Management Mythbusters

Prove it!

2011-10-22T22:09:00.000-07:00

Some interesting quotes from Michael Lewis's book Moneyball based on a true baseball story and now a motion picture starring Brad Pitt, made me think about how conventional wisdom is often accepted in the corporate world without every being asked to prove it.

"tinkering with the records of baseball games to see how the machinery of the baseball offence works. I do not start with the numbers any more than a mechanic starts with a monkey wrench. I start with the game, with the things that I see there and the things they people say there. And I ask: Is it true? Can you validate it? Can you measure it? How does it fit with the rest of the machinery? And for those answers I go to the record books... What is remarkable to me is that I have so little company. Baseball keeps copious records, and people talk about them and argue about them and think about them a great deal. Why doesn't anybody use them? Why doesn't anybody say, in the face of this contention or that one, "Prove it"?"

Bill James quoted by Michael Lewis in Moneyball.

Bill James was one of the early people challenging the statistics of Baseball and how the conventional wisdom of what made a good baseball player was actually wrong. He started at the big picture and went and found statistics to prove or disprove his theories, an approach academics call deductive reasoning. To his surprise the major baseball teams did not want to know about a better way to measure performance. A colleague of his, Pete Palmer put it this way;

""Managers tend to pick a strategy that is least likely to fail rather than pick a strategy that is most efficient", said Palmer. "The pain of looking bad is worse than the gain of making the best move""

Peter Palmer quoted by Michael Lewis in Moneyball.

As Lewis explains;

"Palmer really was a gifted statistical mind, and he had done a lot of work, just for the hell of it, that demonstrated the foolishness of many conventional baseball strategies, Bunts, stolen bases, hit and runs - they all were mostly self-defeating and all had a common theme: fear of public humiliation."

Michael Lewis in Moneyball

How many accepted long term practices are there in business today that are never asked to prove whether they are actually valid or not. I remember listening to a presentation by Huthwaite, the creators of SPIN selling, that said stop measuring the number of sales calls your reps are doing. Start measuring their effectiveness. If you don't have what the customer wants, calling on them more often will only annoy them.

Taking a risk and doing something new and different could lead to a CLA, a career limiting action. It is far safer to keep repeating the old practices whether they can be proved or not than the public humiliation of failing at something new. This prevents people to even seek out the new facts, the new ways of doing things and to always stay between the lines.

Of course the point of this true story is to show how one team the Oakland A's did adopt proper performance measures. They were able to select the right players that were being overlooked and achieve amazing success at a fraction of the other team's salary budget.

Lewis connects the dots for us when he links the work Bill James was doing with the corporate world;

"There was but one question he left unasked, and it vibrated between his lines: if gross miscalculations of a person's value could occur on a baseball field, before a live audience of thirty thousand, and a television audience of millions more, what did that say about the measurement of performance in other lines of work? If professional baseball players could be over - or under - valued, who couldn't? Bad as they may have been, the statistics used to evaluate baseball players were probably for more accurate than anything used to measure the value of people who didn't play baseball for a living."

Michael Lewis in Moneyball

Before you are complete that next 360 degree people review or do those annual employee appraisals you might first want to watch the movie Moneyball.

Take me out to the ball park...

Rob

Occupy Wall Street should try fighting fire with fire

2011-10-08T20:10:00.000-07:00

There is a great article in the Huffington Post by a mortgagee who walked away from his home.

"How to Walk Away" by Ryan J Downey

While reading it I thought of a wild idea to actually help people keep their homes and at the same time send a clear message to Wall Street along the lines that I think the "Occupy Wall Street" protesters want. Now I did say it was wild so people might pull it apart but for what it's worth here goes my "Roe vs Banks" idea.

In his article Downey explains that he bought his house for $422,000 and Zillow.com now estimates it is worth just $253,000. He explains how he has walked away from his home, the bank repossessed it and when they tried to auction it no one bought it.

Therefore unless the bank has written down the value of the home they have an asset on their books of approx $422,000 which is worth $253,000 and the person who owes them the difference is now renting a different house and won't be paying them back. In the current situation everyone loses, Downey and the Bank. Although as Downey writes the consequences for him are minimal except he no longer has a house he can call his.

In Downey's article I liked how he explained using the Bank's poor organization against itself. It reminded me of the post Myth of Control.

"After months of being frustrated by the bank's poor organizational skills (yeah, yeah, they are overwhelmed by all of the people losing their homes; whose fault is that again?) I decided to turn the tables. Poor organization can be your friend!"

According to Downey his biggest problem at the start was he kept doing the right thing by the Bank. He kept paying his mortgage! They wouldn't listen to him until he stopped paying them and even then is took nearly two years until he had to vacate his house. The Bank loses again by providing free rent for two years!

It is this same poor organization that would stop the Bank from seeing a possible solution. In Downey they have a customer who wants to pay them back but at a realistic house price. If instead of $422,000 the bank said just pay us $253,000 and we will call it square they would have money coming back in and a loyal customer for life. Instead they have no money coming in, potentially an incorrect asset value on their books and may have to fire sale the house to get some of the $253,000 back.

Here comes the Roe vs Banks idea. What if the Occupy Wall Street people went to a Private Equity or Hedge Fund and asked them to finance these underwater mortgaged houses. They invite the Downey's of the world to come to them with their houses. They sort out suitable cases like his and then go to the bank to offer them the $253,000. The Bank will be keen to take the money and run and the OWS entity now has a credit worthy customer paying back a mortgage on a realistically valued home.

The Bank's have to write down the difference between the outstanding $422,000 loan and the $253,000 recovered, they are left with the truly bad cases and not the salvageable ones like Downey and this in total hits them where it really hurts, their earnings, bonuses, etc. In short OWS has used fire to beat fire.

Just a thought,

Cheers,

Rob

Why the negative? Give positive a go!

2011-10-01T16:33:00.000-07:00

I love a series of adverts about honesty by the Australian bank NAB;

NAB Honesty Experiment #1 - Incorrect Change
NAB Honesty Experiment #2 - The Lost Wallets
NAB Honesty Experiment #3 - Leaky Pockets

I can't vouch for the scientific rigour of the experiments but they do highlight the fact that the majority of people will do the right thing. Yet if you take a look at how companies deal with their customers and with their employees they start with the assumption that the majority of people will do the wrong thing.

We put in place rules and processes to make people jump through hoops to make sure we are not ripped off. In other words we are putting in place rules and processes for the minority, not the majority.

I can remember reading about an insurance company (sorry couldn't find the reference) that calculated that it would be far cheaper to just pay out all the claims that came in rather than have people process each claim for its validity. Sure we may put in place some high level safe guards to catch those that are claiming wild amounts, either mischievously or mistakenly. But the majority of people will do the right thing. Let's start thinking that way.

The other day we were having trouble with our cable modem at home. My techo teenage son run a whole series of tests to narrow it down to the modem. We rang our Internet provider who said that before they could replace the modem they would have to send a technician out to verify what we were saying. We tried to explain the tests we had done and why this was a waste of every one's time and money and could they just please ship us a replacement modem. Eventually by escalating to the supervisor we were able to convince them to do this, but it wasn't easy. The Internet provider's process was to not trust the customer, incur the expense of sending a technician out and still would have had to replace the modem. This is cost all round, to the supplier and the customer.

What if were to take the positive approach instead? How much cost could we save? Think of the increase in customer satisfaction, repeat business, referrals and new sales? How would you feel if your supplier actually trusted you? As above we would need to put in safe guards but the approach of trusting first and checking later is very different from stopping everyone from doing business with us until they prove themselves. I am sure the upside will far out weigh the few few times the minority gets away with something.

Give the positive a go, it could be revolutionary,

Cheers,

Rob

Theory of a Perfect Organization

2011-06-10T16:29:00.000-07:00

I auditioned for a speakers spot at TED 2012 by producing the requested one minute video on my topic.

My topic was based on my Master's Thesis, Integral Business Architecture, a theory of a perfect organization.

22,000 words boiled down to one minute, please let me know what you think,

Thanks,

Rob

Working to Rule - the Potent Union Threat

2011-06-10T16:20:00.000-07:00

I noticed the following comment in The Age newspaper (June 11, 2011, Page 6 Business Day) regarding Qantas pilot's industrial action;

"The pilots are unlikely to walk off the job, instead resorting to a work-to-rule campaign....
Strange as it may seem, work-to-rule can be more costly than if the pilots did walk out because Qantas still has to pay their wages. And there's a flow-on effect: grumpy employees making clear to passengers their dissatisfaction, or travelers considering other airlines because of looming industrial action."

As pointed out in the post about why many computer implementations fail the actual notion of work-to-rule as a threat to disrupt "work" should make people wonder why the "rules" are there in the first place.

If a "rule" or "process" does not add value to the end outcome why do it?

Regards,

Rob

Social Computing - How work gets done

2010-11-18T02:23:00.000-08:00

In the keynote address at Gartner's Symposium they talked about the trend of "Social Computing". Their point was this is how work actually gets done versus how we build computer systems that lock us in to rigid processes.

"“The rigid business processes which dominate enterprise organizational architectures today are well suited for routine, predictable business activities. But they are poorly suited to support people who’s jobs require discovery, interpretation, negotiation and complex decision-making,” Mr. Sondergaard said. “Social computing, not Facebook, or Twitter, or LinkedIn, but the technologies and principals behind them will be implemented across and between all organizations, it will unleash yet to be realized productivity growth, it will contribute to economic growth.” Peter Sondergaard SVP Gartner Research

Reminded me of this post back in 2007: "Maybe why computer implementations usually fail."

cheers,

Rob

Master's Thesis - Integral Business Architecture, a theory of a perfect organisation

2010-11-15T00:07:00.000-08:00

This blog has been quite for a while as I completed my Master's Research Thesis. Below is the abstract, if you would like a copy please send me an email at robinson.roe@gmail.com . Thanks, Rob

Abstract

Many of the books written in business literature are based on the observations of the authors who come up with reasons for a company’s success or an individual’s great leadership. These observations are summarised into either; a series of steps to follow, or a collection of principles to apply. There is however another body of work questioning the validity of these business success books. They put forward a case to argue that the great companies and leaders may not be as great as they have been presumed. The question is who is right and what are the right steps to follow and principles to apply?

This paper starts at the other end of this debate by creating a theory of a perfect organisation based on the academic research of people, culture and organisational development and uses this to review the “steps to success” and “principles to apply” in the business literature to look for alignment. This theory of a perfect organisation is called the Integral Business Architecture.

The Integral Business Architecture uses Ken Wilber’s Integral model which provides the framework that the academic research of how people think, the cultural values we form and the resultant organisations that this thinking and these values create can be mapped.

It is described as ‘a’ theory of a perfect organisation as it is just one theory. Therefore while the Integral Business Architecture provides a framework for academics, consultants and practitioners to discuss the theories, experiences and models that abound in the business world, there is a need for primary research to further validate the amalgamation and interpretation of the secondary research which makes up the Integral Business Architecture.

Nice guys finish first, always, when...

2010-03-05T23:36:00.000-08:00

Robert Axelrod in his book, The Evolution of Cooperation, describes the results of two tournaments he ran based on the Iterated Prisoner's Dilemma Game. In both tournaments a 'nice" strategy called "Tit for Tat" won. A "nice" strategy is where you never defect first, that is you never try to take advantage of the opposition. A "mean" strategy is one where the player will defect first, either intially, or some time during the game. The "Tit for Tat" strtagey was to play nice for the first move and then just repeat what ever move the opposition player made in the previous round. If they defected, tit for tat defected, if they played nice, tit for tat played nice.

The findings from the first tournament where published and people were invited to pariticpate in the second tournament. In this second tournamnet 14 of the top 15 places were "nice" strategies with one "mean" strategy coming in at number 8. While 14 out of th 15 bottom places were "mean" strategies. The "mean" strategy that came in number 8 was shown to not be sustainable in a subsequent "survival of the fittest" simulation played out over future generations. "Tit for Tat" won that simulation too.

Axelrod explains why "Tit for Tat" is such a strong strategy:

"What accounts for TIT FOR TAT's rodust success is its combination of being nice, retaiatory, forgiving, and clear. Its niceness prevents it from getting into unecessary trouble. Its retailiation discourages the other side from persisting whenever defection is tried. Its forgiveness helps restore mutual cooperation. And its clarity makes it intelligible to the other player, thereby elicting long-term cooperation." (Axelrod, 2006, page 54)

some interesting lessons in there for how we cooperate in the real world.

cheers,

Rob

Great Doubt

2009-07-05T05:08:00.000-07:00

The other week my lecturer wrote three words up on the board;

Great

Small

No

He followed these three words with three more;

Great Doubt

Small Doubt

No Doubt

And then borrowing from Buddhism he wrote;

Great Doubt, Great Enlightenment

Small Doubt, Small Enlightenment

No doubt, No Enlightenment

If you have no doubt, if you know that you have the answer, there is little chance you will see any other answer but your own. The filters in your mind are turned up to high blocking out any answers but your own. And you believe this to be good because you have "no doubt".

You may have no doubt, but you also have no enlightenment, you are blind to the many alternatives being expressed in the world.

Lately I have been feeling much more "doubt" in my mind than I did several years ago and it is wonderful. My mind is opening up to so many more possibilities. I can feel my filters coming down. More and more I am able to look beyond my own worldview and it is amazing what you see. You can see what people are trying to tell you if only you are open to hearing.

A long way for me to go yet but I am enjoying having great doubt.

