Leadership Trumps Efficiency

In Peter Drucker’s seminal work – The Concept of the Corporation – written in 1946, he presents his findings of the study of General Motors as an organization. It is the first book to talk about business as an organization in industrial society.

In the book, Drucker says, “…the ability of an institution to produce leaders is more important than its ability to produce efficiently and cheaply. Efficient and cheap production can always be reached, given the human abilities and the human organization. But without an able, responsible and enterprising leadership, willing and capable of taking the initiative, the most efficient institution cannot maintain its efficiency, let alone increase it.”

In today’s business world, we often get lost in the efforts to improve profitability through process improvement and cost reduction. Many of these efforts (up to 70% according to MIT, McKinsey and others) fail in part due to lack of engaged leadership.

Hiring and developing leaders is key to the potential success of companies and change initiatives. Leaders create the vision and are the champions of change. Success in any organization starts with leadership.

© 2014 Rick Pay – All rights reserved.

To Centralize or Decentralize – That Is The Question

In the famous soliloquy from Hamlet, Prince Hamlet contemplates, “To be or not to be, that is the question. Whether ‘tis nobler in the mind to suffer the slings and arrows…” Often, when companies are deciding whether to centralize or decentralize supply chain management and operations, one of the reasons it’s so hard is because of the slings and arrows that remote operations fire at the corporate group, wanting more control over their purchasing and materials management.

This issue should be dealt with as part of developing a supply chain strategy for your company. Operations that have multiple locations, be they branches, warehouses, retail outlets or manufacturing plants often wrestle with the issue of whether to centralize or decentralize to reduce costs and improve supply chain flow.

Picture a line with the word Centralized at one end and Decentralized at the other. They represent the extremes of the issue. Operations and management is often centralized to provide efficiency and cost reduction. They are often decentralized to provide local control and greater service to customers.

The optimal result is often somewhere in the middle. There needs to be a balance of cost efficiency with customer service. One option is what I call “central coordination with local control.” This provides for use of common suppliers, customization of local part management reflecting local demand, setting of common policies such as internal controls, and so on.

It‘s not easy to answer the ‘centralized vs. decentralized’ question. It should be a vital part of your supply chain strategy.

© 2014 – Rick Pay – All Rights Reserved

 

 

Efficiency vs. Innovation

Efficiency is reducing inputs per unit of output. Inputs decrease, output stays flat. Think of cost reduction: we still produce 10 parts, but now it costs us $8 instead of the $10 it used to cost. Efficiency is a one-time, short-run result. Most Lean efforts are focused on efficiency, and I believe this is one of the reasons that Lean usually doesn’t yield long-term results.

Innovation is increasing output while maintaining level input. Your current levels of labor or materials now yield more. A client, a $100 million distributor, is increasing sales by 10 to 20% without spending a nickel more by implementing innovative business processes.

For long-term success, we want innovation, which boosts in sales and improves margins. When innovation starts to happen the results multiply, which means that you get much better traction out of an innovative approach than from pursuing efficiency.

© 2014 – Rick Pay – All Rights Reserved

Leadership Trumps Efficiency

In Peter Drucker’s seminal work – The Concept of the Corporation – written in 1946, he presents his findings of the study of General Motors as an organization. It is the first book to talk about business as an organization in industrial society.

In the book, Drucker says, “…the ability of an institution to produce leaders is more important than its ability to produce efficiently and cheaply. Efficient and cheap production can always be reached, given the human abilities and the human organization. But without an able, responsible and enterprising leadership, willing and capable of taking the initiative, the most efficient institution cannot maintain its efficiency, let alone increase it.”

In today’s business world, we often get lost in the efforts to improve profitability through process improvement and cost reduction. Many of these efforts, up to 70% according to MIT, McKinsey and others, fail in part due to lack of engaged leadership.

Hiring and developing leaders is key to the potential success of companies and change initiatives. Leaders create the vision and are the champions of change. Success in any organization starts with leadership.

© 2013 – Rick Pay – All Rights Reserved

Efficiency vs. Innovation

Efficiency is reducing inputs per unit of output. Inputs decrease, output stays flat. Think of cost reduction: we still produce 10 parts, but now it costs us $8 instead of the $10 it used to cost. Efficiency is a one-time, short-run result. Most Lean efforts are focused on efficiency, and I believe this is one of the reasons that Lean usually doesn’t yield long-term results.

Innovation is increasing output while maintaining level input. Your current levels of labor or materials now yield more. A client, a $100 million distributor, is increasing sales by 10 to 20% without spending a nickel more by implementing innovative business processes.

For long-term success, we want innovation, which boosts in sales and improves margins. When innovation starts to happen the results multiply, which means that you get much better traction out of an innovative approach than from pursuing efficiency.

© 2011 – Rick Pay – All Rights Reserved