Coaching Strategy 101:
Management by Exception
· Don’t give up the big play on defense: Big mistakes are the worst outcome
· Swarm to the ball: The bigger the problem, the more people it involves
· Effective feedback allows controllers to improve.
· Modeling is fun: Define norms based on historic averages
· Sorting is not fun: Use computer system to identify exceptions
· Finish what you start: Use computer system to communicate exceptions, track follow-up
· What does he think he’s doing? Evaluate understanding of business through analysis of variances.
· Why don’t you ever say anything good? Find positive exceptions, too.
· Back to piece work? Combine with flex budgets and incentive pay
· It’s not puzzle solving
· You gotta have the truth
· You gotta stay in touch with your people (no Gap/Zap result)
The best way to lose games is to give up big plays on defense. It’s a strategic approach. Giving up that long run or pass-play, or that three-run homer, will take the fight out of a team right away.
When Jimmy Johnson won two super bowls in Dallas, he was using eight defensive linemen. The message was clear. He wanted to rush the pass and stuff the run.
Management by Exception (“MBE”) is not about winning, it’s about not losing. It’s a conservative management approach that constitutes a foundation. A manager can build many different kinds of things on this foundation. He can focus his attention on offense, knowing that his defense is solid.
MBE is starting at the end and working backward. Not working backwards, that’s something else. Working backward. It requires that managers model the business process, and that they objectify it, and quantify it. The idea of an exception presupposes the definition of some range of normal outcomes.
Some workers want to know what they’ve got to do to just get by, they don’t have any other interest. Management by exception is an effective approach for this kind of worker. Anyone can see whether they are about to run out of gas when they drive. It’s important for workers to know that they can control their own futures by performing above the minimum expectations.
MBE is also a group communication strategy. When an exceptional condition occurs, the involvement with the event widens. More people are drawn into the process of dealing with this problem. In the fire department, different numbers of alarms mean that different teams are brought into the area to deal with the current fire. MBE allows the escalation of response to situations in a similar manner.
This is very important. Everyone has too much work to do. All workers decide what work is critical and what can wait until they are less busy, or until someone yells for it. Too often, when something goes wrong, the worker who is responsible keeps the problem to himself until it grows, and then the rest of the team has a harder time dealing with it. The football analogy is swarming the ball. I seldom see workers who aren’t involved in the play pursuing from the back side like football players do. In football, they know how important it is to contain the opponent.
In summary, the basic values of MBE are defensive: conservatism and containment.
The basic approach to MBE consists of definition of exceptions, identification of exceptions, and follow through.
You can define norms through historic measurements if you have statistics available. For example, let’s say that you have an accounts payable department and you want to measure historical production per man-hour. You can probably tell how many checks you issued, and how many dollars in salary you paid, and compute a rough cost per check. This is an oversimplification – there may be invoices to enter and vendors to set up. The staff may have other responsibilities besides the ones you want to measure.
Make your best effort. Try to measure the statistic over 8 quarters, if you can. You’re looking for production capacity here – what’s a reasonable production function for a person in this job?
Another kind of norm is not the production capacity approach, it’s the level of service approach. Perhaps we want all invoices to be entered and paid within two weeks of the vendor’s invoice date. It is very easy to keep score in this kind of game. Subtract the invoice date from the check date and see if it’s too much. Make it more fun: subtract that number from 14 and make the result a factor in someone’s bonus.
However you choose to define norms, they must be measurable. Not only do we all see with our own eyes, but in business, we tend to see all situations in terms of what we measure. If you’re only measuring sales and profits, then sales and profits are the two measurements that all your problems (and successes) get expressed in. Many firms have a general ledger, but far fewer have a statistical ledger. Statistical information about your business is just as important to your ability to manage as financial information. Statistical information about your business is just as important to your ability to manage as financial information. Statistical information about your business is just as important to your ability to manage as financial information.
If you need an MBE system, it is because you have a lot of transactions. You most likely will find it necessary to use a computer system to identify exceptions. This is relatively easy if the statistics that you’re measuring are already in your computer. It’s relatively harder if they are not. Sometimes we get swamped dealing with computer change-related issues and don’t get the benefits we originally sought. Big changes happen slowly.
Finish what you start. The entire idea of MBE requires that once you’ve identified an exception, you follow up on it. It is possible to use most computer systems to email a specific employee that an exception has occurred, and to continue to email that person and to escalate the notifications until the process has been completed. The vice-president of a service organization asks to see reports of customer complaints within 24 hours. If one is late, the reason should become known.
Perhaps the person didn’t know what to do. Perhaps the person who trained them didn’t know what to do. Basic business processes that break down aren’t basic business processes. You can get beat 21-7 like that. Simply, people either don’t know the model or are ignoring it. Neither situation can last without detriment to the organization.
What does he think he’s doing? How often have you thought this about a manager? If you model a process, and the outputs are never as he projects, you wonder what he’s using for HIS model. Some intermediate level examples of exceptions to track follow.
If you have a serial process, say a 4 step process, you can use MBE to identify variances at the first step, and potentially reduce variances in outputs. Put another way, you can push product through the pipeline, instead of trying to suck it out the back end.
You can monitor exceptionally short production times, low cost production runs, and other positives just as easily as negatives. You should, too. Otherwise, MBE produces workers who want to know, “Why don’t you ever say anything good?” Find positive exceptions, too.
Some might see all of this measurement and standardization and recognize similarities to an old management method know as piece work. That’s actually something that can be done more cost effectively with modern computers than ever before. If you can measure production, and capture historical averages, then you can set average base pay to go up to average performance, and pay production based incentives for higher performance. Experience indicates that a mixture of individual and group production incentives work better than individual production incentives alone – it gives the group all the information that they need to supervise the employee.
You can also make better statistical budgets, known as flex budgets.
MBE is not puzzle solving. A puzzle is challenging until you’ve solved it once—or, in my case, two or three times. At some point, we think, executing the puzzle solving routing should become pretty simple. Unfortunately, many managers appear to think that work is like that: executing the instructions should produce desired outcomes, and better and better efficiency. The real world is NOT like that – it’s not like a puzzle. The game is constantly changing, and it’s more like sports than solving math problems.
You gotta have the truth. If you find that one job has double the normal material, and another has none, it’s very important to be able to correct that. Counting the number of “good jobs” is as important as counting the number of invoices. This accounting error would make any results untrustworthy. Everyone has to be committed to having everything right all the time. Anything less is an opportunity to misunderstand your business.
You gotta stay in touch with your people. Some MBEs say, “If you don’t see me, that’s good.” That’s bad. The idea of MBE is to allow you to focus on areas where you can make the most difference, not to allow you to ignore your workers. Another popular management style these days is “MBWA” or “Management by Walking Around.” It’s a fancy name for having time to spend looking at what your people are doing, and talking to them, answering their questions, and reinforcing your priorities. It’s not a new Management Style, it’s an old way to stay connected to your network! One of the dangers of MBE is that performance within statistical norms doesn’t exactly mean the same thing as good performance. You’ll never know when that’s the case unless you’re in touch with the people whose work you’re measuring.
It’s not enough by itself to make an organization successful. As I said before, it’s not about winning, it’s about not losing. MBE has to be combined with other approaches to successfully manage a company.
Still, it’s a vital strategy for modern managers. No one wants to get beat 21-7.