colleagues do know and embrace what has to be done. Good managers do not only communicate to get their subordinates to know and embrace what has to be done; they also communicate to make sure that every subordinate knows that everyone else in the team knows and embraces what has to be done. Weekly meetings are a great channel to do that.

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Best Practices for Operational Excellence | Luca-dellanna.com The focus of Weekly Meetings is communication. First and foremost, of operational culture; and secondly, of whatever the manager might need to communicate to his subordinates this week.

WEEKLY MEETINGS ARE NOT ABOUT TAKING DECISIONS In an ideal world, no major decision is taken during Weekly Meetings. Instead, they are taken into ad-hoc meetings, where only people whose input is required are invited. However, for some teams, it makes sense to take decisions during Weekly Meetings, if most decisions require input from most team members and if it is logistically very advantageous to hold a single meeting (e.g., if the manager is located in a different office and only visits the team once per week). In this case, it is necessary that Weekly Meetings are divided into two phases, communication and decisions making, and that they take place in this order. Otherwise, decision making will take most of the time available and whatever message passed during the communication phase will be rushed and halflistened. Moreover, the order chosen sends an implicit message: whatever is talked about first is the real priority.

WHAT HAPPENS DURING AN EFFECTIVE WEEKLY MEETING? AT THE BEGINNING

The manager thanks the attendees for having arrived in time, explaining it is a sign of respect for each other’s time and work. This action achieves multiple results: it makes people feel it was worth to arrive on time, it makes people want to arrive on time not to feel like an outsider who doesn’t respect the other members of the teams, and it clarifies that people are required to be on time not

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Best Practices for Operational Excellence | Luca-dellanna.com because the manager is rigid, but because he is respectful of his subordinates’ time. THE AGENDA

The first topic on the agenda should be an update related to one or more of the organization’s Core Values. For example, the manager could open the Weekly Meeting asking if anyone in the team has observed any unsafe behavior or condition (if safety is a Core Value), or if there has been any exceptionally satisfied customer (if customer satisfaction is a Core Value). I call this a “Core Value Review”. Most of the meeting should be about communication, mostly from the manager to the team. The manager communicates whatever piece of information he might need to communicate to his team and uses any opportunity he can find to reinforce Core Values and standards. If there is any decision to be made, these should happen after all communication has taken place. HANDLING DISCUSSIONS

It is possible that during the meeting, participants enter into heated discussions. This is okay as long as they are about issues and not about personalities. If any comment is made upon someone’s personality, the manager should immediately refocus it on someone’s behavior. For example, if an employee

says that “John is lazy” because it takes multiple emails to get him to handle some request, the manager should reply along the lines of “You mean that John is slow to respond to internal requests?”. This achieves multiple results: it makes John more likely to comment constructively rather than defensively and it makes the feedback more precise, allowing to pinpoint what could be improved. If the manager is consistent in reminding his subordinates that “here, we only discuss issues, not personalities” every time that someone critiques a colleague 114

Best Practices for Operational Excellence | Luca-dellanna.com as a whole (rather than critiquing one of his behaviors), then in a few weeks his subordinates should have learned to formulate their comments appropriately. It is extremely important that the manager does not let a personal comment pass even once without reminding the team that they are not allowed. If he does, all his good work will be destroyed and in no time the team will be back to commenting on each other with nonconstructive feedback. HANDLING DECISIONS

If, at any point during the meeting, two participants have a disagreement, the manager should let them work it out; possibly, outside of the meeting, in order not to waste everyone’s time. If multiple participants have a prolonged disagreement on a decision which is of interest for the whole team, then the manager is supposed to step in and take the decision himself, as the final arbiter. Some managers might be hesitant to do it, not to displease anyone. They should remember that usually people do not get angry if someone took a decision they do not like, but they get angry if someone took a decision without hearing them out. As long as the manager collects the input of everyone who has an opinion and makes sure these people trust that they have been heard, then he can confidently take a decision and know that his subordinates will not be angry with him. They might have other emotions – such as frustration – but they won’t be personally angry with him. While listening to the opinions of their team members, managers should be careful not to use their own assumptions to interpret the words they hear. In order to truly listen, one should listen not only to the interlocutor’s words, but most importantly to the interlocutor’s assumptions.

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Best Practices for Operational Excellence | Luca-dellanna.com AT THE END: GETTING COMMITMENT Before the meeting ends, the manager has to make sure that every single participant will walk out the door committed to do whatever task has been assigned to him during the meeting, even if he did not agree about it. Ideally, meetings should follow the “disagree and commit” model: during the

meeting, every participant should voice its concerns about any of the topics discussed, and the manager should make sure he really listens to them, ensuring that each participant feels like his concerns have been understood. However, at the end of the meeting, every participant should be committed to support whatever has been decided, even if they still disagree with it. If the reader does not believe that the “disagree and commit” model can be applied in reality, it is because, in the meetings he has attended so far, the leader did not do a proper job in really listening to the concerns voiced. In general, subordinates are okay with their managers’ decision if they feel they have been listened to. Whenever a subordinate disagrees with his manager, it is because he does not really believe that the manager understood his concerns. It can take time to really listen to everyone’s concerns during a meeting. For this reason, it is recommended that only people whose presence is required to the meeting are invited (to keep the number of participants low) and that the manager talks before the meeting with the participants more likely to have concerns with the topics to be discussed, in order to have some time to properly listen to them. It is critical that each participant in the meeting walks out the door with the commitment to communicate to their own subordinates what has been decided in the right way. A supervisor that walks out of the meeting and does not communicate a decision to his team because he does not agree with it can create problems down the road, when his team will somehow learn about the decision and complain they were kept in the dark.

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Best Practices for Operational Excellence | Luca-dellanna.com Moreover, it is critical that an attendee that walks out the meeting communicates to his team the right things in the right way. A supervisor that says something along the lines of “Management decided X and we have to live with that” nourishes discontent in his team. Instead, supervisors should walk out of the meeting and communicate demonstrating commitment and supporting whatever has been decided. For example: “We decided X; this is not good for our team because of this and that concern, which I communicated during the meeting; nevertheless, for this and that reason we anyway decided that X would be in the best interests of everyone involved.” One of the worst things that can happen during the meeting is that the attendees walk out passively committed. They didn’t disagree but didn’t agree either. As a result, they will carry out whatever action has been decided, but not committedly enough so that it results in a success. This is the worst outcome, because the fact that the action has been carried out but not committedly enough makes it hard for managers to hold their subordinates accountable. After all, they did what was asked of them, just not committedly enough. The line is blurry and the manager will have a hard time applying any individual outcome. Passive commitment is equal to passive sabotage.

To prevent this, great managers require active commitment from every single participant to their meetings. They do so by asking each of them “What will you do after this meeting to carry out the tasks which have been assigned to you?”. This is a great question, because answering it requires active commitment. Bad managers, instead, ask the following question: “Will you do this?”. This is a bad question, for answering it only requires passive commitment. Great managers demand conflict (by asking everyone to voice their concerns), then demand commitment (by asking everyone to promise what they will do) and finally demand results (by letting everyone know that they will be held accountable for achieving whatever objective the team decided). It is necessary

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Best Practices for Operational Excellence | Luca-dellanna.com that every participant voices his active commitment during the meeting. This way, everyone’s commitment is conspicuous. Each participant will feel more committed because he sees that everyone else is committed too. Conversely, if no one voices his active commitment during the meeting, each participant will be left wondering whether the others are actually committed.

ACTION POINTS 1) If you do not have regular Weekly Meetings with your subordinates, schedule one immediately. 2) Book a 15-minutes slot in your calendar immediately after each of the first three meetings, in which you will re-read this chapter and think on what went well and what can be improved.

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Best Practice #4:

One-on-one Meetings “People who think one-on-one meetings are a bad idea have been victim of poorly-designed ones.” – Silicon Valley entrepreneur Ben Horowitz One-on-one Meetings are a powerful tool to gather intelligence, reinforce priorities, assign accountability and review performance, all in an intimate setting. They are such a powerful tool that every manager should have at least one a week with every single one of his subordinates. For some industries such as software development, where subordinates benefit from long uninterrupted stretches of work, One-on-one Meetings can happen once every two weeks. Most industries instead benefit from weekly ones. One-on-one Meetings should last at least half an hour, even if there is nothing to discuss, especially if there is nothing to discuss. This because there is never nothing to discuss. If it looks like there is nothing to discuss, it means that the

manager should get better at asking questions, or better at handling silence. The most useful pieces of information come out after a long, awkward silence: often, that’s the moment when the subordinate will voice what he would not voice before – that’s usually the most important piece of information.

CONDUCTING ONE-ON-ONE MEETINGS The first time that the manager has a one-on-one meeting with a new subordinate, he should take some time to explain to him what the meeting is 119

Best Practices for Operational Excellence | Luca-dellanna.com about. The manager should clarify that the One-on-one Meetings will happen on a weekly basis but they are not an instance of micromanagement. The opposite: ideally, they will be the only management-initiated contact during the week, with the exception of Weekly Team Meetings and Management Walks. Because the manager uses the weekly One-on-one Meeting to ensure that the subordinate is aligned with him on priorities, the manager can let him free to behave on his own during the rest of the week. Of course, there might be more contact between the manager and the subordinate, for example during project-specific meetings or subordinate-initiated conversations. The manager must then fulfill his promise that weekly One-on-one Meetings are not instances of micromanagement. The manager should use this time to assign objectives and review progress towards them while at the same time restraining himself from delving in the details of how the subordinate is fulfilling them – unless a how question comes from the subordinate himself or if the how was a recent problem or if the subordinate previously lied on progress or omitted relevant issues. Even then, the manager should give tips, hints and references and not detailed instructions list, unless necessary. A good manager understands that weekly One-on-one Meetings are tools to gather intelligence and to reinforce priorities, Core Values and accountability; not a tool for micromanagement. As long as he leads the meeting with this in mind, there is no fixed structure for the One-on-ones. The following is an example of structure for One-on-one Meetings. First, the manager thanks the subordinate for having come and asks him if there is any urgent issue to talk about. It is good to ask this question at the beginning of the meeting in order to clear any concern which might occupy the mental space of the participant. However, the manager must not allow such urgent issues to take more than half of the time dedicated to the one-on-one meeting. If any single issue is taking too long, an ad-hoc meeting can be scheduled in the next days.

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Best Practices for Operational Excellence | Luca-dellanna.com Second, the manager should ask the subordinate for some high-level progress update towards the tasks and projects he has been assigned. Such progress updates should not delve into detail; their purpose is to ascertain whether the subordinate is stuck or proceeding in the wrong direction. During the progress updates, the manager should be firm in not letting any excuse pass. There is a difference between “this came up, so I am doing that to take care of it” (good) and “this came up, so the project will be delayed” (bad). The first progress update came with ownership of the problem and with a solution; the second one came with passiveness and a missed objective. At all times, ensuring that the objectives will be fulfilled on schedule and on specification should be the priority of both the manager and the subordinate. If the subordinate is not fully focused on this, it is the manager’s job to repristinate such lack of alignment. During the progress updates, the manager should encourage the discovery of possible upcoming problems, by asking questions such as “If the project will fall behind schedule, what do you think would have been the cause?” (This is called a pre-mortem, as opposed to post-mortems, which are project reviews held after the project ended.) Please note that this is a different question from “Why do you think the project might fall behind schedule?”. Presenting the subordinate with an imaginary already-happened delay will focus him on addressing problems he might be uncomfortable with; instead, asking the subordinate to imagine the possible causes of a generic delay which didn’t even materialize in his head will result in him not taking the possibility seriously or to restrict the range of problems he will consider to the ones he is comfortable addressing. A great follow-up question to increase the comprehensiveness of this analysis is: “so, if we do X and Y, there is no way that the project will be delayed?”