A thought has just popped in, how do you think that would look on your resume? "Excellent at great doubt". Hmmm maybe not but "Excellent at seeing a broad range of possibilities" does sound good.

give it a try,

Rob

Mackenzie Falls

2009-06-28T04:21:00.000-07:00

The number of hits on my blog has gone through the roof lately. The searches are looking for "mckinsey falls" or "mckinseyfalls.com" and my listing comes up first on google, hence the hits.

Obviously these people are not looking for my blog but I am thinking at least any traffic could lead to good traffic.

After a few attempts I think I have discovered what they are looking for "Mackenzie Falls" a Disney Channel show for teenagers. I doubt any of the searchers will find my blog interesting but if you do please leave me a comment.

For the site you are looking for click here.

Cheers,

Rob

One more book...

2009-05-23T23:58:00.000-07:00

Robert Coram wrote the acclaimed biography of Colonel John Boyd, Fighter Pilot, well worth a read if you have ever heard of OODA loops. Boyd died of Prostate Cancer in1997 and now Coram is fighting against the same foe.

Coram writes a compelling account of his fight on his web site. It concludes;

“In the meantime I am keeping my eyes upon the barricade.
And I am writing as fast as I can.”

Faced with a very uncertain future he wants to make sure that he writes at least one more book.

I am not sure, but I think Boyd would have approved.

The GFC is a myth, or it seems so to some.

2009-05-01T23:06:00.001-07:00

I have been asking friends about what impact has the Global Financial Crisis, GFC, had on budgeting within their companies for the next financial year. Amazingly the responses I have been getting are that their companies are continuing to build growth into their plans as if there is no GFC. To them it appears to be a myth.

Now I will admit that my sample size is no where near a global representation but there does seem to be this head in the sand attitude. Or there is at least at the top line revenue level. I suspect that there is double budgeting going on. On one hand we all can't get off this growth kick we have been on so we are forecasting revenue growth. On the other hand it is batten down the hatches on cost control. The disconnect between revenue and cost will create some interesting dynamics going forward.

Is this happening at your company?

Is anyone out there planning how to ride out the GFC and come out stronger into whatever the new world brings?

Just some idol curiosity,

Cheers,

Rob

More on my train ticket saga, they weren't as clever as I thought...

2009-01-17T15:11:00.001-08:00

If you want to read from the start of this story then please go to the original post by clicking here. You probably won't understand what I am talking about if you haven't read it, sorry.

Two weeks ago, back again at my favourite airport train line, I arrived to find that not only was the ticket machine displaying "Exact Change Only", but this time the clever people were not as clever as I thought in my last post and had put the train fare up to $20.20. Luckily I had the extra 20 cents as well as my usual twenty dollar note and could catch the train coming in four minutes instead of joining the long queue at the ticket booth.

Returning this week I find they have installed specific ticket machines that are connected for credit card or ATM transactions, but only tickets to the City not anywhere else on the train network.

I wonder if the extra 20 cents was to;

pay for the Credit Card machines
because the ticket machines kept running out of change
because they had outsourced their operation,
because they were trying to save money,

possibly 20 cents a customer?

Meanwhile I had my $20:20 cents ready and was on my way.

Riveting stuff I know :-),

Rob

CEOs need to understand their employee's time horizon

2009-01-10T14:40:00.000-08:00

Much has been written about getting "buy-in" from the employees when senior executives want to create change. Yet often the new CEO falls into the trap of "telling" the employees the new direction for the organization. As opposed to working with their employees; listening, talking, brainstorming in order to form a joint view of the new way forward.

An understandable reason for this is that the new CEO is under time pressure to get things done. Wall Street wants results as soon as possible. Taking the time upfront to formulate a collective view is either seen as taking too long or the result of the CEO not being a decision maker or both.

But here is the rub. The time horizon of the new CEO is one to five years. They need tangible results within twelve to eighteen months and their overall tenure is likely to be around five years. The time horizon for the employees is actually longer than this, they see themselves working for the same organization for at least five, ten, fifteen years or more. So when the new CEO starts 'telling" them about the new direction they either agree with what the CEO is saying and get on board or if they disagree they simply decide to "wait this one out" and see what the next CEO brings.

I wonder how many CEOs out there have the majority of their employees "waiting this one out" while they are puzzled because real change isn't taking place?

Regards,

Rob

A Global Village of 100 People looks like...

2008-12-31T15:41:00.000-08:00

Ken Wilber in his book, "A Theory of Everything" (2001) uses the work of Dr. Phillip Harter of Standford University School of Medicine to show this interesting example.

"If we could shrink the earth's population to a village of only 100 people, it would look something like this:

57 Asians
21 Europeans
14 North and South Americans
8 Africans
30 White, 70 Non-white
6 people would possess 59% of the world's wealth, and all 6 would be from the United States
80 would live in substandard housing
70 would be unable to read
50 would suffer malnutrition
1 would have a college education
1 would own a computer

Not sure if this would vary much for 2009 but as we enter this new year it is an interesting view of our world. I feel a growing global awareness that we do all live on the one planet and that maybe we should get along a bit better than we do today. Both with each other and with our world.

Happy New Year, and to paraphrase Lennon, "let's make it a good one"

Cheers,

Rob

You have to laugh...

2008-12-12T14:46:00.001-08:00

As you probably know I went back to Uni this year. Well today is the day that the final results come out. 8am 13th December 2008 (my time, not blogger post time). It has been giving me this time and date every time I have logged on to "Blackboard" the Uni Intranet.

So guess what?

I log on this morning with great anticipation only to receive a message saying "sorry but the site is closed for system maintenance." Now I am staring at the screen wondering if the IT Department can be that uncoordinated with the academic faculty to bring the site down on the day results are to be posted or has there been some glitch with posting the results or overload from traffic etc.

My vote is lack of coordination because we see it all the time in companies, the old "left hand doesn't know what the right hand is doing".

I have sent a note to the webmaster and will let you know what the reply is in a comment to this post,

If I don't blog again until next year Happy Holidays!

Cheers,

Rob

Gaming the Gamers - a great quote from Hoverstadt

2008-12-01T02:29:00.001-08:00

Just had to post this quote from Patrick Hoverstadt’s book, “The Fractal Organization” on performance related pay. I think it is so true, especially who he says will win.

“In any performance related pay system, gaming is inevitable. PRP systems are explicitly attempts to manipulate behaviour, attempts by managers to manipulate the behaviour of staff. From a Game theory perspective, this is gaming; it is management playing a game with staff. So in PRP gaming is inevitable, the question is which game is going to be played, or rather, whose game is going to be played, the manager’s or the staff’s? Setting up a PRP system that is explicitly designed to manipulate staff behaviour is an open invitation to staff to game the system. If it is OK for managers to manipulate staff, it has to be OK for staff to manipulate managers by using the PRP system. Ashby’s Law tells us who is likely to win this contest, and of course it is the staff.”

Cheers,

Rob

Supporting Movember

2008-11-16T20:54:00.001-08:00

Future Scenarios, well worth the read.

2008-11-04T22:37:00.000-08:00

As part of my Uni course we had a visit by permaculture pioneer David Holmgren who took us three his four possible scenarios for the future. His scenarios are based on the cross swords method and look at the two forces of Peak Oil and Climate Change. The four scenarios are titled Brown Tech, GreenTech, Earth Steward and Lifeboats. They are well worth a read, even if they are a bit scary because there is more than a fair chance we will end up in one of them.

You can find the details at www.futurescenario.org or if you want to go straight to the scenarios themselves click here.

Regards,

Rob

Call Center breaks through the Efficiency Myth

2008-09-19T19:01:00.000-07:00

A year ago this Insurance Company call center made a radical change. They moved away from the approach that focused on “efficiency”, well at least what conventional wisdom thinks is efficiency (see post “The Efficiency Myth”), to one based on “effectiveness”. Previously they were organised around the company’s product lines, a.k.a. “skills based routing”. There were approximately 7 to 9 teams a customer could be directed to depending upon the product area of their inquiry. The averaging call handling time, a key performance measure for call centers, was 360 seconds and their customer satisfaction survey results were coming in between “needs improvement” to “just meets needs”. They had an intense training program for new agents that went for six weeks and covered everything they needed to know across the call center. However these agents were then placed into a particular skill area and had no experience to handle the first call that came in with an in-depth question.

The change that was made was aligned to looking at the effectiveness of handling the customer calls and not the misconception of focusing on the efficiency of processing them. With help from an outside consultancy firm the Insurance Company realised that customer enquiries could be grouped into two types of call, simple and complex. They organised their call center around these two groups. All inbound calls first go to a group of agents that are there to handle the simple enquiries. If the customer has a more complex question these are passed on to a second group who are more experienced. The groups are not organised by products and handle all calls coming in.

Now according to “the efficient myth” efficiency is an outcome not an input. It is the measure of effectiveness (efficiency = actual effectiveness, divided by, ideal effectiveness). Therefore if these changes increased the actual effectiveness of handling customer enquiries we should see the efficiency measure improve.

This is exactly what happened. Remembering that the average call handling time of all calls was previously 360 seconds what the Insurance Company found was that the average call handling time of the simple calls dropped to 180 seconds while the average handling time of the complex calls remained at 360 seconds. This freed up agents to do outbound calls for customer retention activities. In addition the customer satisfaction survey has now improved from “just meets needs” to “excellent”.

The training program has been changed as well. Agents now undertake a more iterative training program. They learn the basic information required to handle simple calls and experience those types of calls immediately, before learning how handle more complicated calls. Therefore instead of being thrown into the deep end of handling “skills based” calls of any level of complexity there is a skills progression path for the agents. This had led to an overall career path for the agents. They can start in the simple calls group, move through to the complex calls group and many are now moving into other parts of the business where they can leverage their coalface knowledge to benefit the company in its product development, marketing, sales and operational areas. Another benefit has been the simplification of the technology supporting the call center. Routing rules, voice announcement options and even work force management has been simplified which all leads to lower cost.

Therefore not only did the efficiency measures improve (i.e. average call handling time) but customer and employee satisfaction has increased as well and support costs have been lowered.

The Efficiency Myth can be defeated!

Efficient Governments, Dictatorships and Resilience

2008-08-29T16:14:00.000-07:00

“Whenever you have an efficient government you have a dictatorship”, Harry S Truman.

This quote came up in my daily quote section on my iGoogle homepage. It reminded me of a conversation I was having with some of my colleagues about leaders like Steve Jobs and Bill Gates, that is, dominant CEO figures. It is their absolute authority that allows them to turn their companies in a new direction. For Steve Jobs that was iPods, iTunes and iPhones. For Bill Gates it was retracing his steps and getting on board the Internet.

The only problem with this style of leadership is that they better be right. If the direction they take their company is over a cliff, they will all go there together, very efficiently. It also breaks down any upward communication. “Hey boss, is that a cliff coming up?” CEO’s reply, “Are you with me or not?”

Bill Gates wasn’t always right but was able to back track on his earlier views of the Internet and switch Microsoft in that direction (no comment on tactics). He has now moved on from Microsoft and I wonder how the leadership works there now?

One day Steve Jobs will move on from Apple (again) and I wonder how resilient the company will be with his departure.

We are told to build resilience into our children so they can face the ups and downs of the world. What are we doing to build resilience in our organizations? I believe that dictatorships break down resilience therefore sorry Mr President Truman but I don’t like your quote.

A Framework to Forecast the Future of Working

2008-07-27T01:57:00.000-07:00

Abstract

The increased access and sharing of information via mediums like the Internet are continuing to have a profound impact on how we work and socialise. The question is how will these change over the next five to ten years. This paper provides obervations of these changes, analysis of what is actually happening and uses Joseph Voros’s Future Cones to illustrate a broader range of potential futures than simply more of the same only faster. The next stage of working out what to do about these potential futures is not covered in this post and any suggestions would be welcome.

Gutenberg Take Two

It started with Gutenberg’s printing press, the ability to mass communicate information in the form of books and newspapers, a changing of people’s view of the world. Gutenberg is credited with enabling the Renaissance, the Scientific Revolution, and the Protestant Reformation (Harry Ransom Centre, 2008). Once again the availability of information has taken on a new level fuelled by the Internet. It is providing mass communication between everyone on the plant. Today we are going through the same quantum of change as the world did starting in the 1400s with the advent of the printing press. Kevin Kelly predicted back in 1997 that this level of change will be “momentous” and explained how the underlying driver of this was communication;

“The great irony of our times is that the era of computers is over. All the major consequences of stand-alone computers have already taken place. Computers have speeded up our lives a bit, and that is it. In contrast all the most promising technologies making their debut now are chiefly due to communications between computers - that is, to connections rather than to computations. And since communications is the basis of culture, fiddling at this level is indeed momentous.” (Kelly, 1997, page 140)

So what is happening?

