What do customers really want and train tickets.

If you are ever wondering why your customers are becoming harder and harder to deal with, before you start to blame them, maybe the reason is because you are not delivering to them what they really want.

This came up in a workshop I was in last week. I used the humorous comparison between buying paint with buying airlines tickets to show how complicated we can make things. As well I explained another classic example which happened to me just that same morning...

This workshop was in a city I travel to on a regular basis and I always use the train from the airport to the city center. The day return train ticket for the city costs $17.80. I have the choice of queuing up at the ticket booth which usually takes 10 to 15 minutes or using the ticket machines. As the ticket machines are quicker I try to have a $20 note on me so I can be on my way and catch the train which the monitor shows me is only 3 minutes away.

The problem is that sometimes the ticket machines run out of change and displays the words "Exact Change Only". When this happens a large queue forms behind the remaining machines until they also run out of change. There I am with my $20 in my hand, a train coming in 3 minutes and the ticket machine won't give me a ticket because it can't give me my $2.20 change.

What do I really want? To catch the train coming in 3 minutes.

How can we fix this? Many would think of more regular services on the ticket machines, but almost certainly the rail company has outsourced this task and the service levels are now based on cost savings and not customer service - see "outsourced luggage handling". Some might look to the technology answer and hook the machines up to credit card services. My thought was to add the option which said "Exact Change Only or Give us a Tip". This way I had a choice to forgo my change in order to make the train arriving in 3 minutes and the rail company makes a 10% premium. If anyone was worried about their change they could always queue up at the window and catch the next train or the one after that depending on the queue.

Well that morning they had come up with a different answer. I am not sure whether it was an intentional fix to the problem of ticket machines running out of change or just a happy coincidence.

That morning I didn't have to worry about my change as they had put the ticket price up to $20!

And yes I caught the train that was arriving in 3 minutes.

Wisdom of Crowds exercise with our Fund Raiser

Ok, ok, before you read this and say this guy needs to get a life, I already know.

We had a fund rasier at work were people had to guess the number of candies in a jar. After it was over, just like in James Surowiecki's book the "Wisdom of Crowds", I took all the guesses and did some analysis. The results;

• total number of estimations 104 (so it wasn't a big fund raiser)
• the correct number 567
• the average of all estimations (the crowds estimate) 515
• number of people better than the crowd 12
• number of people worse than the crowd 92

The crowd was better than 88% of all the estimates.

Travel Post 2 - Are you a terrorist?

It is was interesting to observe the different amounts of paperwork required when going through immigration at the various countries we travelled through.


Arriving in Paris I dutifully filled out a short list of questions that were pretty straight forward and seemed fairly reasonable. How long are you staying in France? Where are you staying? etc. Going through immigration the only thing we were asked for was our passports. I still have the filled out forms. Our passports were processed without any questions and off we went to collect our luggage. Having collected our luggage we walked straight out of the airport not seeing any hint of customs personnel.


The next test was America. One immigration form for each family member and one customs form for the whole family. A question on the form was, "Have you ever been or are you now involved in espionage or sabotage; or in terrorist activities; or genocide; or between 1933 and 1945 were involved, in any way, in persecutions associated with Nazi Germany or its allies?" I wonder how many yes answers they get to this question?


Another question starts 'Have you ever been arrested or convicted for an offence or crime involving moral turpitude..." (this question is referred to in Wikipedia's explanation of moral turpitude)

Upon arrival we were all photographed and fingerprinted. The camera looked like a web cam bought at circuit city, blu-tacked to the glass divider. To help take our fingerprints we had to first place them on a wet towel which was sitting on the bench. All in all it looked like a pretty make shift job. The immigration officer was much friendlier than we remembered and processed us without fuss. The feeling I got was that they were a bit more relaxed because they were relying on the technology to do their job. I wasn't sure that was such a good idea. As a security friend once told me that if you are relying on technology as a gate keeper, like a logon password, and it is broken, the intruder suddenly gains a higher level of trust because they are assumed to know the password and therefore are trustworthy.

Japan also photographed and fingerprinted us but this time the technology looked purposed built. A combined camera and fingerprint device with a screen so that you could see what the camera saw.