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Best Practices for Operational Excellence | Luca-dellanna.com Once the progress update is completed, there should still be time remaining in the meeting. If not, either the manager planned too little time, or he let the discussion delve into unnecessary details. The rest of the meeting should be spent gathering intelligence from the subordinate. What problems might the team face in the near future? What personal issues are ruining the atmosphere? Does anyone need something from the manager? What is important and yet not talked about? One of the most effective ways to gather such information is the manager reacting to a non-informational answer by shutting up and letting an awkward silence follow. The subordinate will likely feel compelled to fill the silence by saying something – often, what he would not have said otherwise. Of course, the manager has to ensure that the silence is not filled with small talk, with unnecessary details, or with the subordinate checking his mobile phone. If the manager decides to use this tactic, he should let the silence last for at least 30 seconds. If, after one minute, the subordinate did not speak yet, the manager might nudge him to do so by asking “Is there anything else I need to know about the team?” If the manager is doing his job properly – gathering intelligence and reinforcing priorities rather than micromanaging – within a few weeks his subordinates will begin to look forward for the weekly One-on-one Meetings.

GOOD QUESTIONS TO ASK In my experience, I found the following questions very effective in surfacing important information: “On what pending issues there is no progress?”, “What are you scared of?”, “What are we scared of, as a team or as a company?”, “What should be on my to-do list as a manager, but isn’t?”, “What should be on our todo list as a company, but isn’t?” The point of such questions is not to collect advice, but in collecting intelligence.

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Best Practices for Operational Excellence | Luca-dellanna.com In his book “The Hard Thing About Hard Things”, Silicon Valley executive Ben Horowitz proposes the following questions for One-on-one Meetings: “If we could improve in any way, how would we do it? What’s the number one problem with our organization? Why? What’s not fun about working here? Who is really kicking ass in the company? Whom do you admire? If you were me, what changes would you make? What don’t you like about the product? What’s the biggest opportunity that we’re missing out on? What are we not doing that we should be doing? Are you happy working here?” It is critical that, after the question is asked, the manager lets the subordinate answer it freely without interrupting or criticizing him.14 Otherwise, that will be the last time he will collect useful intelligence from that subordinate.

ACTION POINTS 1) Schedule a single 1-hour one-on-one meeting with all of your direct subordinates, this week or next week. Do not schedule multiple meetings with the same subordinate: at the end of the meeting, you will schedule the next one. 2) After the first round of meetings is finished, read this chapter again to see what went well and what can be improved.

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After the subordinate is done answering, the manager might give his take on the topic of the reply, but he

should never criticize or imply a criticism towards the subordinate having given that answer.

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Best Practice #5:

Bright Spot Analysis Bright Spot Analysis 15 is a powerful tool to find ideas to improve your Operations that work. Bright Spot Analysis is a simple Best Practice consisting of 3 steps: looking at who’s the best performer in your area, understanding what he does differently, and figuring out whether it’s something which could be replicated by the rest of the employees.

FIRST STEP: IDENTIFYING THE BRING SPOT Good managers routinely ask themselves one of the following questions: - “Who is the best performing person in my team?” - “Which is the best performing team in my unit?” - “Which is the best performing line in my factory?” - “Which is the best performing factory in my corporation?” - “Which is the best performing company in my industry?” The questions above might refer to overall performance or to performance at specific tasks (e.g.: “Who is the best person in my team at ensuring that projects are completed on time?”).

15

The name I use for this Best Practice – and part of its content – has been inspired by Dan & Chip

Heath’s excellent book “Switch”.

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SECOND STEP: UNDERSTANDING THE BRIGHT SPOT Once the Bright Spot has been identified (an employee, a team, a line, a plant, or a competitor), the manager studies its behavior to understand if there is some trait, procedure or environmental condition which can be replicated to every area the manager controls. Good managers routinely ask themselves the following two questions: -

Is there anything the Bright Spot does, which makes it exceptionally effective and which can be replicated elsewhere in the organization? Is there anything about the environment the Bright Spot operates in, which makes it exceptionally effective and which can be replicated elsewhere in the organization?

The latter question is often overlooked, as people tend to attribute exceptional behaviors to the personalities of the people involved. Instead, most behavior is determined by the environment in which people operate, including the incentive systems, management, and culture of their team and organization. These are largely replicable, though doing so will take time and effort. For example, once a team has been identified as the Bright Spot, the manager performing the analysis should examine what goals, what incentives, what managers and what culture the team has. Could any be the cause for their exceptional performance?

THIRD STEP: REPLICATING THE BRIGHT SPOT Once the cause for the Bright Spot has been identified, the manager should attempt to replicate it across his organization, where appropriate. For example, if the Bright Spot was a team following a procedure which no other team is following, and it makes sense for other teams to follow that procedure as well, then the manager should try to roll-out the procedure across the other teams. 125

Best Practices for Operational Excellence | Luca-dellanna.com How to roll-out new procedures is described in the third part of this book.

NO CHERRY-PICKING Cherry-picking is the process of making one’s opinion of a person or of a group of people based on one single aspect of their performance, rather than on their overall one. For example, a rule for personal life is never to envy anyone you wouldn’t fully swap your life with. Envying someone for a single aspect of their life is pointless, for he probably made trade-offs which would not be good for you. Similarly, when performing Bright Spot Analysis, managers should be careful not to cherry-pick performance data points and instead focus on overall performance only. If a team or individual is the best one at a single aspect of their job (for example, production output) but has subpar overall performance (for example, they lack in quality of output), do you really want to replicate the procedures they use to produce at higher speeds?

SIDE EFFECTS Every intervention and every new practice or procedure comes with sideeffects: the time, energy and money needed for its implementation and the eventual loss of morale and motivation incurring in everyone who gets told that “the way he was working before was wrong”. It is important that managers using Bright Spot Analysis (or Dark Spot Analysis) consider, before the third step, whether any new practice or procedure they would implement would bring enough benefits to compensate all its side effects – leaving some margin of safety for the possible presence of hidden ones.

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CHOOSE SOMETHING THAT WORKS, NOT SOMETHING THAT MAKES SENSE When picking a procedure or a factor to replicate, it is extremely important that you limit yourself to things that proved to work, without including ideas that make sense but have not been proven to work in practice. Copying things that already work somewhere else is called bottom-up adaptation and has a high success rate. Implementing ideas that make sense but have not been tested yet is called top-down adaptation and has an abysmally low success rate. Two reasons: first, usually ideas have to be refined times and times over; copying something that works means copying something which has already been refined, whereas copying something which has not been tested yet will likely result in the revelation that it still has to be refined before working. Second: most initiatives and interventions have hidden side effects, which are often bigger than the evident benefits. If you copy something which works and has been in use for a long time, most of its side effects will have been revealed already, whereas if you attempt to implement something which has not been tested yet, you might have a bad surprise once side-effects begin to emerge.

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DARK SPOTS The sister Best Practice of Bright Spot Analysis is Dark Spot Analysis. It works similarly: 1) First, the manager looks for an individual / team / line under his management which is particularly underperforming. 2) Then, the manager tries to look for the root cause for the underperformance and attempts to address it. 3) Finally, in case of success during the second step, the manager tries to replicate the learnings to ensure that never again will any individual or team under his management underperform for the same reason. 4) Eventually, the learnings of step three can also be distributed across the company, if appropriate.

ACTION POINTS 1) Schedule in your calendar a 30-minutes slot in which you will perform the Bright Spot Analysis. (This is a low-priority task; the Action Points of the previous Best Practices have a higher priority.) 2) When the time for the Bright Spot Analysis comes, re-read this chapter and then try to apply its contents. 3) Schedule in your calendar a follow-up 30-minutes session in which you will perform another Bright Spot Analysis.

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Best Practice #6:

Standard Operating Procedures “When companies choose chat first, they revert into an almost oral tradition.” – David H. Hansson (DHH) In all kind of organizations, writing down procedures, rules, standards and Core Values is important for three reasons. First, it makes them permanently available. Anyone can check them at any time and know how he is supposed to act. Second, it makes them conspicuous. If you act according to written tradition, you don’t have to think about justifying your actions to others (or risking being wrong). Third, it allows for fair application of individual outcomes.

A company that only relies on oral tradition will find itself with many problems. Between others, employees not knowing what to do, receiving contrasting input about which tradeoff to make, and employees being able to justify selfish behavior saying, “what he said wasn’t clear” or “but I was told otherwise.” In companies, a big part of written tradition is constituted by Standard Operating Procedures (SOPs). SOPs are sheets detailing the most critical procedures employees might encounter in their work, regularly reviewed and stored somewhere easy to be accessed by anyone who might need them. Standard Operating Procedures fulfill three purposes. First, they ensure that any worker who might need to perform a business-critical task has a reference to use. Second, they ensure that if anything goes wrong, there is an objective reference to use to verify whether anyone did anything wrong. Third, they 129

Best Practices for Operational Excellence | Luca-dellanna.com ensure that when a change is applied to the current operations (for example, a new piece of hardware is added or a procedure is changed), it is possible to check all other procedures for possible collateral effects.

THE STRUCTURE OF SOPS Standard Operating Procedures are bundles of sheets of paper (or their digital equivalent) which consist of at least the following written elements. A title identifying the procedure. A unique identifier used to reference the procedure and to find it more easily,

usually a number or a string of letter and numbers, sometimes containing punctuation such as dots, slashes and dashes. For example, “procedure 3-54”. A list of steps which constitute the instructions that must be followed by the

workers performing the procedure. They usually include all necessary information and requirements, so that any worker should at least know whether he can safely perform the operation. A date, which identifies the last time that the procedure has been reviewed or

modified. An expiration date, which identifies the time at which the procedure will have

to be reviewed. This is critical because the environment in which the procedure is to be used constantly changes. For example, a new machine might have been installed, a new supply might have been procured, or an experienced employee might have been fired. In all these cases, the procedure might have become obsolete and might require changes. Setting an expiration date (usually 6 or 12 months after the last review or edit) ensures that the procedure is constantly checked against the need for changes. A purpose, to be used during the procedure review. If the purpose of the

procedure is not clear, “zombie procedures” might keep existing long after their need was gone. A purpose ensures that whoever is tasked with using or reviewing the procedure can judge its obsoleteness. 130

Best Practices for Operational Excellence | Luca-dellanna.com A single role responsible for writing and reviewing the procedure, to ensure

that a competent person will be reviewing the procedure when needed. A signature of the person who wrote the procedure or last reviewed it, to ensure

that the point above was met. A list of roles which should be informed if the procedure is to be modified, if any. Whereas each procedure should have a single person responsible for

reviewing and editing it, it might be the case that other people might have to be notified of changes, if any. This because procedures do not exist in a vacuum but live in a complex environment. It is unlikely that a single person is aware of all the variables involved. For example, a procedure involving how to operate a given machine might require the team responsible for its maintenance to vet any change to it.

MANAGEMENT OF CHANGE In companies which are far from achieving Operational Excellence, procedures only contain a title, a list of steps and perhaps a signature. They neglect Management of Change (MoC): the checks which are needed to ensure that whenever something changes in the environment in which the procedure takes place, the procedure is adapted as well; and to ensure that whenever the procedure is about to be changed, it has been checked whether any change in its environment is needed. Therefore, all SOPs should contain the additional components listed above. Otherwise, they will work until they inevitably don’t.

CONTRACTORS Written SOPs are especially useful to manage contractors. Make sure you include them in the list of procedures to write, and involve them while writing them.

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THE STORAGE OF SOPS Standard Operating Procedures must be stored somewhere easily accessible by anyone required to use them. Usually, this is a binder with transparent sleeves, each containing a single SOP. Apart from the smallest premises, multiple copies of such binder exist, to ensure that workers do not have to walk miles to check the procedures they need. If multiple copies of the binder exist, some system has to be in place to ensure that whenever a SOP is changed, the change is replicated to all binders. SOPs are often maintained also as a digital file, to facilitate edits and re-prints, but they should be maintained in paper version too, unless each worker of the company always has a device with him from which he can access the latest version of the procedure. Paper might seem inefficient, but it has advantages and it is often more likely to be accessed; think about the fact that most books sold are still in paper form, even now that eBooks are available to everyone.

JOB DESCRIPTIONS Job descriptions are a particular case of SOP. In a broad sense, the requirements for a position and its task describe part of the procedures that Human Resources and managers will have to follow to hire or promote someone to that position. For example, if a position requires some specific piece of knowledge, a job description that clarifies this need will be useful to ensure that any candidate for that position is screened for that knowledge and that any person promoted to that position is trained on that knowledge. Job descriptions are the task of the manager who manages the role being described. In large organizations, HR should support with the task, but the manager’s input is required.