On the physical front we see;

Broadband telecommunications, both wired and wireless, dramatically increasing the speed and number of data connections
Social Networking Websites - MySpace, FaceBook
Business Networking websites – LinkedIn, Plaxo, Xing
Business Collaboration Tools – 37Signal’s Basecamp, WebEx Connects
New Information Repositories – Wikis, Blogs, Podcasts, YouTube
New transaction processing systems – eBay, PayPal
Intelligent information retrieval – Google’s adsense, Amazon’s book suggestions

Observing changes in behaviour we see;

The recognition of Digital Natives as an emerging group where “today’s students think and process information fundamentally differently from their predecessors”. (Prensky, 2001, page 1)
People around the globe are putting their details up on social networking sites and seeking out connections with current and former friends and colleagues. Donath and boyd join Kelly in commenting on how cheaper and easier to use communication technology leads to an “increase in available information and opportunities”;
“We hypothesise that the number of strong ties an individual can maintain may not be greatly increased by communication technology… but that the number of weak ties one can form and maintain may be able to increase substantially, because the type of communication that can be done more cheaply and easily with new technology is well suited for these ties. If this is true, it implies that the technologies that expand one’s social network will primarily result is an increase in available information and opportunities – the benefits of a large, heterogeneous network” (Donath and boyd, 2004)
Business network sites like LinkedIn and Plaxo not only provide an online contact list but are tracking the behaviour of people as they add contacts, update their profiles and post information. Plaxo’s calls this feature “Pulse”.

At the society, economy and cultural levels we see;

New Rules for the New Economy – Kelly wrote about the changes we are now experiencing back in 1997;
“The advent of the new economy was first noticed as far back as 1969, when Peter Drucker perceived the arrival of knowledge workers. The new economy is often referred to as the information economy… I prefer the term the Network Economy because information isn’t enough to explain the discontinuities we see.” (Kelly, 1997, page 140)
Drucker called them “knowledge workers” working in the “information economy” therefore following Kelly’s adaptation of Drucker’s terminology to create the label the “Network Economy” within this economy we may now be seeing the emergence of “Collaboration Workers”.
Crowdsourcing – this is the phrase being used to describe open collaboration with anyone who wants to contribute. It’s best known example is Wikipedia. Tapscott and Williams in “Wikinomics” provides examples of this being applied to the commercial world, one of which is Goldcorp Inc;
“In March 2000, the ‘Goldcorp Challenge’ was launched with a total of $575,000 in prize money… Within weeks, submissions from around the world came flooding in… entries came from surprising sources, including graduate students, consultants, mathematicians, and military officers… Over 80 percent of the new targets yielded substantial quantities of gold… McEwan [CEO Goldcorp Inc] estimates the collaborative process shaved two to three years off their exploration time.” (Tapscott and Williams, Page 9]
Wikis in the Corporate World – Law firm Gilbert & Tonkin are using Wikis to share information in a new way. Bernadette Jew’s trip report on her overseas travel to China is an excellent example;
“When Jew travelled to Shanghai earlier this year, notes from her meetings were typed directly into a wiki and G&T partners in Sydney read them and provided feedback directly onto the wiki. This saved them having to respond to multiple emails, or take phone calls. At the end of the trip Jew’s report on the trip was simply a link to the wiki.” (AFR, 2008)

At the personal level we see;

Shift of Control – Rupert Murdoch spoke of a shift in control that young people want moving from the “god-like figure... above” to themselves;
“What is happening is, in short, a revolution in the way young people are accessing news. They don’t want to rely on the morning paper for their up-to-date information. They don’t want to rely on a god-like figure from above to tell them what’s important. And to carry the religion analogy a bit further, they certainly don’t want news presented as gospel. Instead, they want their news on demand, when it works for them. They want control over their media, instead of being controlled by it.” (Murdoch, 2005)
As an aside, Murdoch’s understanding of these changes could have been part of the reason why NewsCorp moved quickly to acquire social network website MySpace. (NewsCorp, 2005)
Personal Satisfaction and Fulfilment – Malone in The Future of Work highlights that the “real impetus” for change will also come from our noneconomic, personal goals;
“New information technologies make this revolution possible. Dispersed physically but connected by technology, workers are now able, on a scale never before even imaginable, to make their own decisions using information gathered from many other people and places. The real impetus for the transformation in business will not come from the new technologies, however.” It will come from our innate desires – for economic efficiency and flexibility, certainly, but also from noneconomic goals like freedom, personal satisfaction, and fulfilment.” (Malone, 2004, page 4).

What is really happening? Analysis.

A Layered View

The observations above, across the four groupings of Physical, Behavioural, Cultural and Personal, provide examples of “events” that are taking place. To understand what is really happening we need to look at the layers below these “events” to decipher the underlying causes. These layers are;

events (an occurrence)
patterns (events over time),
structures or systems and
worldview or our “view of the world”

Our worldview influences how we think and respond to the layers above and it is by uncovering what our worldview is that allows us to get to the heart of what is really going on, how our worldview might change and therefore what range of futures could unfold.

A simple example of this analysis is found by looking at traffic in a city, as detailed in the diagram below: Traffic – Underlying Causes. Observing just the traffic, “events”, at any point of time is not enough. Observing traffic over time, “patterns” reveals that during the commuting peak times of morning and late afternoon traffic jams occur. The structure that causes this is the fact that we have similar working hours and therefore we all need to arrive and leave around the same time. Trying to managing the volume of traffic at these times creates another set of structures such as; freeways, traffic lights and restrictions on turning into side streets. The view of the world that motivates many people to battle through traffic jams on their daily commute is that city jobs are worth this effort because they offer more opportunity for pay, career or personal fulfilment; otherwise they would find work closer to home.

Today’s Work Processes – A layered View

If we apply this layered framework to how we believe today’s work processes, like meetings and appointments, operate we find the following layers in the diagram: Meetings, Appointments – A Layered View.

Today our view of the world on how we work is that people get together to share information and make decisions in real time; that is at the same time. When they get together the main form of communication is voice, talking to each other.

The Future of Working a Layered View

A common view of the future of working in the connected world is that meetings and appointments can occur in scattered locations; on the road, at home, in meeting rooms, or in different countries, using different devices; mobile video phones, web cameras, or high definition telepresence video conferencing. Voice is still the main communication method and the technology is used to try and make a distant meeting look and feel as close to being in the same room as possible. The assumption is that human interaction will still be based on “voice” and occur at the same time. These examples include being able to conquer the tyranny of distance and connect people at the same time either from their home, car, office, hospital bed, meeting room, or conference centre.

Another example of this “same time” thinking is how the use of the technology capability “presence” is discussed. “Presence” is the ability to display on your screen what a person is doing right now. It provides a status of the person based on whether they are logged onto the Internet or corporate network, on their phone or if their calendar is free at that moment. IBM even call their software for this function SameTime (IBM, 2008). From this view the use of “presence” is to be able to ascertain the status of people in order to be able to connect them now, in real time to have a discussion at the same time.

The underlying view of the world hasn’t changed therefore the forecast of the future is made based on technology enhancing the structure layer as depicted in the diagram: A “same time” Future - Layered View.

This forecast of the future is what Joseph Voros (Voros, 2003) describes as a “projected” view of the future. It takes the current patterns and extrapolates them into the future as seen in the diagram: "Same Time" Future – The “Projected” Future, where the cone depicts that there is the potential for a range of “Probable” futures around the projected future.

A Changing Worldview

In addition to the “projected” future there are a broader range of “plausible” futures. Futures that “could happen” (Voros, 2003) this is depicted by the wider cone in the diagram below;

To understand what these “plausible” futures might be we need to look at the changes occurring at the worldview layer of our analysis. In the observations above we notice that new behaviours are emerging. People are using the new information repositories of social networking sites, blogs, podcasts and wikis to share information with each other. This sharing of information is occurring on a many to many basis.

The example of Bernadette Jew (AFR, 2008) shows the use of a corporate Wiki to share information with her colleagues, who in return provided feedback which they could all see. And as was noted “This saved them having to respond to multiple emails, or take phone calls.” (AFR, 2008) There were no meetings or voice communications to discuss aspects of the trip or to gain information from her colleagues. It was all done by typing online into a new information repository structure, a wiki. In this example the new way of sharing information replaced emails and voice conversations.

What the Bernadette Jew example demonstrates is the growing pattern of online collaboration. On a broader scale this is enabling the emergence of the concept of crowdsoucing. When Goldcorp needed to work out where to find more gold in their fifty year old mine at Red Lake, Ontario the CEO, Rob McEwen, turned to the world;

“I’d like to take all of our geology, all the data we have that goes back to1948, and put it into a file and share it with the world,” he said, “Then we’ll ask the world to tell us where we’re going to find the next six million ounces of gold” (McEwen in Tapscott and Williams, 2006, page 8)
GoldCorp didn’t call a series of meetings for people to join and talk about the launch of the “GoldCorp” challenge they simply put the information online for the world to see and act upon. The result was that “an astounding eight million ounces of gold have been found” (Tapscott and Williams, 2006, Page 9).

If we were able to ask Bernadette Jew and Rob McEwen if their worldview was that;
“people had to meet at the same time and use voice as the method of communication to share information and make decisions”
we can confidently suggest that their answer would be a definite no. Their worldview has shifted to one of;

“sharing information and making decisions can be independent of people being together at the same time.”

Building on this we can see how the “events” and “patterns” that we observed above play out in our layered model in the diagram, A Changing Worldview.

Our “plausible” future is one that contains the concepts of online collaboration and crowdsourcing or “mass collaboration”. The emergence of “collaboration” workers and not just “knowledge” workers is indeed plausible.

There is yet another range of futures that may occur and Voros calls these the “Possible” futures (Voros, 2003). This is a view of a future that might happen, something we can imagine as possible. The “Possible” futures are beyond the projected, probable and plausible futures. For these to happen, future developments have to take place to provide the stepping stones to move from what is possible, to what is plausible, to what becomes probable. The range of “possible” futures is depicted in the following diagram;

A New Way of Conducting Business – Decentralised

While we have observed new forms of information repositories we are seeing new forms of transaction processing systems being built on top of this ability to share information online. A well known one is PayPal who describes themselves as;

“PayPal is the safer, easier way to pay and get paid online. The service allows anyone to pay in any way they prefer, including through credit cards, bank accounts, buyer credit or account balances, without sharing financial information” (PayPal, 2008)

PayPal facilitates a peer-to-peer exchange of money without actually being a bank or credit card provider. PayPal was acquired by eBay which is another example of a new transaction processing system based on the peer-to-peer model. According to eBay;

“eBay brings together millions of people every day on a local, national and international basis through an array of websites that focus on commerce, payments and communications.” (eBay, 2008)

Malone sees this trend occurring inside organisations like BP were they set up there own carbon trading marketplace across business units. BP set itself a target in 1998 to “reduce company’s greenhouse gas emissions by 10 percent, from the 1990 levels, by the year 2010. (Malone, 2004, page 91). By using this new form of peer to peer transaction processing, as opposed to top down ordered targets, BP were able to meet their target a staggering nine years ahead of schedule. Malone goes on to describe this new way of working;

“There are many buzzwords for describing the kinds of organizations this revolution will make more common. Self Organizing, self-managed, empowered, emergent, democratic, participative, people-centred, swarming, peer-to-peer are just a few of them. The word I’ll use most… to encapsulate all these different terms is a simple and timeless one: decentralized.
…Let’s define decentralization as the participation of people in making decisions that matter to them. In this sense decentralization means roughly the same as freedom. From this point of view, decentralization offers a much wider range of possibilities.” (Malone, 2004, page 5)

Murdoch supports Malone’s view of people gaining freedom in his comment,
“they want their news on demand, when it works for them. They want control over their media, instead of being controlled by it.” (Murdoch, 2005)

Adding to our previous description of a changing worldview the people in these “possible” futures may word their view of the world as;

“sharing information and making decisions can be independent of people being together at the same time and without being controlled by a hierarchy.”

Applying this to our layered approach we might see in the future the following events, patterns, structure and worldview as shown in the diagram; A “Possible” Future Worldview;

Depicting all of our future options using Voros’s cones diagrams we can summarise the potential futures in the diagram: Projected, Plausible and Possible Futures;

When viewed in this way our “same time” future is really more of the same, as the worldview doesn’t change while the structure layer is doing the same things only going faster and further due to the new technologies. Any new ways of working are more likely be found in the “Plausible” and “Possible” futures of collaboration workers and decentralised organisations.

This leaves one last set of futures for us to contemplate and that is our “preferable” future. Given the observations above and the analysis using the layered technique it is highly unlikely that the single “projected” view of the “same time” future will be the only one to happen. Therefore we need to broaden our thinking about what other futures may occur and how might we take advantage of the future ways of working for;

“collaboration” workers,
decentralised organisations, and
new transactional processing systems

Which oarts of the projected, plausible or possible futures do we prefer?

For all of us the future will come, we just need to decide what role we want to play in creating it. We can either just let it happen or by understanding the above concepts start to shape our “preferable” future. Hopefully this post will help you determine what that can be.

References

Donath, J and boyd, d. 2004, Public Display of Connections, BT Technology Journal, Volume 22, number 4, October 2004 available from http://www.danah.org/papers/PublicDisplays.pdf [accessed 3rd May 2008]

eBay, 2008, eBay ‘The Company’ Section available from
http://pages.ebay.com/aboutebay/thecompany/companyoverview.html [accessed 1st June 2008]

Harry Ransom Centre, 2008, University of Texas, available from
http://www.hrc.utexas.edu/exhibitions/permanent/gutenberg/html/5.html [accessed 1st June 2008]

IBM, 2008, IBM Lotus Sametime, available from http://www-306.ibm.com/software/lotus/sametime/ [accessed 27th July 2008]

Kelly, K. 1997, “New Rules for the New Economy”, Wired Magazine, Number 5.09, September 1997, pp. 140

Malone, T. 2004, Future of Work – How the New Order of Business Will Shape Your Organization, Your Management Style, and Your Life, Harvard Business School Press

Murdoch, R. 2005, Speech by Rupert Murdoch to the American Society of Newspaper Editors. April 2005, available from http://www.newscorp.com/news/news_247.html [accessed 3rd May 2008]

NewsCorp, 2005, Remarks by the Chairman Annual Meeting of Stockholders, October 2005, available from http://www.newscorp.com/news/news_267.html#top [accessed 25th May 2008]

PayPal, 2008, PayPal ‘About’ Section available from http://www.paypal.com.au/au [accessed 1st June 2008]

Prensky, M. 2001, Digital Natives, Digital Immigrant, from On the Horizon, NCB University Press, Volume 9, Number 5, October 2001 available from http://www.marcprensky.com/writing/Prensky%20-%20Digital%20Natives,%20Digital%20Immigrants%20-%20Part1.pdf [accessed 3rd May 2008]

Tapscott, D. and Williams, A, 2006, Wikinomics – How mass collaboration changes everything, Atlantic BooksVoros, J. 2003, A Generic Foresight Process Framework, Foresight 5,3 2003, pp 10-21.

