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Why the 5 Focusing Steps are so Important

Most middle and senior managers do not understand or simply are not interested in how their business system works. They are content to focus on their local department and optimise that – rather than understanding the business as a whole to cause it to maximise results. Even top management (CEOs) often do not understand their business. They condone and even encourage their management teams to optimise their local departments – production, marketing sales, finance etc. Wherever local optimisation is the rule the business concerned will always harm the bottom line significantly. Local optimisation is a massive mistake!

The 5 Focusing Steps are guidelines that properly used will cause a management team to always reflect on their (local) decisions. Is the action or decision taken locally help or damage the business as a whole? As we will see the 5 Focusing Steps are a guide, but they do not replace a deep understanding of the business system.

What follows is a description of the 5 focusing steps, how to apply them, why each step is important and a series of examples of common practice that violate the 5-Steps. This fourth post is a short discussion of the third (probably the most difficult to implement) of the 5 steps.

The 5 Focusing Steps

Step 3; Subordinate Everything Else to the Decision how to Exploit

This is the difficult step. Imagine that sales are asked to sell lower margin products (in preference to higher margin ones). The fact is that our lower margin products consume our constraint (equipment) resource more effectively; that we get many more low margin products per unit of time from our constraint is a good reason to favour these. Sales, if they are measured by price or margins may well resist such subordination.
Similarly production generally loves big batches or efficiency at every resource. At first glance the right way to go, but big batches extend lead-times of those products waiting their turn. Long lead times (due to big batches, compromise quality - quality control sees problems much later. This quality issue tends to cost in other ways too - materials cost increases and capacity is reduced. The focus on efficiency everywhere wastes scarce improvement resources that should focus efforts on the limiting factor – our constraint.
These examples show how difficult it is to get the correct behaviour. Departments and their managers are measured and rewarded by the results of just their department and not by the effect these managers have on the business as a whole. True, some corporations have a bonus system that rewards middle managers by the overall results. This is a first step, but an ineffective one.
Bosses are used to measuring their employees by the results they achieve locally mainly because they do not have the tools to measure impacts their people have on the business as a whole.
Every business has a lot of work to do to give their managers and employees the information necessary to properly subordinate to the constraint. The data is there in ERP systems; it just needs to be transformed into information!
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