The Pendulum Effect

I had a good conversation today about the role of senior management to balance the sometimes conflicting needs of different departments while optimizing the overall business - and the pitfalls of allowing the "pendulum" to swing back and forth between which metrics (and therefore, which departments) are "optimized" at any particular time.

For example, a production department would prefer to have large production runs to minimize changeovers and maximize overall output even though this may create more raw material and finished goods inventory. Production planning would prefer more frequent small production runs to minimize inventory and provide flexibility to meet urgent customer demands even though it might reduce production utilization. Sales and customer service would like a ton of inventory to maintain the highest customer service levels and promise any customer any product at any time. Of course this assumes that the departments are primarily focused on different metrics, e.g., overall production output, inventory turns, and customer service.

Senior management is focused on overall growth and profitability - for both the short term and the long term. If a senior management team is not careful, they can drive undesirable behaviors based on the metrics that departments think are most important.

For example, if senior management only asks about overall production output for 6 months and then goes wild about growing inventory they will create a "pendulum effect" where the organization swings from trying to optimize for one goal and then the other. What's the answer? Senior management must engage all departments in the primary overall objective of the company, help everybody understand the interdependencies, and consistently use a set of metrics to measure and manage progress that minimizes large swings in direction and helps the organization build momentum in one direction.