Don't blame me it's not my fault

2008-07-20T04:11:00.000-07:00

Sorry for not writing for a while, I have gone back to Uni part-time and that has been sapping my writing energy. The course is a Masters in Management - Strategic Foresight and I am finding it really, really good. We have covered some great work like Clare Graves' - Spiral Dynamics, Ken Wilber's Theory of Everything, Joe Voros's Generic Foresight Framework with his "Futures Cones" model - Projected, Probable, Possible, Impossible and Preferable futures.

Anyway, back to this post.

I was sitting next to an IT guy at a breakfast presentation the other day. He was explaining to me that he had just been told of a solution to a problem he had a couple of months back. He wished he had had that answer back when he needed it. What made my ears prick up was when he said, "if I had of known the solution and "they" hadn't of used it at least I could have said, "don't blame me, it's not my fault".

What strikes me with this example, and the many more we come across in our lives, is that instead of being worried about not achieving the desired outcome we seem okay if the end result fails as long as the blame is placed elsewhere.

I believe that this culture of feeling okay, as long as the blame is elsewhere, starts with the way we structure our organisations along functional lines and not along end outcomes. As long as I am performing my function it doesn't matter whether the total result is achieved or not. We seemed to have developed all sorts of ways to enforce this culture; silo measurements, departmental budgets, limited information sharing, etc. Just try to implement an end to end measurement system from the start of the value chain to the end and see what resistance you get.

A line I quote a fair bit is "success does not equal failure plus a story". Failure is failure no matter how much of a story we add to it to be able to say "don't blame me, it's not my fault".

Cheers,

Rob

What do customers really want and train tickets.

2008-02-17T01:48:00.000-08:00

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

2008-02-17T01:40:00.000-08:00

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?

2008-02-16T17:41:00.000-08:00

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

2008-01-01T09:57:00.000-08:00

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

2007-11-10T23:05:00.000-08:00

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

2007-11-02T16:48:00.000-07:00

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

2007-10-28T03:46:00.000-07:00

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?

Maybe why computer implementations usually fail

2007-10-15T03:35:00.000-07:00

When unions want to put pressure on management they say that they are going to "work to rule". They are going to follow the processes that the managers have put in place, and this is a threat!

This got me thinking about why so many computer application implementation fail to deliver the benefits that they promise.

As stated above "working to rule" is a threat to slow and disrupt company operations but guess what happens when we implement a new computer system? We hard code these same rules into our new computer system.

Now if companies operate better by people working around the "work to rule" using their personal networks to make things happen what happens when these rules become hard coded into how people operate? Things do not work as effectively.

What we are now seeing is another layer of computer applications that sit on top of these hard coded systems. This layer starts as a spreadsheet enabling someone to produce their own ad hoc program to do their work. Maybe we witness a smart new hire setting up an Access database system. Before long a countless number of little programs and systems are in place to work around the "work to rule" hard coded computer application.

Try as they might companies can't stamp these systems out. And just as well because if they did they would probably come to a screaming halt!

Of course the managers could take a look at how people really operate and put in systems that help them as opposed to hinder them. To do this they would need to understand the Efficiency Myth and to operate in way as not to fall fowl of the Myth of Control.

Just a thought.

Free Markets, Female Family Planning Rights and BP Oil

2007-10-12T22:39:00.000-07:00

Driving home from the airport last night I was listening to a discussion on the radio about the issues of family planning in underdeveloped countries. The issue centered around women in poor countries having six, seven or more children even when they didn't want to. But without proper family planning education or methods they were caught in a reproduction trap. Experts from around the globe were talking about the merits of different recommendations. One suggestion was whether it should just be left to a free market environment and let natural forces play out. The experts didn't agree with this as a stand alone solution but said it was a combination of things. A main theme was that women will decide by themselves to have less children if they are given the necessary education and access to things like the pill and condoms. They don't need to be told to have less children, they need to be helped in the ways of having less children. Collectively they will respond to the environment and decide on how many children they want and should have, in this way a sustainable population level for each village will be achieved. What they were advocating was don't fall the for the myth of control and please provide education and development akin to the sporting team analogy.

Further on in my journey I passed a billboard by BP Oil. The billboard read "In 1998 we said we would reduce our carbon emissions to our 1990 level by 2010, we did it by 2001." Tom Malone in his book, The Future of Work, describes what BP did;

"British Petroleum didn't use the this kind of centralized, hierarchical approach at all [a setting of top down reductions targets for each business unit, with the ensuring bickering of who had a fair target and who didn't]. Instead, it set up an internal market to coordinate the efforts of different business units. Here is how it works: First, managers assign targets to business units by handing out a certain number of "permits". Each permit gives the holder the right to make one ton of carbon dioxide equivalent emissions a year. Then, the business units buy and sell permits among themselves, using a specially designed electronic trading system. for instance, if one unit head sees a way to exceed his or her reduction target, the manager could sell the extra permits to other business units having trouble making their targets. In 2001, BP business units traded more than 4.5 million tons of emissions rights using this system, at an average internal price of about $40 per ton.
In this way; all the business unit managers within BP can make their own decisions about the level of emissions reduction that make sense for them. And BP as a whole gains an efficient way of finding the most cost-effective methods of reducing emissions throughout the entire company. The approach has been so successful that by 2001, BP had already met its original goal of reducing emissions by 10 percent - nine years ahead of schedule!"

[Six years later the BP marketing department have realised the PR benefit of this!]

Free markets work but to help them along we need effective trading systems, education and communication. In James Surowiecki's book, "The Wisdom of Crowds" he points out that to harness the wisdom of crowds you need diversity and communication without overt influence. That is you need people who think differently to share their knowledge but without being able to apply external pressure. BP's internal market provided this structure.

But in companies around the world this is a very different approach. More likely decision making is carried out by a non-diverse group of men sitting at the top of a corporation, all coming from similar backgrounds, with the ability to apply external pressure though hierarchical positions. The chances of getting to a target nine years ahead of schedule or determining the right population level for every village in the world with this form of decision making can never be achieved.

In the post "Global Warming, Future Summit and the E-Myth" I talk about who is in the best position to solve the worldwide global warming problem and the conclusion I draw is that it is not the politicians for the same reasons as outlined above.

Does your company have an internal market structure in action? It would be great to hear of other examples.

It's naturally a horizontal world

2007-10-02T03:40:00.000-07:00

Value is created in the horizontal plane. As items are passed on from step to step value is added in this horizontal plane. However in the posting "The mythical benefits of shared services" I diagrammatically show the "verticalizing" process that too often occurs in organizations.

Recently I have been trying to create a balanced scorecard including the linkages between cause and effect of operational improvement, increased customer satisfaction, people development, etc on financial results. It has astounded me that because we have established a vertical organization we have also established vertical measurements which make it impossible to understand what is occurring in the delivery of value along the horizontal plane.

So entrenched is this vertical alignment that we now have trouble looking in the direction of value creation. Even though the horizontal plane is the natural alignment of creating value, from the vantage point of inside a large corporation it is now perceived as the unnatural way to view the world.

This mixed up view of what is natural (horizontal) and what should be seen as unnatural (vertical) creates a kind of malaise in an organization. This malaise effects everyone from customers, employees to suppliers. Often you hear someone yelling out "can we get some common sense here?" That common sense comes from viewing the world in the horizontal plane.

In which direction is your organization aligned?

SimEarth, the day I played God

2007-09-23T04:12:00.000-07:00

IBM have launched a 3D game called Innov8 which allows people to "play" business processes and operations. The idea is for IT and business people to play together and come up with shared learnings.

It reminded me of the time I bought SimEarth off the bargain basement rack. In SimEarth you play God and control things on earth like how much time is spent on education, law & order, science, arts, etc. You can also change things such as maturation rates of animals and greenhouse gas effects. As the Earth develops you go through iron age, bronze age, etc. The game is based on the Gaia Model.

One day playing SimEarth I decided to start in prehistoric time and see if I could build a better world than God. My success criteria was by the time we got to current day we had to be at the Nano technology age. As I raced through the years heading towards modern time I managed to boil the earth's oceans, create havoc and mayhem and many other missteps. The good news was that I was able to go back and start again, unlike real life where we only get one shot at it.

Eventually I succeeded and developed Nano technology before hitting today's time. But then a funny thing happened! I was finished but the game wasn't. The next year rolled around, and then the next and the one after that. Stop, stop I shouted at the screen but it kept on going. Suddenly it dawned on me. In life there is no end game, no finish line. It isn't about racing to get to some desired level of technology or pile of money.

I stopped and thought about this turn of events. What I realised was that I needed to think in a higher order. I needed to think about building a world that would continue improve by itself. Not a world that needed me acting as God to push it forward, to make it sustainable.

I went back to prehistoric time. This time I looked more closely at levers like education, the arts and politics. This time I watched the happiness of the people and not as much at the advancement of the sciences.

The ability to play over a long stretch of time and to go back and start again was a very powerful learning experience for me. I felt the experiential learning physically as well as mentally. I was able to try things and if they didn't work tweak it and try again. A bit like the new Nicholas Cage movie, "Next", which I watched on a plane the other day. Today the short term pressure and lack of forgiveness for mistakes in modern business make it hard for managers to "try things". They stick with what worked in the past. They stick with these tried and proven methods even when market conditions have changed. Even with the new generations of X and Y coming through.

I hope IBM develop these games more and somehow incorporate lessons around the management myths that keep being repeated.

Removing Traffic Lights - interesting proof point on the control myth

2007-09-13T03:53:00.000-07:00

A classic symbol of the command and control system is the traffic light. It commands when we go and when we stop. The ultimate objective is to make traffic flow safer, but do they?

A town in the Netherland's, Drachten, has discovered that by removing traffic lights there are less accidents and serious injuries. The direct eye to eye contact of drivers and pedestrians has proven to be a far better way of coordinating traffic and pedestrian flow. As posed in the myth of control post, can a system without central control work. The example of an ant colony was given. Now there is another one the removal of traffic lights in the Netherland's town of Drachten.

And it is starting to catch on. The German town of Bohmte has followed suit by removing their traffic lights and creating what is now being called a "shared space".

The Myth of Control is being proved in an unexpected situation.

Red Balloons - Why creating intrinsic energy in people is important

2007-09-07T00:17:00.000-07:00

Managers often manage by applying extrinsic energy on their people mostly by telling them what to do. It is hard for a single person to apply enough external energy, constantly, to get everyone to do what they want.

Using external energy in this way is like the senior executive who is in a room trying to keep red balloons afloat. The executive taps the first red balloon into the air. Then a second and a third. "Hey this is easy" he thinks, "I can get a hundred red balloons up there." Moving on to the fourth balloon the first balloon drifts down so the executive gives it another tap to keep it up there.

By about the seventh balloon the executive has a problem. There are more balloons drifting down than going up. The answer is to tap the balloons harder, hitting them further into the air, applying more management energy. The executive manages to get the eighth and ninth balloons up but by this stage he is spending all of his time running around tapping balloons.

Finally with the tenth balloon in the air the executive declares success, conveniently forgetting the one hundred target, and gladly accepts the next career move. Behind him, as he walks out of the room, the balloons gently come to rest on the floor.

Intrinsic energy would be like filling the balloons with helium. How many balloons can you get up in the air if they were filled with helium? Many more than ten or one hundred.

The following quote about the USS Benfold I found in Phil Dourado's book 60 Second Leader and is a great example of creating intrinsic energy.

"...just seven months after I took the helm, Benfold earned the Spokane Trophy.. It is given each year to the most combat ready ship in the Pacific Fleet.

Shortly after the award was announced, my boss, the commodore sent me an e-mail offering congratulations. But don’t get too cocky, he warned. His ship had not only won the equivalent award in the Atlantic Fleet, it had also achieved the Navy’s all time highest score in gunnery, 103.6 (out of a possible 105). ‘Until you can beat my gunnery score,’ he wrote, "I don’t want hear any crowing from USS Benfold."

Two weeks later we were scheduled to shoot our gunnery competition. I didn't say a word to my team. I just taped that email to the gun mount. They scored 104.4 out of a possible 105, after which I let them write a response to the commodore…"

Measuring Acceleration. not just current Speed

2007-09-02T14:40:00.000-07:00

I have been thinking about the role of managers of managers and even further up the tree to the senior executives. Many senior executives manage their business units by using monthly measurements. Often they are accused of micro managing or using command and control techniques, see The Myth of Control.

