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Combating entropy in business

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How to survive in any business requires unending improvement and elimination of waste in time,inventory,materials,delays,etc. Report is courtesy of www.JoeMyRealtor.com and www.ValenciaAndStevensonRanchHomes.com

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Combating entropy in business

  1. 1. Combating Entropy in BusinessBy Jose Villanueva Alcedo, M.B.A./T.M.CEO, YouKaizen.comUnderstanding the law of nature about Entropy can help prevent business deterioration.Entropy is the potential energy that is not available for work. Thus, in a closedthermodynamic system, entropy deteriorates due to degradation. It is a physical law ofnature that if entropy is left untouched could steadily deteriorate. Therefore, entropy doesnot do any good.The bad effect of entropy is analogous to disorder in a business system. Like entropybusinesses decline in performance because of degradation. It needs to be reinforced fromoutside the system in order to maintain its effectiveness, [1].Deterioration happens in many aspects of a business system in all levels, whether thebusiness is new or old. Think of a manufacturing system, for example. Basically, it iscomposed of people, processes, and materials, which are orchestrated to deliver finishedgoods and services to customers. In order to be competitive, the products should have thequality that will delight customers and at the least price. The presence of businessdisorders (entropy) can’t sustain the quality and competitive price of products. In lookingat people, processes, and materials, which are subject for degradation, one shouldinvestigate where the disorder (entropy) is and how to fight the deterioration. Thus, thefollowing factors should be studied:PeopleAs businesses run on people so as their skills. Good people skills matter in business.Deterioration in skills is a natural process, especially in fast changing technologicaladvances. Therefore, people training and retraining should be an ongoing process on thejob. People refer to employees and management. They both should have an ongoingprocess to fight entropy.Business disorder (entropy) happens when management starts managing people instead ofleading. Fight entropy by having managers manage processes but lead employees.Dr. W. Edwards Deming, quality guru created management philosophies that aredescribed Deming’s 14-point methodology. These philosophies teach organizations thestrategies of implementing quality programs, by creating an environment of trust andteamwork within the organization. The following are strategic guidelines that focus onimproving processes, employees, management, and systems: (1) Create a constancy ofpurpose toward improvement of product and service. (2) Adopt a philosophy. (3) Ceasedependence on inspection to achieve quality. (4) End the practice of awarding businesson the basis of price tag. (5) Improve constantly and forever, every process for planning,production and service. (6) Institute training on the job. (7) Adopt and instituteleadership. (8) Drive out fears so that everyone may work effectively for the company.
  2. 2. (9) Break down barriers between departments. (10) Eliminate slogans, exhortations, andtargets for the work force. (11) Eliminate work standards (quotas) on the factory floorand numerical goals for management. (12) Remove barriers that rob people of pride ofworkmanship. (13) Institute a vigorous program of education and self-improvement foreveryone. (14) Put everybody in the company to work to accomplish the transformation.This methodology, designed by Dr. Deming, sustains organizations’ transformation tocontinuous improvement. It points out that the organization and the individual workermust work together, as a team, for a constant improvement of whatever they do, [2].ProcessesEvery day we come face-to-face with some type of a process. A process is defined as ablending of inputs that generates corresponding outputs. Continuous process innovationshould be done in order to combat process entropy. Continuous Improvement techniqueshave been taught for over seventy years that emphasize taking a hard look at processesand improve them. It is a low-cost approach to improve processes. Even Innovationsshould be constantly improved by re-engineering or retooling in order to preventdeterioration.MaterialsIn addition to materials, other inputs such as policies, methods, procedures, andenvironment should be considered. The choice of inputs, and the quality determines howwell the outputs are produced with respect to customer requirement. The reduction invariation in quality of raw materials is key to producing quality products and services.Variation causes tremendous impact on the bottom line of the organization. It costs time,money, and resources. It could mean losing business.The outputs constitute the resulting product and services or completed task. What isimportant to consider is the cause and effect relationship between inputs and outputs.Where to StartThe business entropy caused in people, processes, and materials impacts the bottom line.This system of people, processes, and materials should be the target for improvement.Since entropy comes at random into the business system components, it is criticallyimportant to have a target where to start the improvement.A rule of thumb, 80-20 Rule or the Pareto principle is one of the tools to locate where tostart. Under this rule, about 80% of the problems or entropy are caused by 20% of thecauses. Therefore, one should look for this 20% causes. Waste is visible in business.Since usually the problems come in the form of waste, by reverse engineering, anotherway to start is to determine what constitute 80% of waste. Then, using Cause and Effectdiagram determine the causes of these wastes for elimination [1].The problem is variation. Realize that variation in the quality of people skills, processes,and materials are difficult to visualize. Variation is like virus that infects businesssystems in all areas and couldn’t be seen. Many organizations think that variation is
  3. 3. normal that our accounting systems so cleverly hide, only to see the effect until theysurfaced as waste.Waste comes from transport, inventory, motions, waiting, over production, overprocessing, defects, and skills (TIMWOODS).One Continuous Improvement technique, known as Cycle Time Reduction, is designed toeliminate waste.Cycle time is the elapsed time a process is completed. Reducing cycle time is achieved bystreamlining the process flow with the goal of eliminating the non-value-added steps ofthe process. Non-value-added steps are those that do not add value to the customer, e.g.delay, transport, rework. The best way to identify the non-value-added steps is to draw aprocess flow chart. This technique had been tested to reduce cycle time of processes to asignificant amount. The revolutionary Ford Assembly Line Concept of manufacturing,the second wave of the industrial revolution, has been proven to reduce cycle time andeliminated waste in time, money, and resources.References:[1] Competitive Edge, by Jose Villanueva Alcedo, MBA/TM, Publish America, U.S.A.,2011.[2] Out of the Crises, by W. E. Deming, Cambridge, Massachusetts of Technology, 1986.

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