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Best Practices for Operational Excellence | Luca-dellanna.com Every single position in the company should have a job description. This should be a written document fulfilling all requirements for Standard Operating Procedure (such as an expiration date, a signature, a purpose, etc.). In particular, job descriptions should contain both the know-how requirements for the position and the list of tasks the position is responsible for. Some of the best managers I know prepare documents with a list of behaviors expected from the position (and of behaviors which are expected not to take place), and circulate that document internally, privately (with those in that position) or publicly (by hanging that document somewhere visible in the office or in the plant).

META-PROCEDURES There should also be procedures regarding procedures: a procedure to create SOPs, one to update them, and one to review them, at least.

ACTION POINTS If you have the authority to write procedures, do the following. 1) Write the three meta-procedures described just above, according to the content of this chapter. Make sure that in the procedure for creating SOPs, you clarify which areas of competence should contain procedures and who is responsible for writing each. 2) Schedule a 30-minutes meeting with each of the people responsible for writing procedures and go through the contents of this chapter with them, assigning them the objective of writing the procedures for which they are responsible within a reasonable time frame. Most probably, your company already has some written SOPs. In this case, make sure that both the following are done: old SOPs are checked and rewritten if necessary, and the need for additional new SOPs is evaluated.

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Best Practices for Operational Excellence | Luca-dellanna.com 3) Schedule some follow-up meeting to check the progress against writing procedures. 4) Once the procedures are written, make sure that the appropriate people review them (HSE, Line Supervisors, etc. – anyone directly involved in using them or in managing people using them should be informed and be given the chance to review them, with the addition of relevant technical specialists, if any). 5) Delegate the task of printing and distributing the SOPs. 6) Make sure that each Manager and Supervisor is assigned the task of going through each procedure with each of his subordinates who would be affected by them. The topic of SOPs is highly complex and the action list above is likely nonexhaustive. Please use your best judgement, follow the Four Principles of Operational Excellence and contact an industry expert if appropriate. This is likely the most difficult and lengthy Best Practice to implement – and yet, a very important one.

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Best Practice #7:

Surfacing Problems JUST IN TIME In business school, many would describe Just In Time as the concept of having components arriving directly at the production line the moment they are needed, in order to reduce the financial costs and handling time associated with having them delivered to a warehouse first. This is only partially correct. While it is true that having components handled twice (once to go from the delivery truck to the warehouse, and once from the warehouse to the production line) and renting space just to have components sit there are two unnecessary costs which do not provide any value to the customer, that is not the most important advantage of Just In Time. Warehouses are buffers, and buffers protect against supply volatility. For example, if you have a warehouse with enough components, you will be able to continue production even if the truck delivering components to your production line is late. A company with a buffer (such as a warehouse with enough components to last a week) will not consider a truck being one day late as a problem. This means that no one in the company will take any steps to ensure that the truck comes on time. If one day, eventually, the truck is one week late, then production will have to stop and the company will be unprepared on how to react. Conversely, a company without a buffer (no large warehouse for components) will consider even a one-hour delay of the delivery truck as a problem and will

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Best Practices for Operational Excellence | Luca-dellanna.com take immediate action to ensure that the truck comes on time, every time. As a consequence, its operations will become much more robust and efficient. Buffers prevent problems from surfacing, until it’s too late. Just In Time (and other techniques which reduce buffers) allow problems to surface so that they can be solved before it’s too late.

Just In Time is about removing buffers to surface problems.

THE RED ROPE Toyota production lines used to have a red rope hanging from the roof (“Andon Cord”). Workers of any level were instructed to pull on the rope every time they would notice a problem in the production process, such as a defect. Pulling on the rope would immediately stop production. Everyone who ever worked in a plant knows how costly it is to stop production. And in Toyota, that would happen every time a worker – any worker! – would notice a problem and pull the red rope. What a way to ensure that problems are solved immediately rather than being lost in a suggestion form! Not only the red rope is a brilliant implementation of the 3rd Principle of Operational Excellence (demonstrate priorities by taking costly actions), but it is also a wonderful way to align incentives towards solving problems now.

INCENTIVES TO SOLVE PROBLEMS In Toyota, reportedly, managers have personal objectives on their own individual results, on their division’s and on development of their subordinates. A manager who fulfills his own objectives but whose subordinates do not grow is considered a bad manager, and his career will not progress. This is a costly signal (it might lead to managers quitting the company as they look for other career opportunities) which demonstrates a priority of the organization: growing its employees. The message is simple: unless you make

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Best Practices for Operational Excellence | Luca-dellanna.com the development of your subordinates one of your priorities, you will not have a career in this company.

PROBLEM SOLVING The two examples above, Just in Time and the Red Rope, are good introductions for the topic of this chapter: how to implement problem solving techniques and how to implement incentives to make sure that those techniques are used proactively (before serious problems take place) rather than reactively. Escalating problems to upper management or to experts is an extremely slow approach, for two reasons. First, it takes time for an escalated issue to reach the person who will solve it, and for her to act. And second, it takes time to even begin the escalation, as line workers are wary of being seen “creating problems” and would often wait a few hours, days or weeks before getting themselves to escalating the issue. Of course, this is not good. Problems grow the size they need in order to be acknowledged. An organization that is slow in acknowledging problems will find itself with big problems. The alternative is to set in place systems to tackle problems immediately as their first symptoms appear, or even before that. There are two complementary approaches for doing so: decentralized problem solving and measuring leading indicators.

DECENTRALIZED PROBLEM SOLVING Decentralized problem solving consists in deploying tools and expectations to allow line workers to fulfill the principle that problems should be solved at the lowest competent level.

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There is an abundance of problem-solving tools and techniques to be used by line workers and line management to solve operational problems. The most famous one is perhaps Six Sigma. Whereas Six Sigma cannot be used for all problems – most of its tools only apply to contexts whose characteristic distributions are Gaussian 16 – it is useful to provide line workers and line management with tools to solve problems by themselves and in a structured way. Another well-known tool is the “5 Whys”, in which the worker interrogates himself on the cause of a defect for a few times, typically five, with each answer becoming the basis for the next question. (For example: “Why did my teammate injure himself?” “Because he tripped on a cable.” “Why was the cable on the floor?” “Because it connected a tool to the plug on the other side of the room.” “Why wasn’t the tool plugged to the closest side of the room?” “Because there was no plug there.” The solution: to ask an electrician to install a plug on that wall). In my experience, the right number of iterations to stop at is not 5, nor any other precise number. It is when taking care of that problem would ensure that no similar incident will ever happen again. In general, problems are solved only when the action addressing them answers positively the question “will doing this prevent the same problem from occurring ever again?” Bright Spot Analysis and Dark Spot Analysis (Best Practice #5) are great tools to solve problems proactively.

16

The reason is explained in Nassim Nicholas Taleb’s books “Fooled by Randomness” and “The Black

Swan”. Example of fields which do present gaussian distribution: manufacturing. Examples of fields which do not: finance and logistics (for example, the distribution of delivery times and of consequences of delays follow a power-law, not a Gaussian).

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Best Practices for Operational Excellence | Luca-dellanna.com EXPECTATIONS

Whereas many organizations understand the need for decentralized problem solving and deploy tools for line workers to solve problems, only a few set the expectations that line workers are to actually use them. To some managers this might seem puzzling – if we gave them the tools, of course they are expected to use them –, but the reality is that unless the expectations are explicit and linked to personal outcomes, tools will not be used. Moreover, if any manager explicitly communicates the expectations that line workers are supposed to solve their problems by themselves, but at any point he punishes one of the workers for having done so, the message that will pass to the team is: you are not really supposed to solve problems by yourselves (“punish” is used here in the broadest way possible – even just a bad look or rolling eyes “punish” the worker having tried to solve a problem). Of course, there might be circumstances in which line workers are expected to escalate problems. Procedures or rules-of-thumb must be put in place to clarify whether an issue is expected to be escalated or to be solved locally. It is critical that managers both deploy problem-solving tools and constantly reinforce the expectations that workers are supposed to use them autonomously. The efficacity of decentralized problem solving in your organization will be the lowest of the two.

LEADING INDICATORS Leading indicators are a great tool to recognize problems before they take place. Let’s see a practical example, related to workplace safety. In 1931, US safety manager Herbert Heinrich noticed a relationship between incidents in factories. For each accident causing a serious injury, there would be about 29 accidents causing a minor injury and 300 accidents causing no injury. These exact coefficients got later disproved, but Heinrich was onto something: for each death there are indeed many serious injuries, for each 139

Best Practices for Operational Excellence | Luca-dellanna.com serious injury there are many minor injuries, for each minor injury there are several accidents causing no injury (also known as “near misses”, for example, a brick falling from the roof but hitting no one), and for each accident causing no injury, there are many unsafe behaviors (such as a worker walking in the plant with no safety helmet) and unsafe conditions (such as a sharp edge near a walkway). These relationships can be displayed as a pyramid, as in the image below.

Now, let’s make a thought experiment. Imagine that, in a fictional company, there has been one workplace death four years ago, one three years ago, one two years ago, and zero deaths last year. Can we say that the company became safer? Time Workplace deaths

4 years ago 1

3 years ago 2 years ago 1 1

Last year 0

No, we cannot. Perhaps the plant’s current safety level warrants 0.75 deaths per year, and last year the employees of the company just got lucky. Maybe, next year there will be another death (or two). The sample is too small, and the results too volatile. 140

Best Practices for Operational Excellence | Luca-dellanna.com Trends measured at the top of the pyramid are too volatile to have any predictive value.

Now, let’s imagine that in the same company, 25 employees recorded an injury four years ago, 30 three years ago, 15 two years ago and 5 last year. Time Workplace deaths

4 years ago 25

3 years ago 2 years ago 30 15

Last year 5

Can we say that the company got safer? Perhaps; we cannot be certain. Though the sample is now large enough to enable us to spot more reliable trends, other possibilities might invalidate the results. It is possible that, starting two years ago, the management covertly warned the employees and asked them not to report injuries. Also, there is the possibility that operations that produce light injuries did get safer, but that the operations that cause no light injuries but might kill employees (such as electrical maintenance operations) did not get safer. Finally, trends measured in the top half of the pyramid lack data on improvements relative to rare threats. For example, employees may have now a lowered probability of injury from common sources of accidents but are perhaps still a high risk of injury from infrequent ones, such as a fire. Now, let’s imagine that in the same company, random observations showed that four years ago 50% of the employees were wearing a safety helmet in the areas where their use is required; three years ago, 80% of the employees; two years ago, 90% of the employees and last year, almost 100% of the employees. Can we say that the company got safer? Yes, most probably. There is a correlation between the consistency of safe behaviors and how safe it is to work at a plant. Given that most incidents take place because of unsafe behaviors, the workers are safer now. Trends measured at the basis of the pyramid of risk are more reliable, both

because of a larger sample and because of a lower number of assumptions needed.

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Best Practices for Operational Excellence | Luca-dellanna.com Moreover, indicators at the top of the pyramid have a disgraceful property: they measure events that already happened. For this reason, they are called lagging indicators. Companies and individuals which measure lagging indicators tend to be reactive: they only act when the lagging indicator shows a problem: after the negative event took place, when it’s too late. Conversely, the indicators at the bottom of the pyramid can tell us whether negative events will occur, before they happen. They are leading indicators. Companies and individuals which measure leading indicators tend to be proactive and usually act to avoid the negative event before it happens. If a company only increases the frequency of safety trainings after a workplace death occurs, it is bound to have at least one workplace death. If, instead, a company increases the frequency of safety trainings the moment it notices that not all employees are following the safety guidelines, then it will probably be able to prevent the deaths. Measuring trends at the bottom of the pyramid allows to be proactive and to prevent negative events; measuring trends at the top causes to be reactive and to suffer from negative events.

