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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. Doe 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 my fifth example of the impact of the exploit and subordinate steps on the bottom line. In this example I have chosen a situation in which top management has sent a directive to all factories to increase yields (reduce scrap rates). The factory managers’ bonus would depend on achieving the 3% improvement target. Just a small policy change would be worth a huge amount.
BTW. If you have any similar examples please share them with me. I will publish them (if there are not too many!) Send your stories to CSSTW@Bluewin.ch - I will credit you with the story.

5th Example of the 5 Focusing Steps in Action

Yield Increase or Scrap Reduction Targets

Every once in a while senior management comes up with a great idea. In this case the COO came up with the directive that all factories must increase yields by 3% (or reduce scrap rates by that amount). The directive was sent to all factories around the World. On the face of it a good idea.

Production management at one of the factories were convinced that their machines, very large machines, would not allow them to achieve their 3% improvement target. They made 3 standard colours in high quantities and a number of the colours of the rainbow in small quantities. The 3 major colours were no problem, yields were already excellent there - actually the problem was that no significant improvement was possible. These small quantities of colours suffer from poor yields (high scrap rates) because change-overs for small quantities on large machines consume a lot of material to be sure the colour from the previous lot has been fully flushed from the system.  The required quantities of pigmented products is not very high so that changeover material losses were a high percentage of production batches. The situation could also not be improved with their existing equipment - cleaning by dilution takes a lot of material.

The factory solved their problem by outsourcing pigmented production to suppliers that have smaller machines. They met their yield targets but as a consequence had quite long periods of no production on their big machines when they would normally be producing colours and, of course, they had to pay considerable fees for the outsourced production.

After a year the business manager was transferred elsewhere. The new manager saw the damage caused by the outsourcing. What he saw was an annual net penalty if 1.5 million$ (the cost of outsourcing far outweighed the value of any yield gains).

Here we have another example of a damaging corporate policy that should have never been implemented in the factory concerned … and possibly also elsewhere. Improved yields are a good target to set but should be done with full knowledge of any consequences. In fact senior managers (COOs) should allow (in fact expect) their managers to raise such potential negative outcomes of an action. If they did allow/expect such reactions, then many businesses might be better off.