What occurred to me was that senior executives need to measure acceleration and not just the current speed. My logic for this is that if you are asked, "what is your current speed?" and answer 100mph, the answer is not complete because you need to say, "100mph, coming down from 120mph and slowing even further." Acceleration is a second order measurement. It is measuring the rate of change - 120 to 100 to 80 to ....

The measurements that senior executives need to monitor is the rate of change. If 100mph is your monthly target and the only answer you get is that you are on target typically the questions end there. If you notice that you are de-accelerating a whole new area of questions open up. "Why are we de-accelerating?, What is causing it? What can we do to fix the problem?" Suddenly we find ourselves in the process of asking the five whys. We are also starting to focus on effectiveness and not falling for the efficiency myth trap.

This analogy might help senior executives understand how they can provide support for the coal face employees.

Does your monthly business review focus on second order measures like acceleration or do you report your current speed?

Linkedin ecosystem emerging

2007-08-17T15:41:00.000-07:00

I have been signed up to Linkedin for a while. Linkedin is kind of like myspace or facebook but for business folks. People don't put up photos of themselves and their friends rather CV type details, education, job experience, etc. The main use of it has been to simply stay in contact with people as they move from jobs to jobs. I think it has been slow to build or for people to use because it is targeted at the digital immigrants, but things are starting to change...

What I have been noticing lately is that more of my connections on Linkedin are using it to post vacancies in their companies. As the community grows the social networking aspect of Linkedin are starting to emerge. While over time I have had a few head hunters wanting to "link" to me what is now appearing are broadcast messages from my "connections" about opportunities. Some of these I have passed on to other connections.

The outcome of this is that the job market will become even more liquid. In the future I can imagine people saying "I have had enough of where I am, my bosses keep falling for the myth of control, any good opportunities out there?"

Baby boomers and late Gen Xers will find it much easy and lower risk to become freelancers. If executives in the corporate world think that it is hard to keep talent now, Linkedin and others like Plaxo are going to only make it harder.

The Mythical Benefits of Shared Services

2007-07-29T03:47:00.000-07:00

As companies start out they typically only have one product. Think of Ford with the Model T, "any color you want as long as it is black". In this stage all functions are working together to produce the right product to meet the customer’s needs.

The diagram below illustrates how the people are operating at this stage.

Everyone is looking at the outcome they are working to achieve. The main goal is delivering that outcome.

Over time the company becomes successful and they add more products. The diagram now becomes;

And along comes the efficiency drive. Some clever consultants or manager decide to create a shared services department and where better to start than marketing. Our diagram now becomes;

And before long the marketing department is focused on their reporting line.

The goal becomes one of being a good marketing department. The measurements change from the outcome to internal measures of a marketing group.

Perceived short term cost savings encourage further expansion of the shared services approach and the Delivery team is now included in the restructure.

Before we know it our company is organised by function and no one even notices that the outcomes we once were focused on are now changing. Our customers and markets are changing in front of our eyes and no one is watching.

The goals now are all internal, how to be the best Sales, Service, Development, Marketing, Production or Delivery team. The world outside is changing but no one is noticing.

How are your budgets set, by internal functions or deliverable outcomes? Are your budgets aligned to customers, market segments? Do you know your costs by outcome, by customer?

Even if someone notices the market is changing the path to get a decision made is now torturous without a clear objective to base it on. Decisions are no longer based on gaining a better outcome but improving your own individual departments’ internal measures.

What does it take to get a decision in your organization? Are there multiple people who can say no but you need to get two, three, four or more people to all say yes before you can proceed? Does the fragmented budgeting across multiple functional departments get in the way?

Personal motivation also suffers, instead of the intrinsic reward of achieving an outcome, making a customer happy, delivering a great solution or just simply making a difference coming to work feels like you are jumping up and down on the one spot. Not surprising because often in a shared services world that is exactly what you are doing.

If you want to see how this happens in real life situations read “The Efficiency Myth” and “The Myth of Control”.

Shared services approach is adopted so that we can gain greater skills in our functional areas. The trade off is swapping hard line reporting focused on the outcome (customers) to hard line reporting to the functional area. With the latest technologies enabling social networking, wikis and the like we can now have both. We can share information around the world let alone through departmental walls.

But which way to organize, by function or by customer. What I have found is that people who work in the same function will naturally seek each other out. Sales people, service, production, etc. But sales people won't naturally seek out production people or development people. Therefore the best way to organize is by the outcome you are trying to achieve. Putting sales, service, delivery, production, etc people all together in the same reporting line. you can now create knowledge sharing along functional lines using techniques such as technology (social networking for business) and conferences to get people together.

Within your organization do you hang out with people doing the same sort people from a totally different department?

Is your organization structured around shared services?

Meanwhile down at the local bakery (or maybe I need to get a life)...

2007-07-28T20:51:00.000-07:00

Every Saturday and Sunday morning I go down to our local bakery and buy some bread and croissants. All the bread is baked fresh that morning, on site, and by the time I get there the bakers have gone for the day and just the shop assistants are left serving customers.

The usual process is you ask for your style of bread and tell them whether you want it sliced thick or thin (toast or sandwiches). They take your loaf behind the bread racks and slice it as requested and put it in a plastic bag for you.

Yesterday that changed. I asked for my usual loaf and for it to be sliced thick. The shop assistant reached down to the bottom of the bread rack and passed me a pre-sliced, pre-packaged loaf. She explained that when things were quiet they were preparing them as it was much quicker to serve customers that way. She went on to explain that their busy times were 10am and 12noon and this helped them and their customers.

Today when I went into the bakery there were two different shop assistants. I asked one for my usual order and the second shop assistant told her to look down the bottom of the bread rack for the pre-prepared one. She went on to explain that she had "stolen" the idea from yesterday's shop assistant. The assistant serving me said "on no, I had thought of it first, she had stolen it from me".

Regardless they are performing process improvement.

A couple of thoughts here;

1/ people naturally want to improve their working environment, these shop assistants were not being managed or KPI-ed for improvements, it just made sense to them.

2/ the change was implemented without any committees, processes, forms, approvals, they just did it.

3/ there is a danger they will go too far, they need to understand the problems of creating too large a batch size, see "The Batch Myth of Centralization" (I didn't try and explain this!)

My current endeavours are focused on creating a continuous improvement culture were the people in my team operating in a large company have the same ability to implement small but meaningful changes. I find that most of the time I simply need to give them permission to act. They know what to do but naturally think of committees, processes, forms and approvals, instead of just doing it. When I ask, "what/who is stopping you?" Often, after a moment of silence, the answer usually is no one! At which point they smile.

I'll let you know if my bakery starts batching everything up so much that when I ask for my loaf, sliced thick, they will smile at me and say "sorry but the only ones left are the thin sliced ones".

The Batch Myth of Centralization!

2007-07-25T01:58:00.000-07:00

We love to group things up that perform the same function - Sales, Marketing, Service, Production, Finance, etc. This grouping up creates batches of work. And we think that this is good because the cost per each item goes down. What actually occurs is that the process slows down and the total costs go up because we introduce waste into the system.

Using the "Lean Thinking" foundation concept of "single piece flow" we can see in the simple example below the amazing difference between conventional thinking and lean thinking.

The diagram below shows a batch of five items going through three processes. Each item takes one minute to be processed and when the five items are completed they move to the next process and so on.

This could be five orders in sales being entered into the company's ERP system, followed by distribution scheduling the delivery and completed by finance issuing the invoices. Or an insurance claim process or a home loan process, etc.

In our example it takes a total of 15 minutes to complete all the orders and the first completed order takes 11 minutes (lead time) before it is finished.

In single piece flow the first person processes only one item and passes it on. The second person processes that single item and passes it on and so on. The first person only processes the next item once the second person has started to process the previous item. This way there is never any batching of work at any stage through the end to end system.

Do you want to guess how long it takes to process all five items this way compared to the 15 minutes it took in the batch system?

Do you want to guess how long it takes to complete the first item this way compared to the eleven minutes in the batch system?

It takes 7 minutes to process all items, less than half the batch approach!

It takes 3 minutes to complete the first item, less than a third of the batch approach!

If these items were materials being processed the amount of "work in progress" material is also dramatically reduced. In the batch system there is ten items which are "work in progress". This is ten items tying up financial capital and taking up space.

In the single piece flow system there are only two items which are "work in progress".

Lead time is a third less, total completed work done in under half the time and one fifth of the financial capital tied up taking up one fifth of the space!

Pretty amazing and it works, just look at Toyota's financial results and that they are now the number 1 car manufacturer in the world.

Or read the HBR article October 2003 the Lean Service Machine (link may need you to be a subscriber to work) on how Jefferson Pilot Financial used these techniques in their industry.

Toyota have been doing this since the 50's, the Jefferson article is nearly four years old!

When is the rest of the world going to catch up?

The gutting of Chrysler's Culture

2007-07-20T23:46:00.000-07:00

Jeff Liker in his book "The Toyota Way" provides an interesting case study of the problem with the cost cutting mentality. He comments on how Chrysler in the 1990s really started to get their act together. They created vehicle centers made up of cross functional teams and created true teamwork focused on the customer. As always when you focus on the customer results happen - "Chrysler soon became the world's most profitable car company in terms of profit per vehicle".

Toyota were starting to get concerned that a US manufacturer was starting to get it. Luckily for Toyota Daimler came along.

"Of course, in any takeover there is a cleansing of the old guard who resist change - so out the door went all of these fine leaders who were starting to truly build something. And out the door went what they were trying to build, until all that mattered was short-term cost cutting..."

Liker goes on to wonder why Daimler bought Chrysler. As we now know Daimler wondered the same thing and sold the company off. The question is what will the private equity firm who bought the company do? More cost cutting and continue to see things go backwards or understand the holistic view required to avoid the efficiency myth?

I know that during the time that private equity firms where interested in Chrysler they contacted Jim Womack, co-author of Lean Thinking, hopefully they will listen to some of his advice.

Centralization is Rubbish - Part II

2007-07-20T23:30:00.001-07:00

For those who read the post Centralization is Rubbish here is the continuing saga. As you recall the building owners decided it would be cheaper to remove all the trash cans from people's desk and make the office workers walk to the kitchen area where large bins were located. After a while they had to pay a different company to wash the large bins on a regular basis because they started to smell.

Well now the building owners are complaining about the office workers because the recycling bins that they did leave by every one's desk are not just being used for recycling products. Surprise, surprise people are using them for trash cans!'

I am waiting to see if the recycling bins are now removed. Oh the suspense!

In our area we have a secret trash can. The rule is that the last person to leave has to empty it into the large bin and hide it so the cleaning staff don't take it away.

Every time you put in rules to save money that do not make sense to the workers they find a way around the rules. The Myth of Control strikes again!

Outsourced luggge handling

2007-07-20T23:17:00.000-07:00

I was waiting in the city office of Singapore Airlines the other day where I could overhear the conversation the receptionist was having with a disgruntled passenger. The airline had lost their luggage and the passenger had called the luggage services phone number several times that day only to get an answering machine message every time.

The receptionist put the person on hold and rang Singapore Airline's office out at the airport to find out what was happening. She returned to the passenger on the phone to explain that it was out of their control because the service had been outsourced to a third party. She did say that they were not happy about the level of service this third party was providing and would follow up with them. She took the passengers details who in return asked for her name. (Remember how we much prefer to deal with people from my other posts?)

I can imagine why Singapore Airlines outsourced their lost luggage handling service - cost savings. I wonder what the service levels in the contract with the outsourcer are based on, customer outcomes or internal activities? What has happened to the level of service for their customers? What extra work is now occuring? How comforted is the passenger when they are told "sorry but we outsourced the service that is finding the suitcase we lost for you". The efficiency myth strikes again!

The Dash 8 versus the Airbus 380

2007-07-16T23:18:00.000-07:00

Every now and then I fly a short trip on the Dash 8 aircraft a twin prop plane which is noisy and not necessarily the most comfortable trip. However I have always found the service from the cabin crew to be fantastic. On a recent trip I had disembarked and was picked up by a colleague at the airport. We hadn't got out of the carpark when my mobile phone rang. It was the airline informing me that I had left my book on the plane. The cabin crew had picked up my book, worked out it was me, found my mobile number from their customer frequent flyer records and called me inquiring what would I like them to do. We agreed that I would pick it up on my return trip the next day. They said it would be waiting at baggage services.

The next day I went to baggage services where they had my book waiting at the front desk. After that I went to use the self serve kiosk to check in. A message came up that I had to see the service desk to collect my boarding pass. This hadn't happened to me before. At the service desk they explained that there was a message on my booking to tell me to collect my book from baggage services before they could print the boarding pass.

What this tells me is that the airline has a system to help passengers who leave their belongings behind. But it is up to the cabin crew to take the effort to use it. On the Dash 8 the service is very personal as there are not many of you on the plane and they sit right there in front of you. I have never had the same service used when I have left items on larger planes of this airline.

They have now ordered a bunch of Airbus A380 double decker giants. I wonder how many books will be returned?

The money just drops out!

2007-07-16T23:02:00.000-07:00

I had some Lean consultants run a workshop for my team last week. One of them told us of a story about a cost saving proposal he put forward whilst working at Toyota Europe. In the proposal he could save a very significant amount of money per car produced by batching up the delivery of parts from the supplier.

The proposal was thrown out without even looking at the dollars. The reason was that it contravened the Lean Thinking approach to delivering value.

The "aha" moment for me was that the decision process was based on the fact that they know if they do the right thing by the process the dollars will fall out. They don't need to work out why or how much will fall out they just know that it will.