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USING LEADING INDICATORS In order to use leading indicators, managers have to tie at least partially performance rewards to leading indicators, rather than to lagging ones. (I remind the reader that there are various types of performance rewards, including financial rewards, rewards of recognition and noticing the good, as well as disciplinary punishments or punishments in the form of admonishment. It doesn’t only have to be promotions and bonuses, or their absence.) When harmful negative events are less frequent than positive ones, there is a risk of overoptimization: maladaptation to a temporary lack of harm. For example, a few lucky months with no injury might make the workers complacent and take unnecessary risks. Hence the importance to reward leading indicators (such as the number of people wearing the safety helmet) in addition to lagging indicators (such as the number of injuries) to prevent people from optimizing for other metrics (for example, not wearing the helmets in order to save a few seconds). By tying consequences (rewards and punishments) to leading indicators in addition to lagging ones, the frequency of negative events increases, causing the incentive to optimize for the frequent small profits to disappear. Let’s

explore this phenomenon using an example. A sales manager whose compensation is tied to his sales (a lagging indicator) will focus all his energy and time on making the numbers for the current quarter. If he has an additional hour, he will spend it on making one more phone call or on sending one more proposal. He will favor small unprofitable clients who have a faster purchasing process over bigger ones to which a sale might take quarters. He will try to squeeze every dime out of every deal, getting some short-term profits but damaging the long-term relationship with the client. He might even be tempted to sell defective products, or products he knows would offer no benefit to that particular customer.

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Best Practices for Operational Excellence | Luca-dellanna.com Conversely, a sales manager whose compensation is tied to leading indicators (such as client satisfaction, which is a predictor of repeated sales 17 , sales trainings attended, which are supposed to improve future sales, and customer research and qualification, which are supposed to improve the quality and profitability of customers) is more likely to bring great long-term results. When I present the concept of the pyramid of risk and of leading indicators, people tend to understand it rather easily. However, while putting it into practice, very often they make a key mistake. They do pay attention to leading indicators and they do measure them, but they fail to tie them to individual outcomes. If a bad performance on a lagging indicator does not impact the employee in any way, then he will not change his behavior. As illustrated in the chart below, only the top half of the pyramid is inherently linked to physical harm; consequences such as emotional or career rewards must be actively tied to the indicators at the basis of the pyramid to ensure that employees change their behavior to improve them.

17

A frequent comment is “client satisfaction is a function not only of the salesman, but of the product as

well. Salesmen should not be penalized for a product that does not work”. I argue that, instead, they should. What a wonderful incentive for salespeople to bring product feedback back to the design team!

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SOLVING PROBLEMS WITHOUT USING SHORTCUTS Problems disappear only when their root cause is addressed. Otherwise, if the problem is solved but not its root cause, the latter will act as a source of new problems. Shortcuts are the shortest way to another instance of the same problem.

Good managers insist that root causes are solved; not superficial problems.18 Therefore, they do not reward those who solved the former without taking care of the latter.

INCIDENT INVESTIGATIONS A particularly effective problem-solving tool is incident investigations: a procedure that is triggered by safety incidents, quality incidents and ethics incidents and whose aim is to find their root causes. Incident investigations are a necessary but not sufficient tool: they are great to address problems which already manifested but cannot take care of problems which still have to manifest. Therefore, they are to be implemented together with the other tools described in this chapter. Incident investigations are performed by a committee created ad-hoc immediately after the incident. Incident investigations are as effective as the level of the highest person involved. Therefore, it is advised that the CEO or the highest manager resident

18

One particularly nasty type of shortcut is reducing volatility in non-Gaussian environments by skewing

the frequency and intensity of problems to the right (e.g., undertaking behaviors that have positive payoff most of the time and negative payoff very few times but when such negative payoffs occur, the survival of the company becomes endangered). Great companies reduce volatility without using shortcuts (i.e., they look for a real decrease in volatility, not an increase in skewedness) while still keeping redundancy and flexibility. My previous book “The Power of Adaptation” talks about this subject in detail and presents practical solutions for companies which seek to survive in an everchanging environment.

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Best Practices for Operational Excellence | Luca-dellanna.com at a geographical location (e.g., the Plant Manager) are part of the committee, if the incident is consequential enough (a severe injury, a quality concern which led to a recall, a rogue employee which did or could have caused harm to the company, etc.). Their time is limited so they are not expected to actively conduct the investigation; however, they should at least order the investigation and be informed of its results. Because their time is limited, their participation to the investigation is a costly (thus effective) signal of its importance. If a high manager is part of the investigating committee, the committee will find it easier to collect the information it might need or to implement any corrective action aimed at avoiding the occurrence of similar incidents in the future. The purpose of the incident investigation committee is to ascertain what happened, investigate the root causes of the incident, and propose recommendations so that no incident with the same root cause will ever take place again. The committee should conclude its investigation with a written report answering the three following questions: what happened, what was the root cause, what should we do about it. In case of a quality incident, the report should be sent to the area manager, to the QA manager, and, if appropriate, to the global QA manager and/or to other area managers whose operations are similar enough to be likely to benefit from the learnings of the investigation. In case of a safety incident, the report should be sent to the area manager, the local HSE manager, the global HSE manager, the Operations Manager and the Plant Manager. These five roles are responsible for both taking immediate action based on the recommendations and to evaluate whether other geographical locations of the company could benefit from implementing the same measures (and, in this case, contacting them; members of the Top Management should be contacted as appropriate). The paragraph above is provided as a simple guideline; each company should choose the list of people to be informed as it works best. However, such list should be written in a procedure itself, so that everyone knows who the results of the investigation should be sent to. 146

Best Practices for Operational Excellence | Luca-dellanna.com It might happen that the investigation committee lacks the technical resources to interpret what happened during the incident, to find its root causes or to propose corrective measures. In such case, they should involve a technical expert (internal or external to the company) as appropriate. Incident investigations are not about blaming the person responsible for the incident (though he must be hold accountable in case of negligence). They are about finding the root cause of the incident and preventing its reoccurrence in the future.

SUMMARY Companies with Excellent Operations implement a variety of problem-solving tools, most of them decentralized, and constantly reinforce expectations about who is supposed to use them. Such companies act on both incidents and declining leading indicators; they have systems in place to tackle the root causes of the problems that materialized in the past and of those which didn’t happen yet.

ACTION POINTS 1) Schedule a meeting with either your HSE manager or your QA manager and implement an incident investigation procedure. Make sure that a Standard Operating Procedure is also written. 2) Think about some leading indicators which are relevant to the areas you manage. Assign to someone in your team (it might be yourself) the task to measure and improve them. 3) The next time decisions are made or problems are addressed, make sure that it is done at the lowest competent level.

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Best Practice #8:

Visual Aids Best practices are tools to practically apply the 4 Principles of Operational Excellence. Whereas the seven previous Best Practices required at some point the physical presence of the manager, the eight one does not. Visual aids comprise posters hanged on walls, labels describing hardware, barriers limiting action and any other form of visual communication meant to remind or guide the actions of whoever sees it. Visual aids serve two purposes. First, to provide visible tangible reminders of what is important, even when the manager is not there. And second, to provide an uncontestable objective reference for the standards and objectives: if it’s been hanging on the wall for a month, no one can say it hadn’t been possible for them to know. If I had to choose a sentence to summarize the first three Principles of Operational Excellence, it would be: “make sure that the important cannot be misunderstood”. Visual aids are a key Best Practice to ensure this, together with Observation Walks and Audits (which provides on-hands feedback), Weekly and One-on-one Meetings (which are occasions to re-state the important), and Standard Operating Procedures (which are another form of objective reference, though it has to be “pulled” and can hardly be “pushed” in front of the people who need to see it, when they need to see it). The most common four forms of visual aids are: posters, poster charts, labels and barriers.

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POSTERS Posters are large prints hanged on the walls of offices, walkways, factories and warehouses. They usually depict or describe rules, standards, priorities and Core Values. For example, a poster hanged on the wall of the warehouse might remind the workers of the safety rules they must observe while in there, or a poster hanged on the walls of an office might remind its workers that “Environmental Sustainability” is a Core Value of the company. Some managers dismiss the importance of posters saying that their subordinates already know what’s written on them. These managers forget that Communication doesn’t happen when a message is first said; it happens when it cannot be mistaken anymore.

A message has never been communicated enough unless the manager feels it had been way overcommunicated. No message is clear enough to justify not putting it on posters. Moreover, posters are a conspicuous reference; therefore, they provide a function that the spoken word alone cannot provide. Any worker can tell the manager “You didn’t say that!”, but no worker can do so if the message has also been hanged on the wall. As a rule of thumb, if no Core Value and Standard is hanged at least once in every office floor, factory floor, canteen and warehouse, then your company needs more posters. (Multiple Core Values or standards can share the same poster, though.)

POSTER CHARTS Poster charts are posters which show a chart tracking the evolution of one or more key metrics over time. Poster charts differ from normal charts in two ways: they are hanged somewhere visible to all workers in a given area, and they are clear enough that

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Best Practices for Operational Excellence | Luca-dellanna.com the message they convey can be read by someone passing by without him having to stop and wear his glasses. Hence: not too much text on them. Their function is not (only) to inform the workers of the trend of some key metric. Rather, their main function is to remind the workers of some key output of their job which they should keep at the top of their mind at all times. The best poster charts contain a title large enough that it can be spotted from 2-3 meters away. This way, workers passing by the room will be reminded of what matters without having to stop by the chart. Also, workers will be more confident that other workers saw it too. As a rule of thumb, every factory or office worker should either be working in front of a poster chart or passing in front of one while walking from his workstation to the toilets.

LABELS Labels are small pieces of paper, fabric, plastic or similar material next or attached to a critical piece of hardware. For example, a label might be a sticker next to a button which explains what happens if pressed, or it could be a piece of plastic connected to a key that explains what the key is for. Labels could also be writings next to critical pieces of hardware. For example, a bottle might be labeled with its contents or with the risks associated with its contents (e.g., “inflammable”). Finally, labels could also be panels indicating a direction. For example, an arrow indicating where the emergency exit is. Great companies use labels extensively. Every critical button, tool, container, shelf, pathway, lever, valve and indicator is clearly labeled. Great companies do not assume that, because their workers have undergone training, they do not need labels. Labels (and visual aids in general) are not there to protect against inexperience. They are there to protect against fatigue,

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Some labels, in addition to preventing mistakes, also make operations faster or more efficient. For example, some factory workers attach stickers of different colors (blue, yellow, pink and so on) to their tools and then attach stickers of the same colors to the table they work on. This way, they know where each tool is supposed to rest on their table. Having each tool at the same place translates into faster working speed, if a high number of tools is involved. A particular form of label are signs on the floor which indicate walkways or separate areas. For example, most factories have the areas where workers are supposed to walk delimitated with long clear stickers. These labels serve three functions. First, they keep workers outside areas where they’re not supposed to be (such as forklift passageways). Second, they guide the movements of workers, making it easier for them to get safely where they want to go. Third, they delimit the areas where parts and equipment can be stored, ensuring that they are accumulated there rather than on the walkways where they can slow movement or cause injuries.

BARRIERS Barriers are pieces of hardware which limit movement, preventing workers from accidentally walking or moving parts of their bodies where they’re not supposed to. For example, a grid might prevent workers from entering by mistake within the range of motion of a robot which might cause injuries. As a rule of thumb, if you have an area which is routinely accessed by unqualified workers or which contains moving hardware which might cause injuries (such as robots), then the access to the dangerous zones must be limited by some form of barrier.

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WHOSE RESPONSIBILITY IT IS TO USE VISUAL AIDS? In companies with low Operational Excellence, visual aids are usually installed under the orders of the HSE manager and are usually limited to HSE matters. In companies with medium Operational Excellence, visual aids are additionally installed by the area manager, to drive attention towards the organizational priorities. In companies with great Operational Excellence, visual aids are additionally installed by each worker, in his or her own area of competence. Workers use these aids both for themselves and for others, both to prevent injuries, to drive attention towards what’s important and to improve the efficiency and efficacy of their own work. If you are reading this, feel free to request to your area manager or HSE manager any visual aid you think the workers in your area of competence might need, as appropriate. Do not wait for them to be set in place; if they haven’t been set so far, chances are that they won’t be set in the near future either, unless you take the situation in your own hands.