Having filled in all these forms I couldn't help but think about the waste of the whole exercise. I wondered what happened to the filled in forms. What poor keyboard operator was sitting there typing them in. Or do they sit in a giant warehouse waiting for someone to break the law, you know like committing genocide, and their answers can be and will be used in a court of law against them. "Ah ha, you wrote that you have never committed genocide therefore you are even more guilty...."

Travel Post 1 - It's hard getting it right end to end

I am currently travelling on a family holiday doing an around the world trip. On the first leg we left Australia travelling to Paris via Singapore. After going through customs I bought a nice bottle of red wine for a friend we were catching up with for dinner. I bought this after customs because as you probably know you can only bring 100ml of liquid with you. As I was only transiting in Singapore and not going through customs and back again I figured it would be fine.

Unfortunately this wasn't the case. Going to the boarding gate at Singapore we had to go through another metal detector and at this point they took the bottle off me. Apprently you can buy duty free drink at Singapore airport and they put it into a sealed plastic bag but because our plastic bag wasn't selaed we had to hand it in. The bottle itself was sealed but somehow a sealed plastic bag was considered the level of protection required.

It is still early in the days of this liquid restrictions on flights and I think over time more reasonable rules will apply but for now there is no end to end thinking. For example Singapore do not trust the Australian process to make sure the bottle of wine was brought onto the plane after customers. And Australia hasn't checked the requirements of travellers going through other airports so that they would also provide a sealed plastic bag.

Then again it is hard enough getting end to end processes right within a single compnay let alone across multiple countries.

Next time I won't be buying any more wine in duty free!

Wirearchy, an antidote to many management myths

In an interview with Jon Husband, a techno-anthropologist and strategy and organizational change consultant, he describes the growing phenomena of the wirearchy.

"Husband defines wirearchy as 'a dynamic two-way flow of power and authority based on knowledge, trust and credibility, which is enabled by interconnected people and technology'. A wirearchy isn't a technology or a product. You can't buy it off the shelf. In corporations, wirearchies evolve as company executives, employees, consultants, suppliers and clients, connected by the Internet, freely share information and opinions using a variety of tools from simple email to blogs or wikis."

In the interview he goes on to say;

"People will spontaneously organise for their mutual benefit or a specific purpose, and they'll route around the system if the system doesn't let them do it inside he structure it provides."

This is along the lines that I was wondering in the post "maybe why computer implementations usually fail". If people "route around the system if the system doesn't let them do it inside" then when it comes to implementing a new computer system do we do it the formal system or the way people actually work?

Shocks like "Sub Prime" do happen and how to be ready for them

Back in April I wrote about Citigroup's announcement of laying off 17,000 people, "Are Citigroup displaying the Efficiency Myth". Charles Prince the CEO said the company was going to be more efficient and more tightly managed company.


With Citigroup's share price dropping over 6% and Charles Prince under threat you would be right in questioning these predictions. But we might claim that it isn't Charles Prince's fault, instead the fault of the sub prime mortgage market fall out? In an interesting article by David Hirst, "Adventures of a Vulture Capitalists, Selling Short on Citi" he explains how he predicted the sub prime market collapse and singled out Citigroup as one of two companies to short. Hirst also lays out the fact that with these large financial companies relying heavily on their "models" to ply their trade. It has become "model" versus "model" instead of "model" versus "market". That is, the reality of what was happening in the real world has been lost within the virtual world of financiers playing with each other.


The fallout has already claimed the CEO of Merrill Lynch, Stanley O'Neal, described in one article as someone who has "never gone out of his way to win friends. Just six months after he completed his meteoric rise to the top of Merrill Lynch he ousted two of the broker's most senior executives – including his right-hand man. His brutal cost-cutting regime has seen tens of thousands of jobs axed all over the world." Sounds familiar!

What is happening here is that these CEOs and many more like them are falling into the trap of the efficiency myth, the myth of control and trying to achieve the mythical benefits of shared services. The impact of actions which centralise control and create shared services structures is to remove decision making from the people interacting with the real world. When you centralise decision making in this way it is impossible to handle the volume of all the decisions therefore you have to create rules so that they can be processed quickly. These rules become models under which the company operates. (I know Hirst meant financial models not operating models) As time goes by the world changes and adapts much faster than the internal models of how a company operates. Getting out of sync with the real world eventually catches up with you and artificial attempts to stem the change end up in even bigger disasters. Hirst's refers to a secret government group called the Plunge Protection Team that tries to prop the markets up by artificial means, without success. There is a blog called Plungeprotectionteam.

