How would you describe your organization’s mindset? Does it allow you to be reliable enough or does it encourage you to be as reliable as possible? If you were as reliable as you could be, what would it deliver for you, your stockholders and, most importantly, your customers? To improve customer loyalty, increase employee engagement and maximize margins, these are questions you need to consider.
Let’s begin by revisiting the question I asked in my recent Viewpoint: What does “reliable” really mean? The dictionary defines it as “capable of being trustworthy” and offers the word “responsible” as a synonym. My definition goes a little deeper. To me, "Complete Reliability" is the constant and consistent ability to meet commitments to stakeholders, employees and customers. Constant means all of the time; consistent means every person in your organization. Such performance requires unwavering behavior. And the reason to faithfully and uniformly carry out this behavior has to be so compelling that workers won’t or can’t afford not to follow it. Something must make performing it so positive––or not performing it so negative––that shortcuts are
Organizations that perform at this level are usually deemed reliable, trustworthy and able to meet the highest internal and external expectations. But why do so few organizations meet this standard? My years of studying world-class companies across many industries have convinced me that the success of high-performing organizations can often be credited to a compelling reason for them to become more reliable. One of the most obvious and effective compelling reasons today is regulatory commitment. Regardless of one’s perception of government-mandated rules, it is noteworthy that when organizations must perform at a prescribed level of efficiency or face negative consequences, they're able to do it. Is it possible to reap the same positive benefits without having to be held to external regulations? If so, how can a non-regulated organization regulate itself?
A regulatory mindset
Regulation creates a platform that ensures products or services, along with their production and delivery, are at a level that meets essential parameters and allows them to be safely consumed or used by the customer. Every member of the organization is held accountable to these regulations and must perform their role to meet them. Organizations in regulated industries have no choice but to consistently and constantly deliver or they will be forced out of business. They must also learn how to turn a profit while complying with regulations. But because regulations come from an outside agency, many issues must be considered before profitability.
In contrast, non-regulated organizations have only the pressure of profitability, not the pressure of regulation. This creates a fundamental difference in the way the two types of organizations might operate. Non-regulated organizations, for example, can decide to deliver their product/service in a highly reliable fashion or focus solely on profitability. Having such choice often stalls organizational efforts to develop complete reliability. It allows for the many unproductive aspects of “normal” operations––events or procedures that seem inevitable and “must be dealt with”––to go unchecked and get in the way of real improvement. Organizations that can push beyond this mindset will ultimately become more profitable.
So what does it take for a non-regulated organization to create the same compelling reason to perform at a level of high reliability without outside regulation? What becomes the compelling reason to not be simply satisfied with a certain level of profits, but to press on toward Complete Reliability? What would motivate the organization to, in essence, become self-regulated? To answer, let’s first explore why regulations occur in the first place.
Regulatory bodies are usually established to ensure safety of both the operation and the products or services delivered. In the airline industry, for example, it is safe to assume that the primary regulatory agency (the Federal Aviation Agency) is more concerned with a company’s compliance than its profitability. But for the company, the reverse is true. The company has to worry about profitability and fully comply with regulations. How do they make it work?
Airlines have discovered that it is more profitable to deliver their product reliably and compliantly than to have regulating agencies dictate their actions. Despite the fact that most of us have experienced some form of airline-related inconvenience, airlines do a great job meeting their first level of reliability––a constant, consistent commitment to the assurance that a plane will take off and land safely while meeting all regulations. Delta is a good example of an airline that successfully does both. This company’s recent prediction of an $800 million profit in 2011, as well as a prediction of full profitability in 2012, came only five years after it filed for bankruptcy. This turnaround has been largely credited to CEO Richard Anderson’s constant and consistent focus on reliability.
Unplanned events vs. a reliability culture
Unplanned events are the scourge of Complete Reliability. Whether a large-scale equipment failure or a breakdown in customer service, unplanned events disrupt a company’s ability to be reliable and eat up profits. When an unplanned event occurs, the organization might spend money and resources to remedy it––none of which generates cash. I refer to this situation as Cash Outflow Without Sales (COWS), and no organization wants that herd to grow. In fact, most want to get out of this type of cattle business. Understanding what needs to be done and doing it while minimizing unplanned events creates the lowest long-term cost platform for any operation. And by minimizing unplanned events, fewer resources are wasted on the need to do things over.
Not every strategy to minimize unplanned events leads in the right direction. In fact, the wrong approach can lead to a perception that reliability is a cost rather than an advantage. While this is not true in a Completely Reliable operation, reliability can be costly if it’s always thought of as “someone else’s job” and not the job of each member of the organization. Hiring additional staff, for example, to “check” for reliability is a case where reliability adds cost. Organizations that put in a layer of “inspectors” to ensure quality, reliability or productivity have done two things that detract from the benefits of Complete Reliability: They’ve increased the cost of achieving the desired state, and have essentially told those who are not “inspectors” that those types of responsibilities are not theirs. Both have a negative impact on reliability. By contrast, in highly reliable organizations, every person in the organization takes on the responsibility of “inspectors” and everyone has the desire to minimize unplanned events. Each worker says, “I need to do something,” not “Someone else needs to do something” about reliability.