SUMMARY Great companies make extensive use of visual aids to remind their workers about the important things. They do not only use visual aids for things that are hard to remember; they use them for things which are important to remember, regardless of whether they’re obvious or not.

Great companies make use of all types of visual aids: posters, poster charts, labels and barriers.

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ACTION POINTS 1) Is there any tool, bottle, box or shelf space which is unlabeled? Label them (or ask the area manager or area owner to do so, as appropriate). 2) If your subordinates’ workplace does not contain enough posters on Core Values (“enough” as defined above), add some. 3) Which poster charts would benefit your subordinates? Create them. 4) Is any area under your management in need for barriers?

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Paradigm shifts The First Best Practice (Management Walks) introduced a paradigm shift from “a manager’s most important work takes place in his office” to “a manager’s most important work takes place on his subordinates’ workplace.” The Second Best Practice (Audits) introduced a paradigm shift from “inspections are to correct behaviors and conditions” to “inspections are to reinforce Core Values and standards.” The Third Best Practice (Weekly Meetings) introduced a paradigm shift from “weekly meetings are to communicate new information” to “weekly meetings are to communicate old information (Core Values and standards).” The Fourth Best Practice (One-on-one Meetings) introduced a paradigm shift from “information during one-on-ones flows from the manager to the employee” to “information during one-on-ones flows from the employee to the manager.” The Fifth Best Practice (Bright Spot Analysis) introduced a paradigm shift from “innovation is about applying new ideas” to “innovation is about applying old practices.” The Sixth Best Practice (Standard Operating Procedures) introduced a paradigm shift from “SOPs are about compliance” to “SOPs are about managing change (hires, promotions, purchases, innovation, etc.).” The Seventh Best Practice (Surfacing Problems) introduced a paradigm shift from “problem solving is about taking care of already-occurred problems” to “problem solving is about preventing future problems.” The Eight Best Practice (Visual Aids) introduced a paradigm shift from “visual aids are about compliance in perfect circumstances” to “Visual Aids are about avoiding mistakes in imperfect circumstances (e.g. when employees are rushed, tired, etc.).”

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What to do now In the third part of this book, you will find a Roadmap to change the Operational Culture of your organization. However, you might want to start small first, limiting the scope of change to your direct reports. The following points will help you prioritize what to do over the next few days.

FROM NOW ON: •

Practice the Four Principles in every interaction with your

subordinates. Be unmistakably clear, assign unambiguous individual rewardable objectives, delegate accountability, take visible costly actions and be obsessively consistent in holding them accountable.

TODAY: •

Schedule a one-on-one meeting with each of your subordinates to be

held over the next few days. Book a 0ne-hour slot in their calendar. During the meeting, clarify their individual objectives. Do not forget to add individual objectives on Core Values. Take a blank sheet of paper to the meeting and write down any agreed objective. The act of writing will force clarity. Also write down how you will evaluate their progress against their objectives. At the end of each individual meeting, schedule with the attendee the next meeting, in one-week time. •

Schedule in your calendar a 30-minutes slot for your Management Walks, as described at the end of the relative chapter.



One month from now, schedule in your calendar a 60-minutes slot in which you will take the actions under the paragraph title “one month from now”, which you will find below.

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ONE WEEK FROM NOW: •

After you finished the first round of One-on-one Meetings, review the

sheets in which you wrote the individual objectives of your subordinates. Write down in your calendar or agenda any follow-up action which is needed, if any. •

During the second round of One-on-one Meetings, and in every

following round, make sure you review progress against the individual objectives of your subordinates and hold them accountable accordingly to what was agreed. If any issue arises because of you not having been clear in the past, own your mistakes and bring the required clarity.

ONE MONTH FROM NOW: •

Review the second part of this book, “Best Practices”, and see if your actions during the last months were aligned with them. Make any

required adjustment.

ONWARDS: •

Keep implementing the Eight Best Practices of Operational Culture

and eventually ask your subordinates to do the same, if appropriate. •

Never compromise on Core Values. Never. No matter what. It is not

worth it. •

Behave as per your words, and if impossible, own your mistakes and

take immediate action to ensure that you will never have to disrespect your words again for the same reason. •

Set weekly or monthly 15-minutes slots in your agenda for “Operational Culture Reviews”, in which you will meditate on

whether during the past week you lived the Operational Culture you desire to build in your team, and on what has to be done differently next week. 156

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Schedule half-yearly 2-hours slots in your calendar in which you will review this book.

Notes – The list above is non-comprehensive. It has been written with the sole

purpose of giving you some quick tips on what to begin working on as you internalize the concepts read so far. The third part of this book will provide you with more information on rolling-out change in your organization.

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Part III: The Roadmap to Change In the first part of this book, you learnt the Four Principles of Operational Excellence: 1) Good managers set unambiguous, individual and rewardable objectives. 2) Good managers always explicitly assign full accountability together with objectives. 3) Good managers demonstrate priorities with visible costly actions. 4) Good managers are obsessively consistent in holding their subordinates accountable. In the second part of this book, you learnt the Eight Best Practices that transform the Four Principles into visible action: 1) 2) 3) 4) 5) 6)

Management Walks Audits Weekly Meetings One-on-one Meetings Bright Spot Analysis Standard Operating Procedures

7) Surfacing Problems 8) Visual Aids

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Best Practices for Operational Excellence | Luca-dellanna.com The third part of this book is about implementing the content you’ve seen so far. It will guide you to plan an initiative to change the operational culture of your team, plant or company, to get Top Management buy-in, to roll-out the initiative and to sustain it over time.

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Getting Buy-In If you are a member of Top Management, you are probably already familiar with the contents of this chapter and can skip to the next one. The following paragraphs have been written for people less experienced with getting the buyin to roll-out initiatives aimed at changing the operational culture of the team, plant or company they work in.

THE NEED FOR PAST EVIDENCE You do not want to ask immediately Top Management for support if you do not have past evidence supporting the effectiveness of the initiative you are proposing. Such evidence can be of three types: •

Successful pilot: you already successfully implemented the initiative

in your current company on a smaller scale (for example, on a single production line). •

Previous experience: you already successfully implemented the

initiative in your previous company, at a scale at least comparable to the one of your current company. •

External experience: the initiative will be rolled-out by external

experts, such as a consulting company (the author of this book could help you; don’t hesitate to contact him), or by yourself assisted by such external experts. Do not bother asking Top Management for support if you do not have at least one of the three types of evidence, unless you are working for a small startup with limited headcount. Instead, work on getting that evidence. The easiest

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Best Practices for Operational Excellence | Luca-dellanna.com way is to start with a pilot. Begin with rolling out the initiative within your own team.

PRESENTING EVIDENCE When you request support from Top Management, you should not only have past evidence of the effectiveness of the initiative you are proposing, but you should also be able to present it in a way that is relevant to them. Do not focus too much on the technical details of the initiative: they will be useful and important for you, but not for them. Instead, focus on ensuring that your letter / presentation / request for support covers the two following points. Past evidence that it will work. As mentioned in the previous section, make

sure that you have past evidence that your project will work, and make sure to mention it in your request. Bottom-line impact. Every project – every single one – will be checked against

its impact on the bottom line: is it an allocation of people and money that will bring more profits than competing alternatives? You need to answer this question – even if it is not asked, because the people evaluating your proposal will make the computation anyway, so you might as well be the one making it for them. To calculate the bottom-line impact of your initiative, consider both the benefits of it being implemented and the costs of it not being implemented. For example, how much will it cost your company to keep producing components with the current defect rate? When you calculate the costs of continuing operating with the current problems, do not forget to also include hidden costs. They are often much larger than visible ones. Let’s say, for example, that due to the current lack of Operational Excellence, your company has a high injury rate. The visible costs are the costs of non-production (if the line has to stop due to incidents) and the costs of managing the recovery of the employee. The hidden costs are the cost 161

Best Practices for Operational Excellence | Luca-dellanna.com of finding a replacement for the injured employee (or of maintaining extra staff for redundancy purposes), the cost of lower quality (as the temporary replacement for the injured employee will likely be less experienced or proficient), the higher cost of health and safety insurance (companies with lot of injuries are more expensive to insure), the morale and turnover cost of injuries (employees in companies with a lot of injuries are more likely to quit, increasing hiring and training costs), and so on.

GET COMMITMENT I know of consulting companies that do not work unless the CEO (or, if engaged by a subsidiary, the Managing Director or Plant Manager) commits to be both a participant to the initiative and a promoter of it. I personally do the same for my consulting practice, except very particular cases. This is so important. Unless the CEO is the first person to participate to the trainings and to set the expectations for all the other employees, your project will not be considered a priority. As soon as the CEO talks about another matter, that matter will become the new priority and your project will fall into oblivion (because the CEO talked about that matter but not about your project, and this places your project on a lower level). Do not begin your initiative until you got written commitment of personal support from the CEO (or, if your initiative is limited to a single location within

your company, from the highest role resident there). This might be a hassle, and it might delay the start of the initiative, but it will make everything easier.

INSIST Your role – as a professional – is not (only) to propose the initiatives you believe will be good for your company. It is to fight for their implementation. If Top Management refuses your proposal, do not take it as the death of your initiative. Instead, take it as a sign that you didn’t prepare your proposal well enough. Perhaps, you didn’t understand Top Management’s point of view well 162

Best Practices for Operational Excellence | Luca-dellanna.com enough. Or maybe, you were not able to present your case in a way that resonated with them. Either way, it is your responsibility to try again. Acquire the skills you might need (presenting? Writing? Finance?), make the connections you might need, ask for the help you might need, and then submit your proposal again.

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Rolling out ACHIEVING CRITICAL MASS While rolling out an initiative, the most important thing you should care about is not how many people are adopting the desired new behaviors, but how geographically concentrated these people are. For example, if you manage to get 20 people in your 200-employees plant to adopt a new habit, but those people are scattered across teams, the change will be short lived. Those 20 people will see that those around them are not changing and will quickly revert to their previous habits. Instead, if those 20 people are part of the same team, they will see that the people around them (those they spend the most time with) are exhibiting the new behavior. This will have a self-sustaining effect. In my experience, the main predictor for whether an initiative will succeed is whether it achieved critical mass: whether, in at least one location (a team, a production line, a plant, an office floor, etc.), at least 80-90% of the people are exhibiting the desired behaviors.

Managers have a limited amount of time to properly implement the 8 Best Practices of Operational Excellence. They can only apply them with 100% effectiveness over a limited area. If they try to change too many people, or too many teams at once, they will have to scatter their attention between them. This approach will perhaps yield more impressive results during the first couple of weeks, but these results will quickly fizzle out as the critical mass fails to be achieved. Instead, good managers focus on changing one location at a time. The 3rd Principle of Operational Excellence states the importance of obsessive consistency: never let pass even once an undesired behavior. If you manage to correct 90% of the undesired behaviors across two teams, the members of these teams will still remember the 10% of times you let it pass. Instead, it is much

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Best Practices for Operational Excellence | Luca-dellanna.com more effective to focus on a single team for one month, and to move your focus to the second team only during the following month, after the first team will have internalized the change. Similarly, the scope of the initiative should be limited also on the amount of behaviors it aims to change. An initiative that aims to introduce ten new procedures is likely to fail, as the manager will have to check and reinforce ten new behaviors. This is only doable – perhaps – with tiny teams. Instead, better to spend one month to introduce a single new procedure, consistently obsess over its implementation, and only move to the second procedure during the next month, once the first behavior will have been internalized. Being too ambitious and choosing a too large scope for change (too many people affected, or too many behaviors) so that managers cannot be 100% consistent in applying the Fourth Principle is the number one reason for which change initiatives fail.

FRACTAL HIERARCHY The only way to ensure that change is quickly implemented across a large company is by leveraging a fractal hierarchy. Due to the necessity of achieving critical mass, a manager can only promote change over a small team – perhaps 4 to 10 people, depending to how close the manager is to them and how busy he is with other tasks. Having a manager trying to implement change over more people is bound to fail. Therefore, only companies with a very vertical structure (few subordinates per manager/supervisor) can afford to implement a company-wide change initiative in a quick amount of time – and even then, the scope of the change should be limited to 1-2 new behaviors per month. During a company-wide or plant-wide change initiative, every single manager and supervisor must be involved. It is impossible that a single HSE manager, for example, rolls out a company-wide change initiative over a small amount of time. He could do so over the span of several months or few years– working a 165

Best Practices for Operational Excellence | Luca-dellanna.com couple of teams at a time – but pretending that he’d do it in a few months is unrealistic. Driving a change initiative, like driving a car, can only be that fast. After a certain point, a crash is inevitable. The point is not to go as fast as possible, but to arrive at the destination.

