Principle 5: Improved Decisions (Item 8)

Effective use of facts, data and knowledge leads to improved decisions.

Knowing what is going on

You have to know what is going on in your marketplace. You need to know everything about:

• what your competitors are doing and why
• how and why your customers' expectations are changing
• how changes in you market produce new business opportunities
• how changes in the global marketplace will affect you
• changing in paradigms about technology, customer needs and the way business is done will affect you
• any technological developments and innovations that affect your products
• new ways of doing business with your customers
• changes that produce new market segments
• changes in regulations and tax
• changing community/societal expectations
• changing needs of government
• your organization, its capabilities and competencies
• your people, their capabilities and competencies

You need good processes that deal with this inflow of data, to categorize it, analyze it, make sense of it, determine implications, make predictions from it. The relevant piece of data should be available to the person who needs it when they need it. A big ask.

The alternative is that you blunder along, not knowing what is going on, making uninformed decisions, trying to pretend you are isolated. That even when you go to the trouble of collecting the data, you cannot find it later or cannot or do not analyze it or try to make sense of it.

Unbelievably, most businesses do the latter. Do you? It is hard work and takes considerable effort to do otherwise.

Swamped with junk e-mail

Junk e-mail is an example of how companies deal with data.

Junk e-mail is a significant issue in many companies. In this information age, companies have to find ways to deal with internal junk e-mail, endless meetings, constant policy changes and incessant telephone calls. Today, senior managers can expect to receive 300+ e-mails a day. How can anyone be expected to do anything with them? Most managers spend 90% of their day in meetings. How can this time be well spent? Many large companies send out at least one significant policy change a week. How would you find it in all the junk e-mail? Let alone be able to work out its impact on your systems and processes.

This is all a huge `information/knowledge' process. What is your method of dealing with it? We now have technology that swamps people with junk information. You need criteria to filter out the junk from this material, just as you need criteria to screen out the `dirty data' when you are collecting data.

Why do you need to be informed?

Many senior managers have to be notified of everything that happens and consequently are decked out in pagers and mobile phones.

A useful question is "Why do you need to be informed?" What will you do as a result? If you are constantly asking to be more informed, it might indicate that you do not trust your staff or the decisions they make. Is this because you have not enabled them to make decisions themselves (ie given skills, knowledge and power so they can make sound decisions)? Or did you hire people you cannot trust? Or is it that you have such a chaotic management system that you are being judged by your ability to keep track of everything that is going on?

In the days of the Roman Empire, you selected your manager and watched him and his baggage train disappear over the hill to look after things in some far distant place. And that was the last you saw or heard for a few years. You did not talk on the telephone several times a day. Or exchange faxes and e-mails. You could not! Communication took weeks or months. Far too long to handle a crisis! There is no way that you could maintain the illusion of direct control. You could not ring him up, or he could not ring you. (They were `he's' in those days.) You could not fly over to sort things out. Therefore, you had to choose well. Someone you could trust to do the right thing. You made certain that person had the right values, the right skills, sufficient knowledge and knew what you were trying to achieve and the way you do things. We seem to have gone a long way backwards since then.

Of course, you need communications. You need to know what is happening. It makes up your information and knowledge base. You must ensure that when you set up your informal communications system, that you are not destroying trust, removing the authority to make decisions or setting up a time wasting system.

Analysis of company performance

Analyzing the company's performance is an excellent way of assessing its overall health. Good analysis will go a long way towards you being very well informed. Analysis should guide the company toward attaining essential business results and important strategic objectives.

Although they are important, individual facts and data are not enough. Individually, they do not give you `the picture' so that you can make sound strategic decisions or set priorities. Information and data from across you marketplace and from all parts of the company must be analyzed to assess overall company health.

Analysis systems should include

• examination of progress towards success in achieving your Mission, Vision, and all you important objectives and Goals
• full marketplace information
• financial and non-financial information and data
• resource, cost and revenue implications
• implications for implementation of decisions
• implications for people (especially the gemba)
• implications for processes (especially bottleneck and key processes)
• Good analysis requires that you develop an understanding of the cause and effect connections between your processes and your business results. These cause and effect connections are often unclear.

Examples of helpful analyses

Analyses that companies perform to gain understanding of performance vary widely depending on company type, size and competitive position. Companies have found the following examples useful:

• correlation between improvement in product/service quality and market indicators such as customer satisfaction, customer perception of value, customer retention, customer referrals, and market share
• cost and revenue implications of customer complaints and problem resolution effectiveness (and the reverse when you don't act on them!)
• effect on market share of customer gains and losses and changes in customer satisfaction
• improvement in KPIs such as cycle time, rework, defect levels and waste reduction
• revenue, inventory, cost and quality trends relative to competitors
• correlation between revenue per employee and product/service quality, operational performance indicators, financial performance, operational expense, inventory and asset utilization
• net earnings originating from performance improvements in throughput, inventory reduction, waste reduction, cycle time reduction, operational expense reduction
• comparisons between business units showing how quality and operational performance improvement affect financial performance
• contribution of improvement activities to cash flow, working capital use, asset utilization and shareholder value
• profit impacts of customer retention
• market share versus profits
• trends in economic, market, and shareholder indicators of value
• relationship between revenue per employee and employee/company learning
• financial benefits from improvements in employee safety, absenteeism and turnover
• benefits, costs and effectiveness of education and training
• benefits, costs and effectiveness of improved company knowledge management
• correlation between employee retention, motivation, and productivity and indicators of employees' perception of value
• cost and revenue implications of employee-related problems
• allocation of resources among alternative improvement projects based on cost/revenue implications and improvement potential
• cost/revenue implications of new market entry, including global market entry or expansion

You must provide a sound analytical basis for decisions. And then keep reviewing to see if what you are doing works.

Withholding data

One reason for not knowing what is going on occurs when people do not pass on data and information they have. This can be inadvertent ("we didn't know you needed it"), or it can be deliberate because of disgruntled employees or another corporate power play ("see how they get on if they don't know x").

Often you can have everyone in the hierarchy saying, "I don't know" and still expecting a decision from the top. This is unrealistic. It usually indicates a climate of fear or a lack of trust of the senior people.