Creative Destruction

Many times I have been astonished at the reaction I receive as I challenge even enormous wastes—those activities, delays, or materials that consume resources but do not contribute value to the end result. Vast inventories, padded lead times, and workarounds acting as buffers against schedule delays impact value creation by distracting resources from everything important to the firm—from its day-to-day work to creating and introducing new innovations needed to capture the attention of the marketplace. As long as conditions remain stable, however, these Awash in Chaos! Go virtually unnoticed; it seems as if only an outsider would view them as a loss.

Figure 1.2 compares this condition to a ship riding on a sea of buffers from its deck, operations seem to be effective, generally delivering results on time and within projected costs. Only those seemingly random hazards that breach the surface of the vast inventories and workarounds that protect operating schedules from deviations are seen and acted on. Corporations depend on these buffers during times of stability to keep operations steady despite the underlying churn that would otherwise cause a crisis. Yet, these outward signs of calm also mask the underlying unpredictability that acts to undermine innovation and send corporations into crisis when conditions shift. With so much waste to conquer, it is no wonder that even modest efforts to reduce it can produce quick results. Corporations achieve great Unit-to-unit Processing Times Late Deliveries Hidden Variability Successive Units Produced Time Buffers Scheduled Delivery Time FIGURE 1.2 Obscuring Variability with Inventories and Workarounds Chapter One savings by slashing variability—driving down the need to hold these buffers.

However, these gains can be temporary, requiring constant effort to protect them from backsliding. Furthermore, those successful in their initial attempts often run into problems when they try to broaden their application. One study suggests that companies are widely unsuccessful in transferring their own successes to other areas of their business. Worse yet, managers, many times do not realize when their efforts have failed. I saw this firsthand during visits to manufacturing firms; I received management briefings extolling dramatic savings realized from one initiative or another—yet my subsequent findings frequently did not support these claims.

Such a disconnect often results from how people look at a problem. By attacking individual issues within the context of their own functional areas, their solutions can miss the underlying cause: the variation that causes these indications. Reacting to the crisis only exacerbates this. With so many issues to be addressed it just makes sense to put as many to rest as quickly as possible so that new problems can be dealt with as they emerge. As a result, their initial benefits are not lasting; they may give the temporary illusion of success, but gains can quickly slip away, a point made by researchers Richard Foster and Sara Kaplan in their book, Creative Destruction: . . .almost as soon as any company had been praised in the popular management literature as excellent or somehow super durable, it began to deteriorate. Searching for excellent companies was like trying to catch light beams: They were so easy to imagine, but so hard to grasp. Visualize a mouse’s journey as it maneuvers through a maze. By following those passageways that first present themselves, the mouse is often misdirected. As a result, it scurries aimlessly without making real progress toward its goal: reaching the cheese on the other side of the structure. Its missteps may lead it through doors that open into entirely new compartments, causing the maze to become dramatically more complex. Such missteps can lead managers to broadly expand, even institutionalize, faulty strategies across their corporation. These can affect how Awash in Chaos! Businesses are structured, perhaps leading managers to arrange themselves around products or services whose demand might vanish once conditions later shift. This is perhaps the worst form of loss—it sets in motion programs and new infrastructures with uncertain impact of their effect.

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