INVOLVING MANAGERS It is necessary that the CEO sets the expectations for the change initiative. Otherwise, the change initiative will not be considered a priority and will fizzle out as soon as the CEO mentions a new priority (for example, meeting a target for the quarter). The CEO setting the expectations for the change initiative includes at least him sending a company-wide email, informing every employee of the change initiative, of its importance, of his endorsement, and of his expectations (e.g. “I expect every manager to attend the training by the end of February, to implement the changes in his team by the end of April and to improve this and that indicator by X% by the end of June.”). In the best case, the CEO should also do the following: talk about the initiative during “company-wide meetings” (if the company organizes any), talk about the initiative during every internal meeting with more than 5 people it participates to, participate himself to the first batch of training, and talk about the initiative during his at-least-monthly management walk. Because the CEO time is so valuable, all of these are costly signals, thus effective ones. Every other manager and supervisor in the company should be expected to do the same: sending a team-wide email and holding a public presentation about the change initiative stating the expectations for his subordinates, talking about the change initiative during the meetings with his subordinates and during his Management Walks.

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Best Practices for Operational Excellence | Luca-dellanna.com Of course, every manager and supervisor in the company – including the CEO, especially the CEO – is expected not to let any non-conforming-to-the-changeinitiative behavior pass. This should be stated into the expectation-setting phase. In particular, attending trainings should be a personal objective of every employee, and failing to attend them (within a reasonable time frame) should be disciplined. As Silicon Valley entrepreneur Ben Horowitz noted, “no [team] has time to do optional things. Therefore, training must be mandatory.”

THE ADOPTION CURVE When a new technology is adopted, it is not received equally by all customers. Similarly, when a new organizational culture, a new procedure or a new tool are introduced, they are not received equally by all employees. Adoption Curve Theory divides the adopters into five groups: innovators, early adopters, early majority, later majority and laggards (in order of adoption). To ensure the success of your change initiative, you need to understand the different factors that drive adoption within each different group.

Innovators adopt the new procedure because it allows them to do something

new. They are eager to try it even if it doesn’t work reliably yet. For example, 167

Best Practices for Operational Excellence | Luca-dellanna.com if your company is about to introduce a new software to track purchase orders, these would be the few employees which ask you to see the software even before it is publicly announced. (In this context, the term “innovator” has nothing to do with performing research or development. It simply refers to people who, by personal inclination, are open to try new things which might not work.) Early adopters are the employees who immediately begin using the new

procedure after it is put in place. They see its value and are internally convinced of its usefulness. They do not need the manager to remind them nor they need to see that their colleagues are using it. The early majority are the employees who use the new procedure only after

they see other colleagues using it. They do not want to be the first ones. They do not want to do anything risky or anything new. The late majority are the employees who will use the new procedure only after

the rest of the team will have adopted it and after their manager will have reprimanded them for not using it. Change has to be made inevitable for them to embrace it. The laggards are those employees who will never use the new procedure,

unless forced to do so. Understanding what drives adoption in the five groups is critical, because a trend emerges: whereas a small percentage of employees is able to individually adopt a new procedure (innovators and the early majority), the rest of the employees needs to see other people using it. The more an employee is towards

the right of the Adoption Curve spectrum, the higher the percentage of his colleagues who need to adopt the procedure for him to be willing to do so. Therefore, managers of large divisions who focus their energy towards all subordinates at the same time in the same way are bound to fail.

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Best Practices for Operational Excellence | Luca-dellanna.com Instead, change initiatives must be progressively rolled out. First, to innovators. Then, to the early majority. Only afterwards, to the majority of the team. The adoption of the former two groups is needed to recruit the latter one.

Good managers also know that new procedures might require some adjustment to work. For example, a procedure which works great for one plant might need some adjustment to work in another plant. If the new procedure is rolled out to the whole team at the same time and it is later discovered that it needs some adjustments, some team members who are part of the late majority might think that “the procedure does not work” and might lose faith in the change initiative. Therefore, good managers first recruit the help of the innovators in their team to test the procedure and see if anything has to be changed before rolling it out to the rest of the team. (Remember: in this context, the term “innovators” does not refer to a job role, but simply to people with a natural inclination to try new things.) Good managers proceed as follow: 1) First, they ask the innovators in their team to try the new procedure. 2) If needed, they adjust the procedure. 3) They explain the procedure to the whole team, saying that it will be optional for the first week or two. 4) They work with the early adopters to make sure that they are implementing the new procedure and tweaking it if early feedback reveals a need to do so. 5) After the first week or two, when the rest of the team can see that the innovators and the early adopters are using the new procedure and that it works, the manager asks everyone in the team to adopt the new procedure. Why not asking everyone to follow the new procedure during step 3? Because you want to present employees in the late majority with a procedure that works and this is only possible after some testing. Moreover, whenever you ask someone to do something you want them to do it without possibility to 169

Best Practices for Operational Excellence | Luca-dellanna.com justifying themselves out of it after the objective has been agree – otherwise, you will debase your authority and people will not take your words as serious anymore – and “this procedure is not working well yet” is a valid post-hoc excuse, if true. Simpler procedures can be implemented all at once; the process described above refers to those procedures which have a noticeable element of novelty or which represent a major disruption from the old way of doing things.

LEVERAGE POINTS Complex systems, such as an organization made of hundreds of employees, each responding to its own local environment and incentives, are changed by acting upon leverage points – parameters that individual actors in the system use to determine their behavior. Low-leverage points are tasks and micromanagement. They should be avoided as much as possible and otherwise acknowledged as “not a solution to our problems”. The reason tasks and micromanagement should be avoided as the way to change the Operational Culture of your team is that they do not create any long-term growth in their employees and in their ability to autonomously contribute to the organization. Higher-leverage points are preferred. For example, Core Values reinforcement and delegating problems (rather than tasks). As saw in the Second and Third Principles of Operational Excellence, these are activities which both enable and require subordinates to meaningfully contribute to the organization autonomously. Higher-leverage points have the additional advantage that they achieve more with less time; freeing the time of the manager so that he will be able to work on the kind of actions that will bring long-term results – the Eight Best Practices.

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Best Practices for Operational Excellence | Luca-dellanna.com In his seminal book “High Output Management”, Andy Grove wrote that two of the highest-leverage activities a manager can perform are training and motivation. While the statement is without doubt true, it should not be interpreted literally. “Motivation” does not mean inspiring speeches like seen in movies, but creating and reinforcing the belief that good individual outcomes will necessarily follow the achievement of objectives and bad individual outcomes will necessarily follow the failure to achieve them; and this is done not through speeches but through a constant, consistent, obsessive and relentless application of the Four Principles of Operational Excellence. Similarly, training is more effective when “pulled” by the subordinates (i.e., requested) rather than “pushed” upon them. Delegating problems and ensuring good individual outcomes to those who achieve results are great ways to get subordinates to “pull” the training they might need. The best kind of leverage is the one which is indirect; the one which tries not to change the employees of the organization directly, but which does so indirectly, by changing the system they find themselves operating in.

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Sustaining Unless specific systems are set in place to ensure the sustenance of a change initiative over time, its results will revert back to zero in the space of a few months. Erosion is a powerful force. Even in a company with great managers, as time passes by, events in which a negative behavior is let pass will cumulate and will erode any positive behavior that the change initiative will have built. Therefore, great companies put in place systems to fight erosion.

FIGHTING EROSION Mediocre companies assume that when a goal is met (for example, the injury rate falls below a given threshold), attention can be moved elsewhere. Great companies know that the defaults state is that Operational Culture degrades year after year, and that proactive effort has to be made to keep it from worsening. Therefore, great companies exhibit the following two traits. First, they keep talking about the Four Principles of Operational Excellence even when they do not seem necessary anymore. They keep educating their managers on them, organizing “refresh training sessions” and they bring them as the main topic of performance review meetings. Second, they keep placing costly objectives on the achievement of Core Values based goals. A “costly objective” is an objective that harms both the individuals

and the company if they are not achieved. For example, the company might decide that if a manager does not achieve its safety objective, his career advancements are frozen for that year. This is a costly objective, because the company risks that the manager loses motivation or looks for another job in case 172

Best Practices for Operational Excellence | Luca-dellanna.com he fails to achieve his objective. However, because it is costly, it is also effective in shaping behavior. Conversely, “cheap objectives” are objectives in which the individual has something to gain if he achieves them but does not lose anything if he doesn’t. These are bad, because they might incentivize managers to “tactically” forego an objective in order to achieve another one (e.g., neglecting the safety objective to focus on the production one)19.

REWARDING Good managers are unafraid of clarity. They know that, even if a blurry objective seems easier to set, it will inevitably bring larger problems down the road. Love for clarity and shamelessness in demanding it are strong predictors of Operational Excellence. They are the two most important qualities your organization might want to reward, be it with promotions, raises, or simple words of appreciation.

TRAINING Mandatory “refresher” trainings should be set at least once a year, to ensure that Core Values, rules and procedures are maintained at the top of the mind of the employees. Each manager should be required to organize this at-least-yearly training for all of his subordinates. He might involve Human Resources or external experts to run them, but he should at least be accountable for his subordinates attending it and for spending a few minutes at the beginning of the training to set the expectations: what skills should the attendees learn? What new goals should they become able to achieve?

19

Nassim Nicholas Taleb wrote a book on the subject: “Skin In The Game”.

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INSTITUTIONALIZING YOUR CULTURE The Culture of an organization is the sum of “how we do things here” plus the tradeoffs that its employees believe are worth taking (i.e., the Core Values). For a Culture to be sustained over time, it must be institutionalized. “How we do things here” cannot be transferred by oral tradition only. It has to be written down. Procedures must be written. They must be stored somewhere visible. They need to be enforced. They need to become not an option, but a requirement to stay in the organization. The same applies to Core Values. They need to be written down. They need to be conspicuously visible. Employees (and managers above all) should visibly demonstrate them. Posters should be hanged on walls, detailing the Core Values. Meetings must begin with a Core Values review. Costly objectives must be placed on Core Values. Only institutionalized Culture lasts.

PEER ACCOUNTABILITY As organizations proceed in the journey towards Operational Excellence, they will reach a point in which Peer Accountability becomes possible. To define Peer Accountability, I will use the words of Patrick Lencioni 20 : “Members of great teams improve their relationship by holding one another accountable, thus demonstrating that they respect each other and have high expectation for one another’s performance. […] A team that avoids accountability creates resentment amongst team members who have different standards of performance […] and place an undue burden on the team leader as the sole source of discipline [… whereas] the team leader should be the ultimate arbiter when accountability fails.”

20

From his book “The Five Dysfunctions of a Team”.

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Best Practices for Operational Excellence | Luca-dellanna.com Peer accountability necessitates that its employees are able to independently see the importance of procedures and of Core Values. As such, it is not something that should be introduced nor expected by companies which are still at the beginning of their journey towards Operational Excellence, in which most employees depend upon their manager to realize the importance of procedures and Core Values. Only once most employees (at least 70-80%) are able to independently do so, they will be able to become interdependent, keeping each other accountable. This is the Holy Grail of Operational Excellence and, in my experience, a very achievable goal, if one follows consistently enough the Principles, Best Practices and Implementation Roadmap described in this book.

