Editorial board member Professor Nick Rich explores last month’s theme of the place of assessment tools in lean management. He explains that if used correctly, these tools can help management predict the future weaknesses in your business.

The most powerful assessment that can ever be conducted is an understanding of the ‘current state’ of any business, an understanding of the predicted ‘future state’, and the identification of vital programmes to close these gaps. This is the basis for policy deployment (or hoshin kanri for the purists). This assessment is personal and it is meaningful. It is an assessment of how a business needs to perform in the future and what weaknesses must be corrected now to be able to continue to compete in the future. In this regard it is a learning journey – one that is inevitably related to business profitability, growth, and the protection of employment.

All too often we forget that mature policy deployment programmes have three elements, the operational and supply chain policy deployment, the sales growth policy deployment and the “constitutional reform” policy deployment.

The operational plan is relatively easy to understand because it deals with the tangible and hard metrics of profitable customer service. It deals with the order qualifiers (what must be provided to do business with customers in the market now and the basic outputs of an operating system) and order winners (what can be provided to customers to differentiate performance and win orders from competitors in the same market and seeking the same customer base) as Terry Hill so beautifully described them. Order qualifiers tend to emphasise the quality, delivery, dependability, flexibility, and time compression of a manufactured product or service and the cost of the product/ service. The cost is naturally the outcome of design decisions, such as which materials will be used, where the service will be located etc. The other unwritten rule we know is most of the costs of a product/service are specified at the design stage. The rule of thumb is that 80% of the final costs of production of the good or service are determined when the activity is designed. It is perhaps a little bemusing that product and service designers are often left outside of the policy deployment or organisational assessment process in favour of more tactical measures and assessed observations (such as do we have a workplace discipline audit).

“These assessments force managers to question business practices and how they maintain or grow cash flow or identify areas of management that need to be mastered in order to generate new competitive capabilities.”

The sales growth policy deployment looks towards future focused business growth to generate revenue. This is an assessment of future profitability and the extent of market growth for existing and new customers (as well as future standards for order qualifiers and winners). An operational policy deployment can be wonderfully eloquent, but unless the sales teams are engaged, then how will new operational capabilities (designed with an attention of high performance at lowest designed cost) be executed and brought to market effectively?

Finally there is the often forgotten constitutional policy deployment, and this concerns the question of what is the best structure to deliver to customers the operational plan for the future. If you believe in lifetime employment or the protection of a “core” workforce then this is an important activity. Every year your average length of tenure increases and the average age of the workforce rises, and this begs questions about what is the best form of operational plan that meets the needs of workers.

These three assessments affect the thinking and directional activities of the business, and they assign scarce resources in line with the assessed needs of the future of the business. The purpose, as Deming kept reminding the world, is to make a profit. The most important assessments are therefore those that enable this to happen and allow a learning cycle to happen, which compares where we want to be against where we are.

When it comes to assessment though, caution must be urged. Not all assessments are good (or result in good) and many do not actually assist the business to generate new or sustained profit streams. It can be no surprise therefore that some assessments (undertaken simply to “win awards”) can actually be harmful to organisational health and confusing to employees. To win these awards you must tick the assessment boxes. These assessment criteria have predetermined what good looks like in a general sense by a third party assessor – not necessarily someone with insight into your sector or what would help your business win orders or support a more resilient and competitive structure for the future. So I guess the acid test for managers is to answer the question “why are we doing this and what will the award bring us?”

Not all assessments are harmful though. The assessments that provide a new way of looking at a business and raise questions for managers that make them feel uncomfortable can also be stimulating. These assessments force managers to question business practices and how they maintain or grow cash flow or identify areas of management that need to be mastered in order to generate new competitive capabilities.

These assessments do not tend to ask:

“Do you have xxx? Yes/No* *Please delete as appropriate; but they ask “What is the purpose of xxx in maintaining or increasing company profitability and as a competitive weapon in your market?”

The ‘Yes/No’ model has been very popular and has supported a random approach or blind emulation of companies such as Toyota, by copying its tools and techniques rather than understanding what problems Toyota and its suppliers were trying to solve in order to improve performance. Questions like, “do you measure Overall Equipment Effectiveness?” tend to result in ‘yes’, but this doesn’t explain why this measure is important to ensuring the cost competitiveness or what happens to the measure if it is deteriorating. Even worse, the “yes/no” approach did not reveal how embedded the method is. So it is important to ensure your assessment model really does ask those hard questions that bring managers together to discuss what is appropriate and what is needed now and in the future.

Please don’t throw all those assessments away just yet though. They are valuable as learning devices if you study them to see their merits and shortcomings. If you simply adopt assessments without this form of review you may well have the business with the most awards, but you may never actually become a world leader. Management discussion (because managers have the power to design and amend systems) is critical to high performance and designing business processes that are ‘fit for purpose’ now and in the future. Management debate is as critical to nurturing high performance systems. But so too is an effective system of product or service design, and how often do we forget to assess this process? This is the one activity that translates customer value into delivered profitability. Perhaps it is time to take a long hard look at the assessment process from the outsiders perspective looking in – are we building processes that future proof our profit streams?