I am so used to having to produce the business case in financial terms that being shown a decision making process which is based solely on doing the right things regardless if someone can show you a cost savings or not gave me another "aha" moment.

Again it is about chasing effectiveness and not falling for the efficiency myth as my post "Centralization is Rubbish" typifies.

Alpha Male Syndrome

2007-07-01T01:20:00.000-07:00

The authors of the book "Alpha Male Syndrome", Kate Ludeman, PhD, and Eddie Erlandson, MD have set up a web site where you can do an Alpha Male Assessment. It produces a good report for you on the positives and negatives of your Alpha Male traits as well as the different styles - Commander, Visionary, Strategist and Executors. Well worth the time to gain some self awareness.

How did I go?

If you want to know what it all means you will have to do the assessment.

Management Hot Air

2007-06-28T16:30:00.000-07:00

My wife sent me the following email after I was whinging about some recent senior management decisions;

A man in a hot air balloon realised he was lost. He reduced altitude and spotted a woman below. He descended a bit more and shouted, "Excuse me, can you help me? I promised a friend I would meet him an hour ago but I don't know where I am."

The woman below replied, "You're in a hot air balloon hovering approximately 30 feet above the ground. You're between 40 and 41 degrees north latitude and between 59 and 60 degrees west longitude."

"You must be in Information Technology," said the balloonist. "I am," replied the woman, "how did you know?"

"Well," answered the balloonist, "everything you told me is probably technically correct, but I've no idea what to make of your information and the fact is, I'm still lost. Frankly, you've not been much help at all. If anything, you've delayed my trip."

The woman below responded, "You must be in Management." "I am," replied the balloonist, "but how did you know?"

"Well," said the woman, "you don't know where you are or where you're going. You have risen to where you are, due to a large quantity of hot air. You made a promise, which you've no idea how to keep, and you expect people beneath you to solve your problems. The fact is you are in exactly the same position you were in before we met, but now, somehow, it's my f**king fault."

It seemed pretty close to the truth some times and reminded me of a quote from one of the Lean Thinking guru's out of Japan, Masaaki Imai

“In or at gemba [shop floor, coal face, etc], customer satisfying value is added to the product or service that enables the company to survive and prosper. Figure 2.1 places gemba at the top of the organization, showing its importance to the company. The regular management layers - top management, middle management, engineering staff and supervisors - exist to provide the necessary support to the work site. For that matter, gemba should be the site of all improvements and the source of all information…
…When management does not respect and appreciate gemba, it tends to “dump” its instructions, designs, and other supporting services - often in complete disregard of actual requirements.
Management exists to help gemba do a better job by reducing constraints as much as possible. In reality, however, I wonder how many managers correctly understand their role. More often than not, management regard gemba as a failure source where things go wrong, and they neglect their responsibility for those problems.”

Gemba Kaizen, Masaaki Imai, pages 14,15

How many managers are out their floating around in their hot air balloons? Answer: Too many.

McKinsey Article - How companies spend their money.

2007-06-28T04:24:00.000-07:00

An interesting McKinsey Global Survey, "How companies spend their money", on the funding allocation process inside companies. Findings show that a significant amount of money is spent on projects that were underperforming, 17%, and should be terminated or were a mistake to be funded in the first place, 16%.

A question asked about co-location of mangers and staff

2007-06-19T01:09:00.000-07:00

Anonymous said...
How close should senior management be to the people they manage ? Are there benefits to co-location or are they outweighed by the tendency to micro-manage ?

Response...
No 1. Rule: truth is only found at gemba. Gemba is a Japanese word which means truth or real place. They use it to mean the shop floor, the real place where value is created. The closer senior management are to the truth the better, instead of a reading a report that has been sanitized up through several ranks of hierarchy. Too often this information is relied on to make decisions.

Being co-located however is not always possible especially in a mid size to large organizations. The answer is to make sure that senior managers spend as much time as possible at gemba, that is on the shop floor, whatever the shop floor means in your industry.

As pointed out in Roger Martin's Business Week article "Scientific Management is Past it's Peak" the CEO of Proctor and Gamble, A.G. Lafley;

"insists on doing in-home visits to consumers (or stream-side visits in rural China) [GEMBA] wherever he travels. He isn't going to make billion-dollar decisions on the basis of a few in-home visits. He understands full well that what he sees isn't a representative sample. But he is delving into the mysteries of how products interact with his customers' lives in ways that a big quantitative, algorithmic survey never will."

Will senior managers micro mange if they colocate? Mico-managers will always find it hard not to micro mange no matter how near or far away they are, it is in their DNA. However there maybe a benefit in having them close at hand. The reason is that often distant managers do not think about the work their staff are doing on a day to day basis. They do their seagull trips assuming that unless they tell you what to do it isn't being done. By having them close by they can actually observe all the work you are doing and be less likely to interfere or ask for endless reports just so they can make sure you are doing the right things.

A great story on how Visa was started

2007-06-17T04:09:00.000-07:00

May we all wear gold cufflinks like these every day!

The story of VISA International.

McKinsey falls into the trap of the efficiency myth

2007-06-17T03:31:00.000-07:00

[If you are looking for Mackenzie Falls on the Disney Channel try clicking here]

Well, well, well, even the great McKinsey is fallible to the efficiency myth.

In Roger Martin's Business Week article, "Scientific Management is Past its Peek", he points out the fallacy of one of McKinsey's future business prediction and that is the return of popularity of Scientific Management. I think he hits it on the head when he writes:

"While executives think they are doing the right thing by managing the numbers for the sole purpose of 'maximizing shareholder value,' they are perplexed that employees don't find that to be a particularly inspiring reason for coming to work each day, and customers find the thought rather revolting."

A good read!

The Simplicity Challenge

2007-06-16T23:20:00.000-07:00

Someone once said that golf is a simple game made complicated by man. The same is true of business. In the post "The Simplicity Challenge" by Shane he lays out some good tips on how to make things simple.

I especially like;

"Efficiency. Every layer of policy and procedure you add to a task slows it down. Streamlining your workflow means it takes less people and less time to perform a task. Big savings.

In my posts "The Efficiency Myth" and "The Myth of Control" I explain the underlying dynamics of why Shane's statements are true.

Enjoying your Bad Boss - a good post by David Woods

2007-06-16T23:13:00.000-07:00

I liked this post, "Enjoying your Bad Boss" by David Woods on the fact that we learn a lot from our bad bosses.

See my comment on my experiences in David's post.

The President has been shot - who is in charge?

2007-06-11T01:55:00.000-07:00

My son was watching a documentary on the History channel about the events surrounding the shooting of President Ronald Regan. One of the issues the show highlighted was the utter confusion in the Whitehouse at the time. No one knew who was in charge because the Vice President, George W Bush Sn was on an aeroplane and unable to take over immediately. The Whitehouse staffers where in confusion!

It started me thinking about strong CEOs and the resilience of their organizations underneath them. Now that Bill Gates has stepped back from Microsoft will they grow or drift? When Steve Jobs moves on from Apple will they come up with another iPod or iPhone?

If your current CEO was suddenly incapacitated would the senior team unite and keep going without missing a beat or bicker and squabble?

Emploee Opinion Surveys - what's a good result?

2007-06-09T18:06:00.000-07:00

We have just gone through our annual employee opinion survey and the results are in...

But what is a good result? If the purpose of the survey is to find out ways to improve the organization then is getting a large number of favorable responses a good result. If your people are telling you everything is fine how do you improve?

I remember hearing the story of a meeting that occurred when Toyota took over a former General Motors plant in USA. The local managers kept saying "no problems". Finally a Japanese manager exclaimed "no problems, is the problem".

Unless you work in the perfect organization then there are always problems. In Lean thinking problems are treasures because by solving them we can improve.

Maybe a good result for an employee opinion survey is how many problems are discovered?

iTunes and EMI live with non DRM music

2007-05-31T17:40:00.000-07:00

iTunes went live this week with the availability of non-DRM protected music from EMI. As posted a while back I liked the comment by the CEO EMI that DRM only inconvenienced the honest people.

We will have to watch how the actual sales now happen and whether giving up control will grow EMIs revenues.

But a wrinkle has appeared. When you download the file, iTunes embeds your details so that if you pass it on it can be tracked. The idea is to stop further piracy. This is reported in webpronews. They also complain about the way iTunes directs to the more expensive DRM free list and not the cheaper DRM list.

So a little bit of control has crept back in, I wonder how it will turn out. Will the honest public accept it in return of less control on the music.

It only "takes two", you and youtube

2007-05-31T15:39:00.000-07:00

My wife keeps wanting to see one of her favourite radio personalities perform on the TV show "It takes two". The show matches a celebrity with a professional singer and each week they perform duets to see who can become the ultimate winner, along the lines of Idol.

Because she keeps missing the performances she went to the official web site of the show to see if she could see it there. But with no luck. She then went to youtube. There they were, each week's performance all lined up for her to view.

She pointed out to me that this was a missed opportunity for the producers of the show to create greater audience participation. Why don't they post it up on their web site. Maybe it is because they are trying to keep control of the content just like in the AFR post, "The Myth of Control Strikes Again".

Well producers it only takes two, you and youtube, to get around your controls.

Reflections from a CEO on trying it a different way

2007-05-30T21:21:00.000-07:00

I went looking for a quote by Konosuke Matushita, the founder of Panasonic, etc. What I found was this article, "Everything I Thought I Knew about Leadership is Wrong", by Mort Meyerson, President of EDS and then five years later as CEO of Perot Systems were he took a very different approach.

What I also found was this quote from Mort's Dad;

from Brudus Meyerson: "I am Mort Meyerson's dad. May I take the liberty of stating my observations on Mort's "transformation"?
Our only child, Mort, was always bright and courageous. But it took him a while to learn that fame and fortune, business acumen, and general success in the workaday world, do not guarantee peace and happiness.
During his so-called leisure time after he was out of EDS, he began to investigate why he wasn't content. A world of money and material accumulation. Acclaim and fame. But still not there.
So he started examining philosophy, kindness, love, empathy, sympathy, and many other spiritual qualities, and simply got on track for the "real" things.
When he got back into the business arena with Perot Systems, he saw that there is a place for these qualities in all things, including hard-ball business."

The article is worth a read especially as it is from 1996 and eleven years on I believe the same approach applies.

BTW, the quote I was looking was in one of the comments as well;

"We are going to win and the industrial west is going to lose out: there is nothing much you can do about it, because the reasons for your failure are within yourselves. Your firms are built on the Taylor Model; even worse, so are your heads. With your bosses doing the thinking while the workers wield the screwdrivers, you're convinced deep down that this is the correct way to run a business. For you, the essence of leadership is getting the ideas out of the heads of the bosses and into the hands of the labor.

"We are beyond the Taylor Model; business, we know, is now so complex and difficult, the survival of firms so hazardous in an environment increasingly unpredictable, competitive, and fraught with danger, that their continued existence depends on the day-to-day mobilization of every ounce of intelligence. For us, the essence of effective leadership is precisely the art of mobilizing and pulling together the intellectual resources of all employees in the service of the firm. Only by drawing on the combined brainpower of all its employees can" [we succeed]

Konosuke Matsushita
Executive Director
Matsushita Electric Industrial Company

When I managed a team in Japan they gave me Matsushita's book to read, I will put it in my recommended reading list.

The Myth of Control Strikes Again - Australian Financial Review

2007-05-29T18:11:00.000-07:00

One of the most read finance newspapers in Australia the Australian Financial Review, AFR, implemented its new website early this year forcing many controls over the content. As reported on the Crikey website;

"Gill tried to defend the website, telling the group that it was all part of "The AFR's strategy" to restrict content because one bank used an AFR article to support a prospectus. He said there was "no one who's ever had to grapple with this before". One spinner helpfully pointed out that yes, it has been done before, by Napster and iTunes – and the AFR was behaving like Metallica, which sued its fans and lost significant market share. One of Gill's minions admitted that the process had been flawed, and that the meeting was part of the way AFR was trying to salvage something.
Another comms person for a major global firm piped up with "Michael, I don't think you realise the immense reputational damage this is doing the AFR on a global scale", saying their senior execs were no longer bothering to read The AFR online because it was just too hard."

The problem for the AFR is they are now being cut out of the PR ecosystem;

"The system used to work so that spin doctors could either use aggregators like Media Monitors or Factiva, or pay to access the stories online themselves, to put together a media summary for their bosses every morning. It allowed the CEOs and senior execs to get a quick summary of the issues facing their company, without having to trawl through seven papers themselves. It wasn't exactly a great money spinner for Fairfax, but it did create a symbiotic relationship where the execs would be happy to talk to AFR if they saw they were getting a good run."

As a subscriber to the AFR I was given access to the website and found it as unusable as reported in this article. I was recently sent an online survey about my experience with the website and even the survey reflected a lack of understanding of how to relate to its customers. The survey went on and on and on with questions clearly coming from the AFR's point of view not the customers. You were forced to write in comments, you couldn't continue until you had put in three reasons why you responded in a certain way. In the end I started writing things like, "this survey is taking too long"

By putting all the controls in place AFR is finding that the ecosystem is now reacting against them. This is just like in companies when controls are put in place that don't make sense people start working around them.

The Myth of Control strikes again!