HIRING The better people your organization hires, the easier it will be to manage them, the easier it will be for them to manage complexity and to act autonomously, and the better will the Operational Culture ultimately be. No matter your role, there are some practical actions you can take in order to improve the quality of hires in your organization. •

Write precise and compelling job descriptions. These documents will

be used by Human Resources to filter candidates and to write job postings. A compelling job posting will do wonders to interest talented professionals and ambitious graduates. •

Create good career plans. Depending on the size of your company,

this might be your job, you might be assisted by Human Resources, or it might be Human Resources’ job. In the last case, it is your job to ask HR to create good career plans for your hires, because good candidates will demand them. Career plans should be conditional (i.e., if you achieve this and that result, you will grow in this direction). Do not accept any “we cannot make career plans” answers from HR; instead,

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Best Practices for Operational Excellence | Luca-dellanna.com ask them “what conditions should be in place for this career plan to exist”. •

Meet potential hires in person. As their potential future boss, you are

the person with the better perception of whether they will be a good fit for your team. Moreover, you are also the person with the better chance to influence their decision to join your team. •

Do not lie during the interview. Using lies to convince people to join

your company will only result in having to re-hire for the position after one or two years, after the person you lied to realizes your team wasn’t a good fit for them and either quits the company or enters “I don’t care” mode. •

Meet HR and your bosses in person, asking them to recruit the talent you need for your team. Often, a few words exchanged in person can

get them to recommend people they would not have contacted otherwise. •

Ask your subordinates to recommend potential hires. Make clear what

the desired traits are – this is also an opportunity to reinforce what is important. •

If you need to hire at least two people per year, hire them together.

When hiring a single person, recruiters tend to fall back on the safest choice, which might not be the best choice. When hiring more than one person, recruiters are more likely to “take little risks” and hire the talent you need. •

Screen for Core Values: refuse any hire who does not believe in your

Core Values and in their uncompromisability. It might be tempting to hire a “mad genius”, but such employees often destroy more than they create. •

Keep a good team atmosphere. This does not mean perks and events,

but an environment of fairness and respect. It will make it more likely that your subordinates recommend good hires or spread good words about working at your company.

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Instead of conducting exit interviews asking people who left your team why they did so, ask them these questions while they still are your team members. For example, in a one-on-one meeting, a good

question might be “if you were to leave the company over the next few years, why would it be so?”

DEVELOPING PEER ACCOUNTABILITY Good managers tell their subordinates who aim for a promotion that they do not need to wait for the promotion to act like a team leader; rather, it is by showing the traits of a team leader while in their current position that they will become one. In particular, managers should give the following task to their most capable subordinates: to sustain Core Values in their team by reinforcing the positive behaviors they spot and asking their teammates to correct their negative behaviors. This introductory objective is excellent for it will develop the skills of using consistency and reinforcement to drive the adoption of the desired behaviors and the abandonment of undesired ones. The fact that this task is limited to reinforcing behaviors which are related to Core Values will make it easier for the teammates to receive comments from a peer. Core Values are so important, universal and beneficial that no one can argue against their enforcement. It is important that the subordinate who is given the task above focuses on reinforcing the positive behaviors rather than correcting the negative ones, except in the most important cases. Otherwise, he might be perceived as “bossy” or “pretentious” by his peers. Similarly, it is important that the subordinate restricts this exercise to behaviors related to Core Values and priorities only. He should not fully assume the role of the manager, to avoid being perceived as arrogant or to avoid him becoming a “second boss”. The latter would be problematic, as there would not be a single source of objectives anymore, and confusion would ensue. 177

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Conclusion Congratulations for having made it so far! Now you know the Four Principles of Operational Excellence and the Eight Best Practices to apply them. You also received a Roadmap to implement change in your organization. Never forget that Operational Excellence is first and foremost about Clarity. Strive for maximum clarity in all situations, avoiding any behavior and situation that might introduce confusion, ambiguity, or that can be misunderstood, and you’ll be fine. Set up the necessary systems and take the necessary actions to ensure that everyone in the company does the above, and your organization will be fine.

WHAT TO DO NOW? Now, the time comes for you to implement your learnings from this book into your company. Have confidence, in yourself, in the Four Principles and in the Eight Best Practices. If you will be constant and relentless in their application, results will follow. … The author, Luca Dellanna, spent years consulting corporations in Europe and Asia. If you would like him to help you or your company with an initiative to improve the Operational Culture of your organization, do not hesitate to email him at [email protected] If you would like to purchase multiple copies of this book, to share with your colleagues, bulk or corporate pricing can be arranged. Please email the author and his staff at the address above.

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Best Practices for Operational Excellence | Luca-dellanna.com If you would like to learn more about the contents of this book, you can sign-up to the author’s newsletter: Luca-dellanna.com/newsletter. … All the best for your journey towards Operational Excellence!

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Aftermath If this book has been useful to you, please recommend it to your friends and colleagues. It would mean a lot to me if you wrote a review on Amazon, on Gumroad or on Goodreads, depending on which one is easier for you. Writing a review or recommending this book would make my day.

… I write about one book a year. If you want to be notified of my new publications, you can subscribe to my newsletter at luca-dellanna.com/newsletter. I also regularly write on Twitter. Contrary to many authors who use it only for promotion purposes, I tend to reward my readers’ attention, rather than consuming it. You can follow me on twitter.com/dellannaluca If you have any question, do not hesitate to email me. My address is [email protected] I hold weekly and monthly sessions (face-to-face and over the internet) with some of my clients, in which I help them advancing their career and personal life beyond the advices provided in this book. If you would be interested to join, don’t hesitate to drop me an email. … To the next book, and good luck changing the Operational Culture of your organization and achieving Operational Excellence!

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About the Author An automotive engineer by training, after having led large teams and consulted for large multinationals, Luca quit his corporate job to become an independent researcher and author and dedicate his career on shedding light on the topic of emerging human behavior. Luca believes that this topic is essential for preventing human suffering, especially as the scale of our civilization keeps increasing. After having lived in Spain, Germany and Singapore, Luca recently moved back to his hometown of Turin (Italy). He spends his days between exercising, consulting, investing and conducting his independent research from his home, a coffee bar or a park. A few days a month, Luca also consults corporations and individuals that want to improve their businesses. Once per year he teaches a Risk Management module at Genoa University and runs a few private intensive courses for entrepreneurs, operations managers, plant managers and CEOs / COOs. On the next page, you can read about Luca’s other books. Luca writes regularly on Twitter (@DellAnnaLuca). You can visit his professional website and blog at www.luca-dellanna.com. You can also contact him at [email protected] You can show your support to Luca by recommending this book to your friends or colleagues, in case you appreciated its contents, by leaving a review on Amazon / Gumroad / Goodreads, or by contributing to his cause on Patreon (patreon.com/dellannaluca).

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Other books by Luca Dellanna Luca’s books can be ordered on gumroad.com/dellannaluca or on amazon.com

THE CONTROL HEURISTIC, 2 N D EDITION

“Luca’s book was so helpful to my work. Opened my eyes up to some more reasons why change is so hard.”– Chris Murman

At a first look, human behavior appears as an inexplicable mess. Why do we behave irrationally? Why do I behave irrationally? Why is it so hard to change? What is happiness and why does it seem to escape us? The Control Heuristic offers a new perspective to answer these questions and provides a guiding light to shed the darkness of the subconscious resistances that prevent us to behave like the man or woman we want to be. 182

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100 TRUTHS YOU WILL LEARN TOO LATE

“I am amazed at Luca Dellanna’s ability to observe, compile, and articulate 99 very actionable life principles here. Each chapter describes the rule in a way that makes you think and then summarizes the Action. It’s filled with DEEP insights yet VERY readable.” – Theresia Tanzil

I wasted years of my life, because I did not know its rules. I did not know the rules of relationships, of careers, of health, of happiness. Then, through hard work, talking with mentors and trial and error, I uncovered some of them. Now, I lay these rules out for you. In this book, you will find 100 of the lessons I learnt. It will still require hard work from your side to internalize them and put them into practice, but at least I hope to make this process easier for you, by letting you to avoid committing the same mistakes I did.

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THE POWER OF ADAPTATION

“This guy! Luca is amazing. So insightful with common sense applications of complexity and the ability to communicate clearly!!” – Bob Klapetzky

This book is for you if: •

You like books dense of information.



You appreciated books such as Taleb’s Antifragile.



You understand or are willing to accept that the world is dynamic, and that understanding how something changes is more important than understanding how something works now.



You do not like usual business / self-help books which provide solutions which only work in the short-term.

“The Power of Adaptation” focuses on the topic of adaptation as the main force shaping the world as we know it. However, adaptation is an emergent process and thus cannot be understood with narratives nor it can be acted upon directly. This book aims to describe the basic phenomena which weave together into what we perceive as adaptation and to provide a guide to help the readers practicing the four behaviors that will help them harness, rather than fight, change. 184

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THE WORLD THROUGH A MAGNIFYING GLASS

“Thank you for helping me understand! My son was recently diagnosed and I needed to be able to understand how he views the world. Why certain things would overwhelm him and cause so much anxiety and pain. This book made it so clear and easy to understand.” – Geiger T., a reader.

(note: most of the content of this book is present, for free, in a different form, on the author’s website www.autismclarified.com) A book to understand the Autism Spectrum Disorder.

Imagine looking at the world through a magnifying glass all the time. Being able to see only a detail at a time, but to see it so well as to be hypnotized by it. Imagine always being slower than everyone around you. Imagine being unable to communicate with others, because you are talking about that detail, while they are talking about the big picture. Imagine being so good at seeing the details, and feel so useless, because no one cares about them. 185

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This book is for parents, friend or anyone related to someone with Autism. This is for neurologists and psychologists to help them understand the world of ASD. This book is for people on the Spectrum, to help them understand themselves.

Some of the topics covered inside: •

The Magnifying Glass: a metaphor to understand perception under the Spectrum



Why people on the Spectrum are impaired in contextual fields (such as personal communication) and advantaged in mastering detailed fields (such as computer science).



Peripheral Functionality Blindness: the reason people on the Spectrum do not develop appropriate body language and facial expressivity.



Prioritization by Specificity: the reason literal meaning is the only thing which matters, for people on the Spectrum.



The High-Pass filter: a novel hypothesis for the Autism Spectrum Disorder, coherent with previous theories and experimental results.

(Reading time is about 1h30)

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Acknowledgments To my future wife, Wenlin Tan, for having provided me with love and support. To my mother, for supporting and loving me all my life; and to Franco, for loving her. To my father, for the same and for stirring intellectual curiosity within me. To my former colleagues during my years in Frankfurt and especially to my bosses, Christian, Andreas, Michele, and Marcelino, who had confidence in me and introduced me to the world of Management Consulting and Operational Excellence in an ethical and long-term way. To my friends and everyone else who, directly or indirectly, knowingly or unknowingly, contributed to my well-being. To everyone who I quoted in this book and to everyone I follow on Twitter. Their inspiration was fundamental. I wrote this book on the shoulder of giants.

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Further Readings “Alchemy”, by Ogilvy’s vice-chairman Rory Sutherland, on the importance of

the non-legible. “High Output Management”, by former Intel CEO Andy Grove, on how to

manage teams. “It doesn’t have to be crazy at work”, by Basecamp founders Jason Fried and

David Heinemeier Hansson, for how an excellent workplace doesn’t have to squeeze every bit of energy from its employees. “Skin In The Game”, by Nassim Nicholas Taleb, for why accountability has

to be fully assigned. The Control Heuristic, 2nd Edition”, by Luca Dellanna (myself), on why

changing habits is so hard. “The Four Obsessions of an Extraordinary Executive”, by Patrick Lencioni,

though his other books on leadership are excellent too. “The Hard Thing About Hard Things”, by Silicon Valley entrepreneur Ben

Horowitz, on the challenges of being a CEO. “The Power of Adaptation”, by Luca Dellanna (myself), for practical tips on

how organizations can and should adapt to an everchanging environment. The books in this list are sorted by alphabetical order.

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Highlights FROM THE FIRST PRINCIPLE OF OPERATIONAL EXCELLENCE When a manager fails to execute on performance management, he compromises the good results he might have obtained in other areas. The more ambiguous an objective, the higher the chances that a worker misinterprets it and fails to fulfill it. Lack of clarity makes it challenging for managers to hold their subordinates accountable. Managers who set ambiguous objectives tend to have underperforming subordinates and are less likely to hold them accountable for their underperformance. Once a manager has let someone off the hook, he sets a precedent for others, making it easier for them to argue they should also be given a pass. This makes it even more difficult in the future for the manager to be consistent in the application of consequences and further deteriorates the operational culture of the team. Managers who set unclear and unambitious objectives cannot reward those employees who performed and cannot punish those who didn’t. Consequently, the team underperforms. Good managers are aware of the vicious circle of bad performance management. They prevent it by setting clear objectives and by being fully consistent in applying consequences. When managers fail to set clear objectives, it is not because of a lack of skills. Rather, it is because of some mental patterns of theirs that makes them believe that setting unclear objectives is the optimal choice.

