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Stewart Anderson

Quality Insider

Is your product fit for its purpose?

Systems, processes, and managing risk

Published: Wednesday, March 3, 2010 - 05:10

Organizations can be considered as systems of processes whose aim is to achieve customer satisfaction by meeting and filling the needs of customers. The famous flow diagram of W. Edwards Deming, illustrated in figure 1, shows an organization as a system and illustrates how certain key processes fit together in a business to meet the needs of customers. A key point of Deming’s philosophy was that organizations should be appreciated and managed as systems of interconnected and interdependent processes.

Figure 1: Flow diagram of W. Edwards Deming

Today, many companies that are focusing on continuous improvement are concerned with improving the processes in their system to reduce variation and waste. However, this may be a restricted view of continuous improvement—an argument can be made that managers should be equally concerned with mitigating and managing risk in their continuous improvement efforts.

Every system has an aim. Deming himself said that without an aim, there could be no system. Businesses usually define the aim of their system and then through their strategic or business planning process, develop specific goals and objectives which translate and support the aim in operational terms. Risk, on the other hand, can be defined as “the effect of uncertainty on objectives.” Therefore, managing a system involves managing the effect of uncertainty on the system’s ability to achieve or realize its objectives.

Clearly, if the processes in a system are incapable, subject to special cause variation or ridden with waste, the degree of risk within the system increases since the system is less likely to achieve its objectives and aim. However, variation and waste may not be the only gaps in a system that can increase risk. If a system is not complete, or is not well connected, the degree of risk increases significantly due to the resulting system dysfunction.

As an example, consider a business that lacks a defined process for carrying out an essential function contained in Deming’s flow diagram—that of understanding market and customer needs through research and analysis, or what we might typically call the “marketing process.” Such a business is incurring significant risk to its current and future revenue streams through the lack of a suitable process for understanding current and future market needs. While such a business may choose to focus on reducing the variation and waste inherent in its “value stream” processes, a fundamental system gap remains, which makes the business system incomplete and severely compromises the company’s ability to achieve customer satisfaction. If this gap is not fixed, the risk to the sustainability of the business remains high, no matter how effective the local process improvements.

Similarly, a company whose system processes aren’t well connected incurs increased risk in the system’s ability to meet its objectives. Such a “system” is likely to function as disconnected silos, with each silo seeking to pursue local efficiencies rather than contributing to the overall effectiveness of the system.

For this reason, when working with companies, I prefer to help a company to first define and model its overall system, and then conduct an evaluation of the system to identify significant gaps that need to be fixed or filled to mitigate risk and prevent system-level failures. This gap closure should ideally be done before any improvement of individual system processes is commenced, so that it is a complete, known, and connected system that is being improved. Simply through fixing the gaps, and making sure the system is a complete system of interconnected and linked processes, performance will be improved. It won’t necessarily be a perfect system, but it will perform better and incur less risk in achieving its aims.

Once a gap is identified, the minimum action to be taken is to identify how the gap (even one as large as a missing process) affects the other processes identified within the system, and exposes the system to the risk that it will not achieve its objectives. Too often, companies rationalize gaps caused by missing processes, whether they be core or management processes, on the basis of a lack of resources. However, filling or fixing gaps is not necessarily as much a resource issue as it is an issue of risk mitigation.

If the company cannot provide a self-contained process to fill a gap due to resource constraints, the organization will then need to consider how the gap can be closed in other ways. Simply put, while the need for resources can often be debated or argued, the issue of risk assessment and management is non-negotiable. Sometimes, for example, the solution may be to provide more clearly-detailed requirements to processes that are providing an output to another process to reduce failures and reduce risk. Or, additional capabilities may have to be enabled within processes currently operating within the system in order to provide some of the capability missing as a result of the gap.

Always, a system should be defined and modeled in terms of the two main types of processes that comprise every business system: customer oriented (core) processes and management processes. Together with their sub and support processes, customer-oriented processes are those processes that are “outward facing” to the marketplace, and which directly interface and interact with customers to provide them with the products and services they require from the company. Management processes, in contrast, are those processes that are required for planning, controlling, and improving the performance or execution of any type of activity within the overall system.

Examples of management processes include business planning, management review, training, internal audit, etc. These processes are critical because they fill the need for planning, control, and improvement within the system. Where there are missing or incomplete management processes within a system, an organization’s risk increases significantly since the essential management functions of planning, control, and improvement are also missing or incomplete.

I distinguish system definition and modeling from process mapping techniques, which are currently in vogue. Process mapping approaches, such as value-stream mapping, have several disadvantages over good system modeling. First, by definition, they map processes or process flows, and not systems. Second, they assume that there is only one point of contact with the customer—the final product or service that is produced or delivered.

Value-stream mapping, for example, focuses mainly on the material and information flows for a single product (or group of products), and as such it maps only the flow of process interactions for that product out to the final customer. In reality, organizations do not have a single point of contact with customers; customers make many different types of requests for products and services upon an organization, and the demand for final product is only one of many such requests. Accordingly, achieving true excellence in performance means achieving excellence in customer satisfaction across the full spectrum of these interactions, and not just in the final product or service provided to customers.

For example, beyond demand for the final product or service, customers may require an organization to satisfy a range of diverse requests and demands, including those for quotes and pricing, warranty support and service calls, sales order processing and acknowledgment, supplier purchases, product information, product and process design, payment processing, delivery logistics, etc. A viable system model takes into account all of these interactions, defines the needed core and support processes along with their sequence and interaction, and determines the needs to be filled and the outputs to be provided. Most important, the risks associated with achieving customer satisfaction through “fitness for purpose” in each of the customer interactions must be identified, assessed, and managed.

The current tribulations of Toyota may underscore the importance of risk in business systems. Where the scope of a system, as perceived by management, doesn’t fully include the end-user and the concept of “fitness for purpose,” the risk exposure arising from failures of the product or service provided “in use” is increased. Managers need to appreciate that managing risk in their business systems must not just be limited to process failures, but must also include failures in “fitness for purpose” when the product or service is in use in the field. While it is always the end-user, and not the supplier, who defines fitness and purpose, companies must remember that this doesn’t absolve them from the obligation to understand “fitness for purpose” and manage risk accordingly.

Discuss

About The Author

Stewart Anderson’s picture

Stewart Anderson

Stewart Anderson is a partner with Anderson Lyall Consulting Group, a Toronto-based consulting and advisory firm that helps firms develop their competitive advantage. Anderson’s background and expertise includes competitive strategy and value chain engineering. He has advised companies in the manufacturing, service, and contract manufacturing industries. Anderson is completing his bachelor of arts in economics and he is a certified trainer in lean manufacturing principles and techniques.

Comments

J. M. Juran and Fitness for Purpose

While the author made some good points in the article, he failed to cite one of leading experts on this topic. For decades, Dr. Joseph M. Juran defined quality as meaning 'fitness for use.' The use is defined by the customers that purchase, use or are affected by the good or service. If an organization understands the needs of its many customers it should be able to design goods and services that are ‘fit for use.’ However, as more and more service industries use the methods of managing for quality the prior definition of quality is not applicable enough. We have settled on a new definition. Quality means ‘fitness for purpose’. This means no matter what you produce – a good or a service – it must be fit for its purpose.

You can read more about the how to understand and measure customer needs and value in upcoming 6th edition of Juran's Quality Handbook coming out later this year. For info, go to http://www.mhprofessional.com/product.php?isbn=0071629734.

J. Er Ralston
Juran Institute
www.juran.com