Global Warming, Future Summit and The E-Myth

2007-05-24T19:40:00.000-07:00

I went to a conference called "Future Summit" last week. As you would expect there was much talk about Global Warming. A debate ensued about who is in the best position to "fix' the problem. There was no disagreement that we had a problem! A senior social commentator said it would be the governments that fix the problem. I challenged him by saying that from Jared diamond's book "Collapse" history has shown us that the politicians/leaders mostly do not get it right and lead their people into collapse! Easter Island, Norsemen of Greenland, Anasazi People of south west USA adn went on to say I hope that the networked world can create enough grass roots pressure to make the tough decisions we are going to have to make. The moderator, Nik Gowing of the BBC, challenged me back by saying, what that means is that they shouldn't be listenting you (ie my generation) and that I will have to accept these tough decisions. I said yes but the problem is that the politicians will listen to people like me too much. Climate change experts talked about the need to look at the total system. They argued that only through changing the system will we address climate change. Point solutions here and there is not going to cut it.

Meanwhile I am reading the book "The E-Myth" by Michael Gerber. In that I really liked his phrase that people make the mistake of "working in the business" when they need to be "working on the business". It is similar to my wood chopping analogy in the post "Three types of Work" instead of trying to swing harder with a blunt axe it is time to sharpen the axe or to look at better ways of reducing large bits of wood into smaller bits.

The connection here is that both are about system change. In the E-Myth the system is the business. With global warming it is the environment. Most often organizations look for point solutions, "let's get more people swinging blunt axes", instead of system change. They confuse cost saving efficiency programs for system changing effectiveness programs - see "The Efficiency Myth".

Does your senior executive team operate at the system level or the point solution level?

Crowd Sourcing a new effectiveness

2007-05-17T15:42:00.000-07:00

Crowd Sourcing is on the rise and many companies are going to find out how effective it is. I was scanning through the web site www.innocentive.com which has postings of problems to solve across a range of disciplines. Against each posting is the deadline and how much you will earn for solving the challenge.

If companies are not quite ready to start posting these on the wider Internet why don't they start posting it on their Intranet. We talk about harnessing all of our human capital and that the best ideas don't necessarily come from the senior executives well here is a great way to do it.

Maybe they could put up items outside of the sciences and include management challenges as well!

Giving up control of problem solving and opening it up to the entire organization (or to the world for that matter) will prove far more effective.

Give it a go!

IBM decentralizes, yeah!

2007-05-08T16:53:00.000-07:00

Last week IBM announced it was laying off 13,000 employees. Most of these will come out of Europe. While I feel sorry for those being let go it is interesting in how IBM says it is going to do this. From the BBC report;

"IBM said it now plans to realign its operations and organisational structure in Europe to reduce bureaucracy in lower-growth countries.
That move should eliminate "the need for a traditional pan-European management layer to coordinate activity", it said. "IBM will create a number of smaller, more flexible local operating units in Europe to increase direct client contact," it added in a statement. "

What IBM has discovered that when they centralized operations under Gerstner they have added costs through management layers and reduced flexibility and direct client contact, their words not mine. This was obviously an unintended consequence. (see also - Centralization is Rubbish, an Appropriate Example) When they centralized they found they needed a "pan-European management layer to coordinate activity". The irony here is that when the decision to centralize was made one of the benefits was probably to reduce headcount. Now that they are decentralizing one of the benefits is to reduce headcount.

The Efficiency Myth strikes again!

McKinsey Article - CIOs have Lean Thinking in their top two!

2007-05-08T15:59:00.000-07:00

A recent McKinsey report, "What's on CIOs Agenda 2007" has the top two items being Service Oriented Architectures and Lean Thinking. The one that surprised and delighted me was Lean Thinking (see recommended reading and previous posts to understand why).

Hands up those of you who are happy with the IT support you get in your company?

Not many huh? The gap between business and IT is still as broad as it always has been. Maybe with the adoption of Lean Thinking principles things may change. In Womack and Jones's book "Lean Solutions" they detail the pain one of the authors went through in buying and setting up a new PC. In their HBR March 2005 article "Lean Consumption" (you need to be a subscriber to see the article) they give the example of Fujitsu in Europe changing how they offer IT help desk support services to an outcome based commercial model. The end result was fixing problems at their root cause and decreasing calls to the help desk by 40% while increasing customer satisfaction.

I am currently reading the book "Lean Process and System Development" which would go a long way to helping bridge the gap between business and IT. And of course Agile Programming which is growing in popularity every day is based on Lean Thinking.

The reason I like Lean Thinking is that it has defined ways in which we should do things, concepts like pull not push process flow, takt time, no monuments and six forms of waste. As opposed to Six Sigma which has great tools to analyze processes but doesn't guide you to the right way of doing things. With Six Sigma you can still end up building a monument or implementing push scheduling.

Software as a Service is an example of pull process flow. Demand for the software is pulled by the end user not pushed by the supplier. Suppliers are implementing their back end systems to be just in time ready for the pull from customers.

Service Oriented Architecture I might leave for another day, but in short it shows a trend away from the centralized single ERP system to run the whole organization. BTW a centralized ERP system is a monument.

NY Times article thinking along the same lines

2007-04-29T18:48:00.000-07:00

There have been a couple articles about a company called Synergy Sports Technology that tracks every players moves in the NBA, turns them into a digital format for coaches and players to use in the training and game preparation. They even download them to iPods so that the players have no excuses to watch them.

The NY Times picked up on the fact that this could one day be used in the corporate world as discussed in the post "the sporting team analogy ". Every day we get a bit closer.

Excerpt from NY Times article;

PROFESSIONAL basketball provides a working example of the unblinking eye that someday may hover above all workplaces. Until now, we have enjoyed protection from continuous scrutiny simply because subsequent watching of raw, unedited video was too time-consuming to be worth the trouble to supervisors.
The breakthrough in professional sports was the development of technology that strips away the inessential and dispenses with the time-consuming editing of linear narrative. By fusing statistics with visuals, a well-indexed digital archive provides answers to an infinite universe of questions quickly, painlessly and compactly.
In the past, without digital technology, no large company could make use of a multimedia archive documenting employee performance, unless, that is, the company could afford to hire a full-time video coordinator for every employee. In the future, however, the employer will be able, with just a click, to watch a Tube starring just You.
Control of that edit will not be in your hands.

Some good thoughts on business metrics by qualityg

2007-04-29T04:13:00.000-07:00

You can find good advice everywhere, I wonder if the right people ever read it or can sort out the good stuff from the bad?

Check out "Establishing Metrics is vital for all Plans and Process Improvements" by qualityg.

Business Managers doing it for themselves - the latest CIO nightmare

2007-04-28T01:32:00.000-07:00

I love Software as a Service (SaaS). This blog is SaaS, I am using Basecamp, a project management and collaboration SaaS application, from the 37Signals guys and its great. A friend sent me a link to the SaaS application http://www.sonar6.com/ . This is a brilliant HR app for Talent Management and fits perfectly with how we do it today. The thing that I like about it is the visibility it provides across the entire organization. This is another example of providing the right metrics up the line (see Deloitte Report - In the dark). If any company was brave enough to make people's talent ratings visible to at least the individual, and maybe a peer comparison, think of the robust discussions that would take place. This site prompted this post and the following prediction.

One day the business manager is going to turn to the CIO and say just give me a connection to the Internet and leave the rest to me.

Small to Medium companies now can access the latest and greatest applications and tools at a fraction of the ongoing costs that large corporations are caught up in. The other day I was having a conversation with a colleague about the future of SaaS and mentioned that the security aspects of having your data in the hands of another company is still too scary for large corporations. He asked me "where is your money kept?" That question pulled me up short. I have no idea where my money is kept or in fact in what form it is in, physical, virtual or what! I simply trust those that have it, my bank, investment houses, etc. I trust that it is safe and I can access it when I want to. His point was that money has been virtualized. It isn't about the physical money anymore. Data will get this way too. We will just want to know that it is in the safe keeping of a trusted third party and that we can access it whenever we want.

Is your company using SaaS applications? Does your CIO know?

PS: When I was asked about the Basecamp monthly fee on my expenses I told them that we were sponsoring a Mt Everest expedition.

Centralization is Rubbish - An appropriate example

2007-04-26T15:23:00.000-07:00

If you haven't worked it out yet I am not a big fan of centralization. It feels like the right thing to do but as we say on this blog that is a myth (see - The Efficiency Myth). This is because unanticipated side effects happen. Little things you know like de-motivation, loss of accountability, additional costs, lower customer satisfaction, you know little things.

The property managers of the office building I work in have recently centralized our trash! They have removed all the trash cans next to our desks and put in large bins near the kitchen areas. To get rid of our trash we have to walk to the kitchen area to dispose of it. I think the idea is to make it easier, more efficient, for the cleaners to collect the trash every night. You can imagine what this has done to customer satisfaction! What do you do with the staple you have just taken out of a document - walk to the kitchen? What about the Kleenex you have just used? Many people are now using plastic bags to store their trash instead of making multiple trips.

Strike 1 for customer satisfaction but what about making it more efficient for the property company. It turns out that the collection of trash in these large bins are causing them to smell rather bad, an unanticipated side effect. Being close to the kitchen area hasn't gone deal well with the customers. The property company are now paying for these bins to be washed and cleaned every two weeks! I wonder how the business case to centralize trash is stacking up against the additional cleaning costs.

Gotta go now as I have a staple to transport to the....

2007-04-25T19:16:00.000-07:00

Compete.com is a company I first met back in 2000. They track web site traffic that you can go and view by simply entering in the website you want to look at. What this means is that you can not only see how your web site is going but also your competitors. This is another example of getting activity based effectiveness measurements for your organization as discussed in the posts, Deloitte Report - In the dark II and The Efficiency Myth.

Compete.com announced recently an attention metric. This is measuring not only the number of visitors and page hits but also how long they stay on your web site. Compete.com says this is a much better way of "gauging the influence of your site". The great thing about this is that compete.com provides an immediate benchmarking tool for you to compare the influence of your web site versus your competitors.

The attention metric demonstrates how the digital world can be used to measure the qualitative aspects of your company. If someone asked you how influential is your marketing material with customers you would struggle to provide a quantitative answer. With compete.com you can not only see how influential your messages are but also how influential your competitors are!

Deloitte's New Report - In the Dark II

2007-04-16T20:41:00.000-07:00

Deloitte's have just released (April 2007) their new report called "In the dark II: What many boards and executives STILL don't know about the health of their business".

This is a follow up survey of the original research in 2004 which poses the question regarding the importance of non-financial measures as well as financial measures. It points to an increasing realization that financial measures alone do not provide a comprehensive picture of the health of a company.

If you want to understand why this is the case and why non-financial measures are so important then read the postings "the efficiency myth" and "the sporting team analogy".

It was interesting to read the drivers that board members and executives saw for non-financials measures, namely threats to their organizations;

increasing reputational risk (49%),
increasing customer influence(40%),
increasing global competition(38%),
increased regulatory emphasis on non-financial measures(32%),
accelerating innovation(29%),
greater scrutiny of non-financial performance measures by the media(26%) and
increasing power of NGOs, lobbyists and civic organizations(16%).

What this means is that these executives are being reactive and not proactive!

The good news was that there were some executives that spoke of non-financials measures as leading indicators that actually drove improved financial performance. An example is given by one service company of monitoring customer satisfaction and responding to a drop in the ratings before the dip is seen in financial results. Another spoke of their people metrics and how they now have 50% of performance goals based on people. They went on to say that in 2000 they had 30% employee turnover and ROE of less than 6 percent. With the increased measurement and focus on people they now have 11% employee turnover and a ROE of over 40%.

Looking at the barriers to implement non-financial measurements the following were noted;

undeveloped tools(55%)
skepticism (48%) skeptical that non-financial metrics affect health of company
accountability(44%) establishing clear accountability for non-financial metrics is difficult
Lack of Familiarity (41%) too unfamiliar with executives and board members
Lack of Benchmarking Data (21%)
Time Constraints (19%)
Competitive Concerns(6%) sharing non-financial metrics with competitors for benchmarking

The second reason, "skepticism", is why this blog was started and shows we have a long way to go in breaking down these management myths.

This area is not as underdeveloped as you may think. In fact much of the information you need probably exists in your company, you just need to know where to look. I am not a big fan of employee opinion surveys or customer satisfaction survey. A much better way to measure these things is by measuring actions not opinions. Measuring activity especially from the point of view of the customer is the key

An example given in the report is one company that has set up their OTAC index - on time, accurate and complete. This activity measure the company says is an excellent proxy for customer satisfaction in their distribution business.

Measuring activity is a snapshot of reality and as more and more of our working life goes digital through technologies such as email, online forms, Word Documents, Spreadsheets, PowerPoints, Internet, Intranet, VoIP, GPS, iPod, etc the ability to measure activity increases dramatically.

The company FASTSEARCH provides an internal search engine that can look across all of your structured (databases) and unstructured (Word, eMail, etc) data. With FAST you can measure all forms of activity. What would the number of updated Resumes tell you? FAST even allows you to measure the sentiment of emails in your company. Instead of doing employee opinion surveys how about keeping track of the sentiment of emails daily! What about measuring the amount of emails that are;

internal to internal
internal to external
external to internal

If the amount of internal to internal emails is increasing what do you think that means to your financial results over the next few months? Too much internal bureaucracy going on! While external to internal means that your employees are connecting more with the outside world more than likely customers! Have a read of "three types of work" in relation to where emails are being sent.

What about your website? How close are you tracking hits on that? I have inserted Google analytics to this blog and can track the number of visitors, where they are coming from, if they are new or returning and how many page views they have done. It took me minutes to set up and is free! Two years ago we sold our house and tracked the number of visitors to the Internet advertisement on the Realtor's website to gain a feel of how many people where interested in our property. We did the same for the home we wanted to buy.