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Best Practices for Operational Excellence | Luca-dellanna.com Guilt and shame by a manager are symptoms of insufficient clarity, individuality or ambitiousness during delegation.

Good managers do not wait for the perfect environment for them to do their work; rather, they realize that it’s their job to create a conducive environment. When good managers spot a lack of motivation in their subordinates, they interpret it as a signal of a lack of clarity of objectives, of personal impact or of individual outcomes. It is helpful and generous to set clear and ambitious objectives and to guarantee fair consequences. Conversely, it is those managers that are ambiguous in the definition of objectives and inconsistent in the application of consequences that are selfish. In order to feel more comfortable with themselves, they limit the potential of their subordinates. Chronically requiring overtime is a sign of a dysfunctional company which tries to compensate its structural problems by burdening its employees. Chronically making overtime is a sign of a dysfunctional manager who tries to cover his effectiveness problem with throwing more time and energy at problems which do not need it. Indifference and laziness are symptoms of having forgotten that good outcomes follow good performance. The manager has to create the conditions to be able to “catch the subordinate doing something good”. Bad managers try to reach alignment through communication; good managers achieve alignment by rewarding the behaviors which are aligned with the objectives of the organization. Whenever a manager takes the “easy choice” and sacrifices clarity, fairness or consistency to avoid a difficult conversation or a difficult choice, he incurs “management debt”: a subjective short-term gain which will eventually have to be paid back with interest.

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Best Practices for Operational Excellence | Luca-dellanna.com The more the manager takes “easy choices” by sacrificing clarity, fairness or consistency, the more his subordinates will take “easy choices” themselves by sacrificing performance, quality and teamwork.

FROM THE SECOND PRINCIPLE OF OPERATIONAL EXCELLENCE Your subordinates cannot do what is required from them unless, after you provide them with the tools, you release your grip on them. Prescribing methods removes accountability, whereas prescribing results enable it. A manager should only prescribe the instructions and boundaries as part of the result, never as the result itself. If you delegate tasks other than problems, you’re basically crossing fingers on whether completing the task will achieve meaningful results. In great companies, objectives are tricked down from the CEO and accountability for a given objective is owned by everyone on the hierarchical line from the CEO to each employee whose actions might influence that objective. Good managers paint visual, explicit, unequivocal, clear descriptions of what a good result looks like. In industries in which processes and technologies change very fast, a manager who thinks he knows the job of his subordinates quickly becomes a hindrance to the performance of his team. Whereas objectives must be set from some level of overview, the decisions related to how to complete them are complex and require specific, fastchanging, low-level local knowledge. Therefore, great companies strive to have decisions taken at the lowest competent level. Accountability is not the result of motivation, but its cause.

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Best Practices for Operational Excellence | Luca-dellanna.com Managers do not have to motivate employees. Rather, they must prevent the conditions that might lead to them becoming demotivated. In order to reach an unwavering level of explicitness and clarity, good managers are relentless in making the implicit explicit, even when doing so would seem an insult to the intelligence of their interlocutor. Good managers never assume an attitude which signals that they own the tasks they delegate.

Good managers are explicit about how results will be evaluated and by whom. The reason is not only to make the goal clearer, but foremost to prevent surprises and frustration by subordinates who might think they have been unfairly judged. (“Unfairly” is often a synonym with “a rule not stated in advance”).

FROM THE THIRD PRINCIPLE OF OPERATIONAL EXCELLENCE The reason why Core Values are so difficult to adopt in the day-to-day of Operations is that they represent short-term costs. Good managers know that one of the reasons that employees do not practice Core Values is because they are fearful of potential punishments for not having been productive in the short-term. Therefore, they personally take visible actions incurring these costs, to show that they are truly worth paying. Good managers use both words and actions. The costlier the action, the stronger its effect towards getting Core Values internalized. Culture is not made of perks and terminology, but of time- and cost-expensive rituals which are conspicuously perceived as worth it.

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FROM THE FOURTH PRINCIPLE OF OPERATIONAL EXCELLENCE Bad managers are volatile in the application of the standards they set. They believe that workers respond to the average application of the standard. Instead, workers remember the extremes.

Consistent judgment on unambiguous objectives whose specifics have been clear since the beginning cannot be unfair. If managers reward effort, eventually, their subordinates will spend their time showing effort rather than getting results.

Good managers set targets high enough that their completion brings enough windfall to be redistributed across their team. Good managers understand that failing to notice that the work was subpar will, counterintuitively, lead to their best team members getting demotivated. Good managers are fair and loyal to principles, not loyal to people.

FROM THE REST OF THE BOOK It’s not that most managers do not reward achieving objectives. They do. However, often, they do it less consistently that they let having achieved objectives go unrewarded. Unfortunately, people are more likely to remember that one time where their efforts went to waste rather than those nine times where they got rewarded. Your main tasks as a manager are making the important unmistakable and conspicuous, and consistently rewarding people based on their result against their personal objectives and on stewarding Core Values.

Do not assume that your subordinates already know how their efforts contribute to others, and do not assume that telling them is an insult to their intelligence. People need to be explicitly reminded of the worth of their efforts, even if they know it already.

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Best Practices for Operational Excellence | Luca-dellanna.com As a manager, it is both your job to help your subordinates understand the meaning of their work and to ensure that they are, in turn, helping their own subordinates do the same. Decisions taken in the managers’ office remain in there. They do not have the power to affect the way of working of their subordinates unless the manager translates them into visible actions at their subordinates’ workplace.

Either the rule or procedure has to be rewritten, or the worker has to acknowledge he shouldn’t have acted that way. There is no grey area in between, no one-off exception. Letting an exception pass once is how exceptions become the new norm. Good managers never allow that. Holding peers, subordinates and superiors accountable for rules, standards and Core Values is everyone’s responsibility. When calling out something wrong, managers should always direct the feedback or the critique towards a behavior of an employee. Never to the employee himself. When asking questions, give your subordinates the authority to answer them. The main function of Weekly Meetings is to reinforce the Core Values and Operational Culture of the organization.

People need to be repeated the importance of whatever is not the default state, for they for they progressively revert back to it otherwise. Good managers know that, no matter how many times Core Values have been mentioned during Weekly Meetings, if during a single Weekly Meeting they are not mentioned, doubt regarding their importance and uncompromisability will rise again in its attendees.

Weekly meetings are exceptional tools for communication because the manager has the opportunity to talk to his whole team at the same time. Each attendee will know that whatever expectation has been set during the meeting, each other attendee heard it as well.

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Best Practices for Operational Excellence | Luca-dellanna.com Conspicuousness – setting expectations in a way which is visible to everyone – is a great way to effectively influence the actions of others. Good managers do not only communicate to get every subordinate to know and embrace what has to be done; they also communicate to make sure that every subordinate knows that everyone else in the team knows and embraces what has to be done. Weekly meetings are a great channel to do that. If any comment is made upon someone’s personality, the manager should immediately refocus it on someone’s behavior. Before the meeting ends, the manager has to make sure that every single participant will walk out the door committed to do whatever task has been assigned to him during the meeting, even if he did not agree about it. Ideally, meetings should follow the “disagree and commit” model. It is critical that a supervisor that walks out the meeting communicates to his team the right things in the right way. Passive commitment is equal to passive sabotage. Great managers demand conflict (by asking everyone to voice their concerns), then demand commitment (by asking everyone to promise what they will do) and finally demand results (by letting everyone know that they will be held accountable for doing whatever the team decided).

One-on-one Meetings should last at least half an hour, even if there is nothing to discuss, especially if there is nothing to discuss. This because there is never nothing to discuss. Buffers prevent problems to surface, until it’s too late. Just In Time (and other techniques which reduce buffers) allow problems to surface so that they can be solved before it’s too late. Problems grow the size they need in order to be acknowledged. An organization that is slow in acknowledging problems will find itself with big problems.

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Best Practices for Operational Excellence | Luca-dellanna.com Measuring trends at the bottom of the pyramid allows to be proactive and to prevent negative events; measuring trends at the top causes to be reactive and to suffer from negative events. By tying consequences (rewards and punishments) to leading indicators in addition to lagging ones, the frequency of negative events increases, causing the incentive to optimize for the frequent small profits to disappear. If a bad performance on a lagging indicator does not impact the employee in any way, then he will not change his behavior. Shortcuts are the shortest way to another instance of the same problem. Incident investigations are as effective as the level of the highest person involved. Some managers dismiss the importance of poster by saying that their subordinates already know what’s written on them. These managers forget that Communication doesn’t happen when a message is first said; it happens when it cannot be mistaken anymore. Labels (and visual aids in general) are not there to protect against inexperience. They are there to protect against fatigue, rushing, and other mental conditions which might cause an otherwise competent operator to commit a mistake. Great companies do not only use visual aids for things that are hard to remember; they use them for things which are important to remember, regardless of whether they’re obvious or not. In my experience, the main predictor for whether an initiative will succeed is whether it achieved critical mass: whether, in at least a location (a team, a production line, a plant, an office floor, etc.), at least 80-90% of the people are exhibiting the desired behaviors. “No [team] has time to do optional things. Therefore, training must be mandatory.” – Ben Horowitz

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Best Practices for Operational Excellence | Luca-dellanna.com The more an employee is towards the right of the Adoption Curve spectrum, the higher the percentage of his colleagues who need to adopt the procedure for him to be willing to do so. Therefore, managers of large divisions who focus their energy towards all subordinates at the same time in the same way are bound to fail. Instead, change initiatives must be progressively rolled out. First, to innovators. Then, to the early majority. Only afterwards, to the majority of the team. The adoption of the former two groups is needed to recruit the latter one. Great companies exhibit the following two traits. First, they keep talking about the Four Principles of Operational Excellence even when they do not seem necessary anymore. Second, they keep placing costly objectives on the achievement of Core Values based goals.

Instead of conducting exit interviews asking people who left your team why they did so, ask them these questions while they still are your team members. Only institutionalized Culture lasts.

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Table of Contents Introduction ................................................................................................. 2 Part 1: The Four Principles of Operational Excellence ........................ 29

The 1st Principle of Operational Excellence: Good managers set unambiguous, individual and rewardable objectives ............................................................................................... 30 The 2nd Principle of Operational Excellence: Good managers always explicitly assign full accountability together with objectives ...................................................................................... 44 The 3rd Principle of Operational Excellence: Good managers demonstrate priorities with visible costly actions .. 65 The 4th Principle of Operational Excellence: Good managers are obsessively consistent in holding their subordinates accountable..................................................................... 75 Paradigm shifts...................................................................................... 85 The Role of The Manager ................................................................... 86 Conclusions of Part I ............................................................................ 93 Part II: Best Practices ............................................................................... 94

Best Practice #1: Management Walks ............................................... 95 Best Practice #2: Audits.....................................................................106 Best Practice #3: Weekly meetings ..................................................110 Best Practice #4: One-on-one Meetings...........................................119 Best Practice #5: Bright Spot Analysis .............................................124 Best Practice #6: Standard Operating Procedures..........................129 Best Practice #7: Surfacing Problems ..............................................135 Best Practice #8: Visual Aids ............................................................148 Paradigm shifts....................................................................................154 What to do now ..................................................................................155 198

Best Practices for Operational Excellence | Luca-dellanna.com Part III: The Roadmap to Change ........................................................ 158

Getting Buy-In ................................................................................... 160 Rolling out .......................................................................................... 164 Sustaining ........................................................................................... 172 Conclusion .............................................................................................. 178

Aftermath ........................................................................................... 180 About the Author ................................................................................... 181 Other books by Luca Dellanna ............................................................. 182 Acknowledgments .................................................................................. 187 Further Readings .................................................................................... 188 Highlights ................................................................................................ 189 Table of Contents ................................................................................... 198

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