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Management Systems & Why Understanding Systems is Essential
What is a Management System?

Management Systems are the collection and interrelation of parts that convert stakeholder needs into satisfied stakeholders. From the very first day of business--regardless of whether hot dog vendor, 3rd generation family restaurant, small travel agency or 100,000 person multinational corporation--every organization has a management system. However, it may not be defined so that it can be relied upon to run the business.

A management system consists of four essential parts:

  1. Policy and objectives to guide the organization
  2. Responsibilities defined so that people know what is expected
  3. Defined processes linking people to business objectives
  4. Data shared and analyzed to improve the performance of the company

Policy is a mandate from top managers to inspire use of the system. Objectives are what drive people and processes so the organization knows what is expected:

  • Business objectives are requirements for the "here and now"
  • Strategic objectives are requirements for the desired "future state"
  • Process objectives are the requirements that must be met to achieve the business and strategic objectives

Defining responsibilities often extends far beyond organization charts and job descriptions. It include organizational structure and culture and addresses questions such as:

  • Who is responsible for understanding needs and establishing objectives?
  • Who has authority for designing and planning the execution of processes?
  • How are processes resourced and controlled?
  • How do leaders inspire teams to control and improve processes to satisfy the needs and objectives by using and improving the system?

Processes make up the largest "part" of a management system and often receive the most focus. Processes apply resources and controls to convert inputs into outputs that satisfy internal and external stakeholders. Processes exist at many levels within an organization with distinct relationships between each level:

  • Level 0: Needs to cash
  • Level 1: Get Work > Do Work > Get Paid
  • Level 2: Marketing > Selling > Designing > Producing > Delivering > Servicing
  • Level 3: Value streams specific to products or customers
  • Level 4: ...

A well defined process must identify the critical inputs, resources and controls (X's) necessary to fulfill objectives (Y's) and must be documented sufficient to ensure control.

Data are the records we use to show how well the system is fulfilling requirements and objectives.

  • Analyzed data becomes information
  • Information understood by people and teams becomes knowledge
  • Knowledge leads to wisdom through informed decision making

We should only collect data necessary for decision making and determining if objectives are met--all else is waste. However, knowing exactly what to collect is often difficult, particularly if your management system is not developed. Collecting and storing too much data is not usually costly, particularly given the ever lessening cost of electronic data storage tools. However, not collecting the right data is costly. Developing a management system includes analyzing processes to determine the measurement and data collection points necessary for an effective system.

Below is a graphical example of a management system; this system is based upon the model presented by ISO 9001:2000 and describes how one type of stakeholder (customers) have their needs converted into cash in the organization's bank.

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Every organization is unique, so while every company has a management system that consists of these four elements, no two management systems are alike.
That is why:

  1. Every company must develop their own system so it can be used and improved, and
  2. Management systems cannot be bought, downloaded or created by consultants - every company must do it for themselves (of course, sometimes with the help of a consultant!). Be wary of people selling "canned" solutions - you often get what you pay for.

A well-developed management system is the tool all in the organization use to communicate the interdependency of people, processes and the system and make informed decisions affecting profitability.