All organizations have an org chart that defines accountability relationships throughout the organization. Organization based control extends that accountability to cost management and continuous improvement. It is a relatively simple matter to have each node with subordinates to conduct a periodic cost after action review with their subordinates.
The goal of the org based control process is to engage all levels of the organization in cost management. Each subordinate has an expected cost and an actual cost for the time period under evaluation. Inevitably there will be some, often only a few, things that didn’t go as planned.
The subordinate is expected to explain why the difference occurred. Frequently, the explanation is not obvious and requires some research to understand what happened. This is learning.
In my private sector career as a controller I frequently had managers coming to my office to tell me my accounting was incorrect and the cause of their miss. 99% of the time the numbers were perfectly accurate and the manager left with a new appreciation for the cost aspects of their responsibilities.
1% of the time there was an accounting problem in my shop. I welcomed these findings because I learned something and could apply corrective action quickly. This was highly preferable to letting a problem continue undiscovered until a year end physical inventory or closing of the books. Small problems only become big problems if unaddressed.
The manager who left the office knowledgeable could now explain their operations to their boss. This learning also provided the opportunity for rapid corrective action, if necessary, on their part. Sometimes change was required to adjust the expectation. Perhaps the subordinate was too optimistic and now knew better.
Of course, not all differences between expected cost and actual cost are bad news. If there was a positive development there may be an opportunity to proliferate the benefits to other organizations. Alternatively, perhaps the cost expectation was too pessimistic and future planned costs can be adjusted downwards and resources used elsewhere.
Continuous Improvement Initiatives
There is one other key goal in the organization based after action review and that is for subordinates to present new ideas for cost reduction or performance improvement to their bosses. In fact, it is not unrealistic to expect subordinates to come to the meeting with continuous improvement initiatives.
People’s creativity in coming up with continuous improvement initiatives has never ceased to amaze me. Showing this creativity in a public forum certainly seems to stimulate idea generation. It also helps to return some or all of the savings to the organization with the savings to fund new ideas!
My first employer after college had a suggestion system that gave a small share of savings to the idea originator. This sounds good. However, the worker with the most awards had stopped submitting ideas. He explained that the process was too adversarial. Process engineers would be assigned to discount the idea. Managers would challenge its originality. And then the accountants would minimize the savings.
My second employer had a different culture. Innovative ideas were expected and part of the job responsibility. Only a sticker was awarded to the employee for each implemented idea. Once per year all employees with ten or more had a special lunch in the cafeteria with the plant manager. It doesn’t sound like much motivation, but roughly a third of the work force made it to those lunches.
Expecting innovation is a powerful thing. It must be encouraged and celebrated. I had an accounting manager who proposed a new filing system. I approved the idea, we implement it, and he got a sticker. Three months later he returned and proposed returning to the original system because the new system just wasn’t working. Did he lose his sticker?
No, you guessed it – he got another sticker!!
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