Posted by: knightbird | January 10, 2016

Ethics and Lean Thinking

A dysfunctional workplace is not always an ethical workplace. We are seeing some ethical drama unfold in Alaska with recent news stories about the North Slope Borough Mayor and with the Association of Village Council Presidents. Other tribal entities have actually had officials who were convicted of theft. The Native Village of Tatitlek President plead guilty to stealing funds and is currently serving a prison sentence. Two officials of the Alaska Inter Tribal Council plead guilty to theft and falsifying time records. The ex Director of the International Whaling Commission is also serving a prison sentence for theft. With billions of dollars coming into a community with a very small population, it’s not surprising to see some ethical lapses.

Board oversight, financial controls, audits and reporting standards are supposed to ferret out any corruption or self dealing. But if a board is not competent in finance or management, the oversight is often insignificant. Experienced managers have explanations for everything. That’s what they do. They claim credit for all that is good and lay blame off for all that is bad. The blame game can extend widely, and occasionally there is a scape goat who is sacrificed. Many boards play this game.

What is the solution? Again, I am going to argue for a more open management culture of Lean Thinking. Not many Alaskans have been inside a Lean Culture, and if they have, they have almost no understanding of the financial performance nor the quality improvements that are happening. As a result, they are sacrificing huge amounts of Value Capture and Value Creation. If they don’t understand a word and what it is describing, they can’t understand what they are missing.

A Lean workplace has “Respect for People” as a guiding principle. Respect for People means that you are going to provide them the greatest amount of Value for the resources available. In order to do that, you are going to work with your employees, customer and suppliers to earn that Value. Your organization needs to become ever more visible and expose the dysfunction and chaos. To do that, you first have to lower your defensiveness and accept that you are not very good. Lowering your defensiveness is hard to do. Our brains are not wired for it. The Dunning Kruger Effect defines our ignorance when we try to assess how we are doing. As a result change is difficult to lead. People resist because they both fear the unknown, or they have it so good in the present that a Lean future would take away from what they have.

A Lean Workplace is open and non blaming. Systems are improved by the workers in a system. Production and quality are measured for the purpose of assisting improvement. Problems and defects are acknowledged, without blaming or shaming. Very few managers know how to measure either. But most know how to blame or shame. And most who are in positions of privilege know how to protect that privilege. It’s not a pretty sight to see. The antidote is to base decisions on facts, and to communicate the facts everywhere. Lean does that. Process Control Boards (PCB) exist everywhere in a real Lean Organization. A Strategic PCB is accessed by leadership regularly, and leadership will monitor other PCBs regularly. In any operations, making performance data visible on a PCB allows for problems to be identified early and improvement made quickly. Productivity is maintained because everyone knows what good productivity is and what it consists of.

For financial management, facts are critical, but the final outcome sought after is a “Clean Audit.” We seem to stop our improvement when we achieve a Clean Audit. But the purpose of a an Audit is to look for errors, mistakes or defects. Finding them means that you don’t get a Clean Audit. Having been the CEO responsible for 9 audits and a board member responsible for over 40 audits, I have an understanding of the super efforts that go into making sure your audit is clean. You spend a lot of time at the end of a fiscal year going through everything and assuring that the right answer will be given to an auditor looking at the transaction. Lots of problems are overlooked in an audit because an audit is what Dr. Deming referred to in his 14 Points as number 3.

3. Cease dependence on inspection to achieve quality. Eliminate the need for inspection on a mass basis by building quality into the product in the first place.

An Audit is an end of year inspection intended to achieve quality in financial management. I have yet to find a financial management system in Alaska that has achieved a Lean Cultural transformation. Almost every organization required to have an audit passes it.

How can you build quality into a financial management system? I believe you have to make all transactions transparent and fulfill the goal of the system. You need to verify that every expenditure and action was approved and pursued for advancing the goals of the business. It starts with the openness of a PCB and populating it with proof of continuous improvement activity. Here’s what I think it should look like.

Value Streams need to be improved using A3’s. Production targets based on Takt and Cycle Time should be observed. We need data on how many transactions are processed by finance staff annually. Then we break the numbers down as we improve to smaller and smaller increments. If we have 100,000 transactions in a 250 day work year, we know we have weekly takt of 3,846 and daily takt of 770. When we measure average cycle time for arriving at current staffing. Process steps in a cycle are pretty standard. Start the Process, Get Approval, Execute, Secure supporting documents, submit to finance, process the documents, enter into the system and file. This is true for every type of transaction. When every transaction is analyzed, it can be processed with as much quality as possible. And with transparency, you minimize any opportunities for theft. At the end of each year, Audit’s are less expensive because you no longer have to examine every transaction to assure that it will survive audit. You don’t have to go back and secure supporting documents. You have built quality in at the source, and an audit will be less expensive, as will staff time correcting a years worth of defects.

Lean Leadership will provide the required cultural surround of Respect for People. If you respect your customers, you will not steal from them. And stealing might be a harsh word, but if you aren’t capturing the value you are capable of capturing, you are stealing something from your customers and employees. If you only deliver 11 items a day when you could deliver 24 for the same price, you have taken something of value away from your customers. You are charging your customer 120% more than they should be paying for the item. If you are a non profit and don’t charge for the item, you are taking value away from whoever is funding you. Once you have improved to providing 24 items, then you work to improve quality and capture even more value.

An open and transparent workplace with PCB’s and performance standards everywhere reduces opportunity for theft and unethical behavior. Having measured goals and an improvement mindset requires every employee to participate in creating value. In my decades of business involvement, I have seen employees who work very hard and put in great effort for very little return. And I have seen many employees who have almost no work, but are pulling down a good income. Guess who resents who?

Lean can help reduce theft, fraud and value draining positions. But it’s the culture of Lean that does that.

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