To develop a reliability mindset, it’s key to minimize unplanned events all of the time, not only when the economy is good and not only during a certain project. It must become a way of life for every individual in the organization and the focus of the way they think. They should approach each situation and determine the most reliable way to deliver the product or service. To experience the levels of improved reliability and profitability that exist at many regulated organizations, non-regulated companies must develop the culture and discipline to become highly reliable and do it without an external force driving them in that direction.
Becoming reliable also requires a focus on being reliable. That sounds simple, but it’s not so simple for the unregulated company where the focus on reliability may not be as well understood as the focus on profits. Once you become Completely Reliable, the notion that reliability enhances profits is easy and rewarding, but during the transition the temptation is always there to focus exclusively on quick profits, even at the expense of long-term ones. With only the pressure of profitability –– from upper management, investors, analysts and shareholders –– decisions are often made that put investments in reliability on hold. Here is where tough decisions must be made. If you are focused on long-term reliability and, therefore, long-term and sustainable profitability, you will need to make decisions that make sense in the long run, despite objections (from analysts, for example) that such a strategy would reduce immediate profits. As we’ve seen with Delta Airlines, becoming Completely Reliable means having the mindset to know how to get there, then having the strength to stick to that path.
A reason to care
The other key mindset necessary for Complete Reliability is that everyone in the organization must care about what happens inside the organization. Every person, in their own mind, must develop the discipline that they are personally accountable, not only for their own actions, but also the outcome of their actions toward the minimization of unplanned events. Without this unanimous personal accountability in an organization, the concept of Complete Reliability will always struggle to exist. And because every organization’s culture is shaped by what matters to the leaders, if reliability is not important to them, Complete Reliability will never happen.
But there’s a behavioral-science aspect to consider with regard to how decisions are made about profits and reliability. A leader may, for example, elect to increase profit by increasing revenue and reducing cost, or increase profit to a lesser extent by doing only one of these. Reducing cost can typically be done more quickly than increasing revenue. Also, in most cases, reducing requires us to stop doing something, as opposed to doing more of something. Increasing revenue is usually the opposite: It call for doing more rather than less of something. Here’s where the science comes in. According to noted American psychologist B.F. Skinner, most people (and, therefore, organizations) prefer consequences that are "Personal, Immediate and Certain," rather than "Personal, Future and Uncertain." Elimination of cost is the former—creation of new revenue is the latter.
Those who have given little thought to reliability will always lean toward cutting cost as their first course of action. Their reasoning is that to operate at the lowest cost, a cost-cutting culture must be in place. This could be the case for certain economic situations where affordability or survival comes into question. However, for sustained culture development and long-term corporate viability, I believe this is the wrong approach. Why? Because without focus on reliability, the significance of unplanned events and the significant loss of resources and added costs is never addressed. Also, because of the inability to constantly, consistently meet commitments, loss of revenue through unsatisfied customers becomes a very real probability.
Organizations willing to move their cultures toward Complete Reliability discover that, through the creation of reliability, they can do both: grow revenue and reduce cost. This happens because they develop customer commitment and customer loyalty while eliminating the cost of unplanned events. Driving the culture toward Complete Reliability is more powerful and cost-effective than spending additional money on any other single aspect of reliability, whether for quality inspectors or even for asset reliability. Money spent to shape culture and worker behaviors is significantly more impactful than money spent on assets. In fact, if money is spent to create reliability, but not to create behaviors that minimize unplanned events, money will always be needed to minimize the impact of unplanned events.
When the focus is to create an accountable culture and one that becomes Completely Reliable, resources that had been wasted on unplanned events can be refocused on goals the organization strives to achieve. Spending is optimized and resources are put against the most impactful activities that create even further reliability. The culmination of this effort will be an organization that has optimum resource distribution, the lowest cost and the highest margin-to-revenue ratio.
From theory to passion
To create a culture that will drive a Completely Reliable organization, workers’ understanding of the need to minimize unplanned events must progress from the theoretical realm to a passionate desire. Since most organizations typically follow what their leaders believe, the leaders have to figure out why they care about constantly and consistently meeting their commitments and, in turn, give everyone else in the organization a reason to care.
It takes only one person’s mindset to develop into that passionate desire to constantly and consistently deliver on every commitment. That person has to be brave enough to share their thoughts, passionate enough to deal with the resistance they will get and have enough courage to keep pushing until others begin to follow. But to become Completely Reliable, each member of the organization, especially leaders, must develop his and her own reason to care about minimizing the impact of unplanned events. Each person has to develop a mindset that not only talks about the importance of such actions, but demonstrates through daily behavior that they care. MT
Jeff Dudley is Corporate Director of Maintenance and Reliability for The Dow Chemical Co., based in Midland, MI. With Dow since 1989, and Owens Corning for 10 years prior to that, he's held a number of manufacturing and leadership positions. He received his B.S. in Chemical Engineering from Carnegie Mellon University. Dudley now devotes much of his time outside work to teaching about leadership. In fact, he'll be presenting his views on this topic in a Keynote address that helps kick off next year's Maintenance and Reliability Technology Summit (MARTS) on May 1, 2013, in Rosemont, IL. Plan now to be there and hear what he has to say. For more details and to register, please go to www.martsconference.com.