Process Entitlement and Optimization Meetup (8/23)

Highlights and Q&A

Agenda

I. Process Entitlement and Optimization HighlightsI. What Is Process Entitlement?

II. Understanding ConstraintsIII. Measure!IV. “Blue Sky” OptimizationV. Organic Optimization

VI. Conclusion

II. Q&AI. How do you know when you reach a state of entitlement in a process?

II. Will people actually find a way to organically optimize a process?III. How do you reach a state of entitlement?IV. Is entitlement only a temporary state?

V. What kind of incentives do you need to provide to individuals in order for them to organically optimize a process?

Process Entitlement and Optimization Highlights

Understanding how much to improve and how to get there

What Is Process Entitlement?

● Process Entitlement is the best process capability that could be

expected from the current process design.

○ In other words, this is the best level of performance you can

expect given the inherent limits of the way your process is set

up.

● Constraints can further decrease productivity and prevent a process from

reaching this best possible outcome of entitlement.

● The entitlement state of a process exists so that you can set realistic

ranges in which you can expect to improve.

What Is Process Entitlement?

Make sure you distinguish between a

process that isn’t producing the right

thing (not designed correctly) versus a

process not performing well (not

operating at process entitlement) due to

constraints.

No amount of optimization is going to

help correct a process not designed to

meet the right objective...it will just help

the process more effectively do the wrong

thing!

A constraint is a limiting factor that prevents a process from reaching its

entitlement state.

Understanding Constraints

There are 3 major categories of constraints:

● Physical: The physical limits imposed on processes due to their overall chemical

or mechanical nature

● People: Lack of skilled people limits the system. Mental models held by people can

cause behavior that becomes a constraint.

● Policy: A written or unwritten policy prevents the system from performing optimally.

Sometimes constraints can be removed and sometimes they can’t; either way,

one must know the factors that are preventing a process from reaching

entitlement in order to improve it close to that point.

Understanding Constraints

Measure!In order to understand baselines, entitlement state, constraints, or reasonable goals, measurements have to be made around the correct process variables.

Image by Pastorius (Own work (http://www.bargello.cz - my own work)) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC BY 3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons

Measure!Typically, the bare minimum would be to:

● measure the output variable from which you could take a baseline, ● measure for improvement, and ● begin optimizing.

However, in order to improve a process effectively, you would ideally also understand and measure the process variables that when changed, impact the output variable (as well as their relationship to each other).

Without measurement, there can be no process optimization (at least that can be proved!)

“Blue Sky” Optimization

Do it anyway using your imagination!!

What Is “Blue Sky” Optimization?

Sometimes existing processes are either wrong, or have so many constraints, (or both!) that it is difficult to establish measurements or look for improvement opportunities.

• “Blue Sky” optimization is a technique where you attempt to visualize the entitlement state of the process as-is, by

● understanding what value it creates and ● imagining how the process would work in the absence of all

constraints.

This exercise helps identify a) what value the process should actually be creating, b) the minimum elements needed to create that value, and c) how that process could work in an ideal world where constraints didn’t exist (in which case it would be operating at entitlement!).-------------------------------------------------------------------------------------------------------The trick here is to not try to both change the process and remove the constraints at the same time! Starting from scratch and creating a “blue sky” process around a business objective is a different exercise!

Organic OptimizationUnlike “Blue Sky” optimization, organic optimization allows for the process to change and optimize simultaneously.

What Is Organic Optimization?In order to both change the process and optimize it simultaneously:

● the value and target output variable of the process must be well known, and

● all the pieces and players in the process must understand and be aligned to the same end goal (this is critical as it prevents the system from changing and optimizing in conflicting directions).

● Once the value of the process is known, organic optimization is stimulated through correct incentivization aligned with that end goal.

Once the above elements are in place...• Provide autonomy to all the process elements to self-configure in order to

maximize their incentive, which should be tied to high quality output. • Watch for the process to optimize naturally through tactical data and

performance measurements,• Remove constraints as they reveal themselves, • Infuse the process with new capabilities or resources whenever it

looks like it’s reaching an entitlement state within a certain configuration, and then

• Keep repeating in an iterative fashion until the process meets or exceed business objectives.

Summary• All processes with a set configuration and capabilities have an entitlement

state, which represents the maximum level of output that process can produce.

• Understanding the different types of constraints in a system determines why a process is not reaching its entitlement state.

• Measuring key process indicators is required to understand performance and start improving a process towards entitlement.

• “Blue Sky” optimization refers to understanding what a process could look like without constraints and working towards that state.

• Organic optimization refers to allowing a process to grow and optimize at the same time, given the correct incentivization structure.

• Organic optimization will reach natural states of entitlement, which is a trigger to change the process configuration and continue optimization.

Q&AAnswering questions from the Meetup

How do you know when you reach a state of entitlement in a process?There are multiple ways that one could theoretically assume that an entitlement state has been reached:

1) Calculate the expected output flow without constraints and numerically derive an entitlement state. Once this has been decided, one can measure a process (using the same measurement metrics used to calculate the entitlement state) and watch it progress towards, and perhaps reach, the entitlement state.

2) If you are letting a process optimize by removing constraints as they appear, eventually the process, at a set configuration with static capabilities, will reach a state of steady state production and no more constraints will be able to be identified or removed. This is the same as reaching the entitlement state in condition 1 above; however, rather than being calculated as a benchmark to achieve, it reveals itself by nature of being a process running without constraints.

Will people actually find a way to organically optimize a process?Yes!

I am of the opinion that people, given the right autonomy and working conditions, are generally more happy being productive than unproductive and will therefore gravitate naturally towards that behavior.

From a more objective viewpoint, properly calibrated incentives will spur people to optimize to the correct end goal naturally.

How do you reach a state of entitlement?There are a lot of ways to reach a state of process entitlement, which essentially encompasses any activity that could be characterized as process optimization.

● Typical systems for process optimization include Six Sigma, Lean, PCA cycle, etc. and all of these process improvement frameworks involve identifying process elements that control the outputs, measuring them, and either removing waste from, or improving, those elements.

● Removing constraints is another way to think about reaching a state of process entitlement. Processes are only as optimized as constraints allow which means that a process is moving towards its entitlement state as constraints are removed.

● Many times, the relationship between constraints and waste is such that removing constraints should optimize the process naturally; however, some waste is built into the process because of constraints that may not necessarily disappear just because the constraint is gone. In this sense, removing constraints and waste removal should be considered separately when working towards an entitlement state.

● At a high level, a process can reach a state of entitlement by removing constraints and waste until no more exist in the process. At that point, the process can not produce any more, any better, or any faster, and thus has reached its entitlement state.

Is entitlement only a temporary state?

As long as the process itself (configuration and capabilities) remains static, it has only one entitlement state which it could be reached and remain in operation until the process has changed.

So while it is temporary in the sense that processes change all the time (and the entitlement state along with it), theoretically, the entitlement state is fixed at any given moment in time.

What kind of incentives do you need to provide to an individual in order for them to organically optimize a process?

People generally work within a process because they are motivated to gain some benefit (salary would be a simple example). If the incentive is structured in such a way that it aligns with both the needs of the individuals working the process, as well as with the optimization conditions for a process, then the process will optimize itself naturally.

As a simple example, if optimizing a process would produce more sales, and the salespeople enabling that process want money, the commission structure (which provides more money for more sales) would be the incentive which would begin the organic optimization process.

This assumes that the sales employees were given the right support to improve the process, because the act of optimizing the process optimizes their personal success - if they can’t control the process and they are forced to be unsuccessful, they will eventually optimize their personal success and leave the process (quit).