These centralising actions are like removing the feeling from a person's hands; as the cup you are holding gets hotter you are powerless to let go, you are waiting for the memo from headquarters telling you to put the cup down, meanwhile the pain intensifies. It is also like disrupting the connections between the eyes, ears, nose and the brain. You can see, hear and smell the change coming but trying to warn the central brain is slow, disconnected and sometimes fraught with danger because you are accused of being a maverick or at least not a team player.

If a financial reporter in David Hirst can see the train wreck coming from half way around the world why couldn't Stanley O'Neal or Charles Prince? What are CEOs doing to lead an organization that has every nerve ending tingling and communicating when the slightest hint of change occurs. Who do they have as receptors of that information helping the people at the extremities share information and constantly adapt to the change? The fact that we end up with deaf, dumb, blind and numb organizations is why we never see, or react in time to, a shock such as the sub prime meltdown coming.

What if there was one financial institute that did operate in a decentralized, highly connected, locally empowered way? What would their returns be like? Consistently better than their competitors I bet. Of course the CEO of that company would have to convince their shareholders that the short term profits Merrill Lynch and Citigroup chased in the sub prime market were not real and not sustainable. Hopefully the shareholders would listen.

Cash Conversion Efficiency - a great outcome measure

A good article in CFO.com on the 2007 Cash Masters Scoreboard titled "Go with the Flow" talks about the rate at which companies can turn sales into revenue.

Why this is important is because the effectiveness of your end to end processes (order processing, manufacturing, delivery, billing, etc) can be measured by how efficient you convert sales into cash. If you read the post the efficiency myth the measure of efficiency is "Actual Effectiveness" divided by "Ideal Effectiveness". Applying this to converting sales into cash, think about the ideal amount of time we should be able to convert sales into cash. Let's say;

• one week for order processing,
• two weeks for manufacturing and delivery
• and a final week for invoicing,

four weeks in total.

If we have 30 day terms we ideally should be able to convert sales to cash in about 8 weeks.

If this in reality is 16 weeks our efficiency is 50%, 8 weeks divided by 16 weeks. Efficiency is a measure of how effective our processes are.

The 2007 Cash Masters Survey of 1,000 companies in Europe used a metric called "Cash Conversion Efficiency which was calculated as cash flow from operations divided by sales. The amount of cash that comes out divided by the size of the sales contracts.

The good thing about this type of measure is that it is outcome based. How often do you get into finger pointing meetings where people say it is not our department's fault we are hitting our targets. And when you look across all the departments that make up the end to end value stream you notice that everyone is hitting "their" target, but you are still running at an efficiency level of half what it should be. The focus switches from who is right and who is wrong to how do we deliver a better outcome. This helps internal silos come down as people can make decisions around achieving the outcome instead of defending their turf.

This is noted in one of the better performers Telenor, a Norwegian Telecom, with the interesting observation that they are reversing the problems of the myth of control and the internal silo problems of the mythical benefits of shared services in the following example from the article;

"And rather than launching cost cuts dictated by rigid financial timetables, employees across all functions are asked to manage a "delicate balance" of short-term financial targets and long-term customer relationship goals. These shared, wide-ranging incentives encourage "a common understanding of each other's jobs," says Westlie. "Everyone contributes to decisions, and there is a lot of local autonomy."
Another important step in "tearing down silos," he explains, is to abandon the budgeting process. Next year Telenor will introduce a rolling five-quarter forecast covering both financial and non-financial metrics updated each quarter, in addition to a three-year outlook that's revised annually. Doing so, he predicts, will bolster the company's agility and shorten time-to-market. By "going dynamic" — the term used around Telenor — employees will be able to react faster to changes in the market, both in terms of chasing new opportunities and adjusting spending and other costs in response to business conditions."

How good is your cash conversion efficiency?