Uncollaborative Organizations and Premature Commitment
“What do you mean you can’t ship? This is a big deal. They need the product. We spent weeks working to land this contract. What am I going to say to these people?”
Ever heard these questions from sales when the operations people say that they cannot meet the delivery schedule committed to by the sales team? I have, multiple time, even among my friends and family as they reflect on their work situations. In one case a client sales group landed a significant amount, a 50% increase, of new business for a current beverage product line. Unfortunately, operations did not have the capacity to make the product without investing in and installing new equipment which would take weeks. Of course, the sales group was not happy to discover this reality and felt that operations had undermined them.
In another situation, a phone center landed a new contract that would increase their volume by 300%. The phone center had only been working at 50% of their capacity so this was good news to a point. The not so good news was that the total amount of work was now twice the center’s capacity. The center did not have the infrastructure or trained people to cope with that increased new business. Again, sales was not happy and in s very pointed way said, “you were whining that we weren’t getting you enough volume and now you’re whining that we gave you too much.”
In yet another situation, a medical clinic’s efforts to replace their legacy electronic medical records system with a new one led to significant under reporting of nursing care activity and millions of dollars of unreported associated costs. Their capture of costs is one input into their service pricing model and due to the unreported costs led to service pricing that resulted in serious profit losses for the organization. Why? The IT and accounting groups did not include the human resource function or clinic operations management including nursing care people in the cross functional collaboration activities that would have identified these activities and ensured their inclusion in the system.
Lack of Collaboration – A Common Root Cause of Organization Wide Problems
Each story’s details are a bit different, but all reflect the same root cause. So, what is the root cause? It is a lack of cross functional collaboration and decision making between the organization’s functional groups including sales, operations, purchasing, and human resources from the start to the finish of the initiative at hand. This lack of collaboration leads to failures, conflict, and “less than impressed” customers. Instead of working together to optimize the creation and delivery of “value,” each group focused on optimizing their functional specialty and their organizationally misaligned performance goals.
Sales people sell. They are often compensated based on how much they sell and expect that what they sell will be delivered consistent with the terms they agreed to with the customer. Operations people make product or provide services as cheaply as possible. They do not carry extra people or have extra capacity to handle a significant amount of new volume of product or services. Procurement people buy raw material as cheaply as possible and they buy what is only what is needed, nothing extra. Extra inventory is a permanent conversion of dollars into nonliquid assets impinging on cashflow. HR people recruit, hire, and train people to do the work needed in a “just in time” fashion to avoid carrying extra overhead and labor costs. Each group is focused and commonly rewarded for meeting the performance goals of their areas.
Unfortunately, meeting the functional goals of each area does not lead directly to delivering products and services to customers in the manner that sales and the customer agreed to. Unless each group is continually collaborating with the other groups, broken customer commitments will occur that lead to lost business and finger pointing. The customer that was looking forward to working with you will be second guessing why they went into business with you. And if you loose them, they will be difficult to get back again even if you have built the capacity to service them later. Anthony Weldon, in his 1651 book “The Court and Character of King James” wrote, “Fool me once, shame on you, fool me twice, shame on me.” Customers learn to avoid the dog that has bit them.
Prevent Problems with Cross Functional Collaboration
How can you prevent this from happening? Use a process of cross functional collaboration where individuals from different functional groups come together to achieve a common objective. People in these respective functional areas must talk to each other and share their perspectives on the issue. Everybody along the value creation and delivery chain needs to understand the opportunity, the capacity of each group, and develop a plan from these diverse perspectives for increasing delivered volumes that reflects the speed that each functional area can “ramp up” to the needed level. Approval of the plan by the cross functional group needs to occur before creating a contract with a customer. And once the plan is approved, execution of the plan must occur effectively to meet the commitments made to customers.
As you consider how to work collaboratively on business growth opportunities, focus on the root cause first, namely the lack of cross functional collaboration and decision making. Each functional group needs to feel accountable for equally owning the chain of creating and delivering value and the outcomes that the customer experiences. Having serious rational collaboration will often mitigate or prevent the root cause from having an impact on the situation.
Healthy collaboration comes from working together across functional boundaries and is critical for any type of large organizationally wide initiative. Whether it be new customer volume additions, new product development launches, a strategic plan creation and deployment, ERP installations, etc., cross functional collaboration is key to success. Collaboration’s benefits include establishing system wide knowledge and accountability; improved understanding of the other functional areas, more creative, innovative, and “out of the box” thinking; faster rates of change, prevention of stereotyping of other areas and unhealthy conflict; delighted customers; and organizational outcomes deemed to be successful. Henry Ford’s thought about collaboration went like this: “Coming together is a beginning, staying together is progress, and working together is success.”
Misty River Consulting
Misty River Consulting has an award winning certified professional facilitator on its staff that has a great deal of experience and success in helping organizations create and lead cross functional teams to achieve organizational objectives that are too critical to not achieve. Check out our website at www.mistyriver.com, email us at email@example.com, or make an appointment for a complimentary conversation at https://calendly.com/mistyriver/mrcmeeting. We are here to help you be successful.
If you are wondering what these collaborative discussions could include regarding the mismatch between demand and actual capacity, consider these macro action steps as discussion topics:
- Discuss the facts about the current situation. Collect data regarding actual sales, statistical forecasts, supply actuals, manufacturing and delivery capacity, talent availability, promotional activity and anticipated new business volumes.
- Get a sense about how everyone feels about the situation. State and understand each functional groups’ reaction to or response to the degree the new opportunity aligns with current capabilities and readiness.
- Discuss how these new insights impact each group’s thinking. What can you conclude because of this? What have you learned?
- Create a set of action steps that will move you forward successfully given your understanding of each functional group’s situation.
- Create a potential sales forecast based on the new opportunity (scenario demand plan).
- Identify constraints to the potential sales forecast regarding capacity, materials, and talent.
- Hold a “pre-sales contract” meeting with all the players to determine what the organization can commit to do for the customer now (supply plan).Identify the capacity expansion plan by identifying capital requirements, material and supply lead times, talent availability, increased volume readiness timeline, and create the proposed plan for ramping up (expansion plan).
- With the customer, review what can be done now, explain the plan for ramping up, and determine whether the plan is acceptable to them.
- As a group, decide about whether to proceed.
- If yes, deploy the game plan.
- Regularly meet to discuss, evaluate, and adjust as needed the approved plan.
Regardless of whether you use these action steps or not, regardless of whether you use a professional facilitator to help you with these discussions, cross functional collaboration and decision making is critical to successful growth.