The same goes for tracking activity on your Intranet site. What are your employees doing, what are they reading?

A friend of mine has a GPS jogging device that tracks more metrics than you could possibly want as he does his daily exercise. Sporting teams are putting GPS tracking devices on their players. These systems are becoming common place for business use too. Tracking delivery vans, parcels, collecting electronic signatures, time and date recordings are now becoming mainstream. My local public transport is tracked digitally telling me how long before the next train will arrive. Can you think of ways to use this data for non-financial metrics?

You see, there are many options out there when you start to think about it. As stated above the key is measuring activity, especially from the point of view of the customer and not just doing surveys.

Do you have any cool examples of non-financial measurements your company is doing?

Three types of work and the Wood Chopping Analogy

2007-04-13T22:11:00.000-07:00

You might think this is simplifying things too much but I believe you can categorize work into three groups. Value adding work, Process Improvement Work and Internal Work.

Value Adding Work is activity that adds value to the end outcome. In business the end outcome is the product or service you deliver to a customer. Value is always judged by the customer.

Process Improvement Work is activity you undertake that improves the effectiveness of the Value Adding work. The improvement in effectiveness might be that the value adding work can be completed more quickly, at a higher quality or more aligned to what the customer wants.

Internal Work is work that doesn't add value to the end outcome nor improves the process to add value to the end outcome. Internal Work includes things that are necessary but in themselves add no value to the end outcome.

The Wood Chopping Analogy

Chopping wood is value adding work. Sharpening the axe is process improvement work. Counting how much wood you have chopped is internal work. What we need to remember is that you can chop wood, sharpen the axe or count how much wood you've chopped but not at the same time. Therefore the more internal work we do the less time we have for value adding or process improvement work. When we do process improvement work the benefits won't appear until we recommence chopping wood.

With this in mind what occurs when your company approaches the end of its financial year, half year or quarter? Most often the internal work increases! Senior Management want to see forecasts updated weekly, daily or activity reports and extra internal meetings are called all taking up precious time. Any attempt at process improvement work is curtailed and the workers are asked to swing the blunt axe harder.

Think about the work you are asked to do and see if you can put it in these three buckets. Look at the size of the internal work bucket. Are all the activities in this bucket necessary? If a certain report wasn't done would the value adding work or process improvement work suffer? What if you simply stopped some of those internal work activities, what would happen? Probably revenue and profit would increase! Internal work should be minimized as much as possible.

The levels in your organization should be doing different amounts of these three types of work. As you go up the levels the amount of Process Improvement Work increases. Senior Managements role is to help those at the coal face be as effective as possible. Process Improvement in this sense is senior management creating the right strategy, tactics, tools, products, processes for their people to utilise. Unfortunately this often doesn't happen. Senior Management instead get involved in the daily adding value work by insisting on making most if not all the decisions by putting in controls and bureaucracy. This leads to an increase in internal work and little process improvement work takes place.

Many senior managers cannot even see this dynamic occurring. To them it is all about swinging the blunt axe faster and spending more time counting the wood. Often we promote those that are good at doing this instead of those that invent a chainsaw or improve the process so that the wood is always chopped on time. Much of this is covered in Elliot Jaques work on Stratum Theory and the level of complexity thinking required as you rise through an organization.

As you go through your daily routine ask yourself if you are chopping wood, sharpening the axe or counting how much wood you have chopped.

Garuda Air Crash maybe caused by fuel saving bonus

2007-04-12T19:00:00.000-07:00

In a very sad example of confusing cost cutting for efficiency apparently Garuda Airlines are paying their pilots a bonus for saving fuel. It has been speculated in media reports that this could have been the reason why the pilot didn't abort the attempted landing which resulted in 21 people being killed.

In using the car engine analogy in the efficiency myth I didn't realise that this might have an eerie similarity to this human tragedy. I spoke of trying to make an engine more efficient by buying cheaper fuel not by making it more effective. If Garuda wants to save fuel they should look at ways of making their end to end operations more effective not giving their pilots bonuses for cutting corners.

Unfortunately tragic circumstances like this are sometimes the only things that make senior managers start to think the right way.

Does your company have any measurements that reward cost cutting at the expense of customer service?

Are Citigroup displaying the efficiency myth?

2007-04-11T22:16:00.000-07:00

Citigroup have announced that they are going to layoff 17,000 people and move another 9,500 jobs offshore to "lower cost" locations. The CEO Charles Prince is quoted as saying "You will see a more efficient, more tightly managed, and a more tough minded Citigroup than you've seen in the past". I don't think Mr Prince has read the efficiency myth or the myth of control because he is chasing efficiency and not effectiveness and becoming more tightly managed. Citigroup have had control issues in Japan and are currently in the courts in Australia over alleged insider trading. I wonder if becoming "more tightly managed" is going to work or will the myth of control remain true.

A comment from an investment analyst says "There remains skepticism because Citigroup has long promised positive operating leverage and hasn't delivered".

The consumer banking unit is reported as being the hardest hit. I happen to be a customer of Citigroup and somehow this doesn't fill me with the feeling of increased customer service in the future. All the actions they have taken to date have moved further away from delivering an effective service for me to one of trying to take out as much cost for them. Some of these examples appear in the efficiency myth posting.

Let's watch what happens. Last year operating expenses rose 15% while revenue increased 7%. It will be interesting to see how the headline numbers change.

Life Coaches, are they replacing what managers should be doing?

2007-04-09T04:20:00.000-07:00

I was on a flight the other day listening to the business channel. The Life Coach being interviewed said that one of the reasons their business was growing was because managers were too busy to coach their direct reports. They are being hired to provide the coaching that managers used to do. This seems to me to be another wrong step on how we lead and manage our people. As pointed out in "the sporting team analogy" managers are not only not going to the game but are now hiring someone else to tell their people what to do. More and more we see managers not understanding what their role is in their company. Surely a major component is coaching their people! I am not against Life Coaches, and have had one in the past, but to start and take over the day to day functions of the manager seems to be another sign of decay of the real reason for hierarchy.

EMI give up control to make more money

2007-04-03T02:48:00.000-07:00

You probably saw the deal between EMI Music and Apple where they will let Apple distribute their music without digital rights management.

The thing that struck me about this was the comment made by the EMI Chief, Eric Nicoli, that the digital rights management only hurt the honest people out there. The point he was making was that the controls put in place were bypassed by those happy to pirate the music but unable to be accessed by those willing to pay. By allowing it to be distributed by iTunes the honest people can now access the music and pay a slight premium to do so.

Controls are often put in place to stop people doing the wrong thing but usually only hinder those trying to do the right thing.

For more on this line of thinking see "The Myth of Control"

JetBlue repeats NorthWest debacle in "The Myth of Control"

2007-03-30T20:37:00.000-07:00

As found by my colleague Roger it appears JetBlue have repeated the problems created by the myth of control as per the example provided by NorthWest Airlines in 1999 where they kept passengers locked on planes sitting on the tarmac for eight hours. Eight years later on Feb 14th this year, JetBlue do one better by locking passengers up for up to 11 hours!. Click here for one of the news reports.

Question Input

2007-03-30T20:31:00.000-07:00

If you want to ask a question on Management Myth Busters, input it as a comment to this post and I will answer it in a new post, thanks, Rob

General Comments Input

2007-03-30T20:29:00.000-07:00

If you want to make a general comment on Management Myth Busters post it here as a comment to this post and I will re-post it as a main post, thanks Rob

The Myth of Control

2007-03-12T03:30:00.000-07:00

Command and control as a management style is alive and kicking but who is really in control? And does control produce the best outcomes for the organisation?

Maybe it was the Enron and WorldCom scandals. It could have been the irrational exuberance of the dot com boom and subsequent crash. Or perhaps it’s the increase in regulations with Sarbanes Oxley, Basel II, USA Patriot Act, HIPAA and Privacy Acts to name a few. It could even be the constant focus on short term results. Whatever it is there is a shift back to placing tighter controls on employers and their managers at the coalface. Frederick Taylor would be proud!

In your organisation what level do you need approval from in order to?

Hire a new employee
Give one of your employees a pay rise, a bonus
Travel domestically, internationally
Attend a training course or industry conference
Spend a $10,000, $100,000 or more depending on the size of the company
Approve a customer transaction that is good for both the customer and your company but is outside the published rules and regulation.

If the answer is more than one level of management above the requestor then the myth of control is in place. The company has put in place rules and policies to control the decision making of the front line employee and manager. Put another way what the organisation is saying is that we are in better position to make these decisions therefore either follow the published rules and procedures or come to us. Senior management now feel safe that they are in control. When facing the auditors and the compliance groups they can quote chapter and verse of their rules and procedures and if there is a gap they will develop yet another procedure. Nothing can go wrong in their organisation or can it?

“On January 2-3 1999, a blizzard closed Detroit Airport, cancelling many outbound flights. Snowploughs kept runways open and a good number of inbound planes were able to land throughout the evening. Most carriers – United, TWA, and American – were able to bring their planes to the gates and offload passengers with modest delays. But this is not what happened with Northwest Airlines.
In perhaps one of the greatest public relations debacles in airline history, Northwest’s overwhelmed ground staff as Detroit Airport seemed paralysed in a freeze-frame photo of inaction and indecision. Eight thousand passengers (many of whom had already spent five or six hours in the air) were literally imprisoned on thirty Northwest flights for as long as eight and a half hours without food, water, or working toilets. One passenger went into diabetic shock. Mothers ran out of formula and diapers for their babies. An irate executive used his cell phone to track down Northwest’s CEO (waking him in the middle of the night) to appeal for help. Fights broke out. Passengers threatened to blow open emergency exit doors. Northwest pilots screamed at ground staff over the radio to tow planes to the gates before all control of the situation was lost.
A congressional investigation, extremely critical reports issued by the Department of Transportation, and four lawsuits all found Northwest Airlines guilty of many acts of omission. By inflexibly adhering to “procedures” for ground operations and “rules” for passenger safety, those in charge overlooked many possible solutions. They could have brought the planes near the gates and let passengers off on the tarmac; or they could have disembarked them on the airfield and bused them to the terminal. Alternatively they could have brought service vehicles out to the planes to deliver food, water, videos, baby formula, and diapers; or the planes could have left Detroit for nearby airfields.” “Surfing the edge of Chaos”, Pascale, Millemann and Gioja

You might think the Northwest case is a bit extreme but we face this maniacal sticking to rules and procedures in everyday life. How often do you find that your simple request for service hits a brick wall when it happens to be just outside the rules and procedures of the person you are dealing with even when it makes sense for their company? Have you experienced an example along these lines?
“Welcome to West Central Bank, how can I help you?”
“I would like to increase the limit on my credit card please”.
“Oh I’m sorry but it looks like you were late on two monthly payments within the last year”
“But I did make those payments, albeit late, and I always have ample funds in my savings account to cover any expenditure.”
“Yes I can see from your savings history that you are a very good customer with our bank and I would like to also thank you for having your home loan with us which I notice you have never missed or been late for a payment over the last fifteen years.”
“So, can I increase my limit?”
“I’m sorry, but our policy is if you miss more than one payment in the last year we cannot increase your limit.”
“Doesn’t missing a payment mean increased revenue to you through extra interest, and didn’t I pay all of my credit back within the last twelve months.”
“Yes it does mean extra revenue for us and yes you did pay all your outstanding credit back in the last twelve months but I’m sorry it’s our policy.”
“Can I speak to your supervisor please!”

When speaking with a call centre agent how often do you ask to speak to a supervisor? Why was it that the passenger on the Northwest aeroplane rang the CEO? Why, because we have been trained to keep going up the management line until we find someone who can make a decision specific for our situation. The reason for this is that rules and procedures put in place by senior management fall into the trap of “averages”.

When one person is making a decision for another individual person that decision is based on their situation and requirements. However when a senior manager is making a decision for hundreds or thousands of people and their possible situations they have to make that on what best fits the average situation. The problem is that the average situation occurs less than one percent of the time. In our example above a good customer couldn’t be satisfied because they fell outside of the range of no more than two late payments. If they went to another bank the new bank would be falling over themselves to provide a credit card with the limit they wanted because now that customer falls into a different set of averaged decision making; a new high net worth customer.

The problem with control is that is doesn’t lead to better business outcomes;

“A GTE survey in the mid 1990s, for example, revealed that the performance of its different billing operations, as measured by the accuracy of bills sent out, was closely tied to leadership style of the unit managers. Units whose managers exercised a relatively high degree of control made more mistakes than units with more autonomous workforces. By encouraging changes in leadership style through training sessions, discussion groups and videos, GTE was able to improve overall billing accuracy by 22% in the year following that survey and another 24% the year after.” Palmer Morrel-Samuels, HBR

As noted by Jim Womack, co-author of “Lean Thinking”, and “The Machine that changed the World” on Toyota’s Production System, when a Union wants to threaten management they say they will “work to rule”. If control is about getting people to follow rules and procedures it is interesting that following those rules and procedures is actually a threat to the business. As Jim Womack explains this is because actually following the organization’s procedure manual makes it impossible to get anything done. Employees often have to find “work arounds” of the rules and procedures to make things happen. Procedure manuals based on average circumstances turn out to be unworkable given the reality of variability in life.

But can you imagine an organization without any control? If there was such a thing would it be chaotic or highly effective?

Nature provides an example of a highly effective organization without any central control. Explained by Steven Johnson in his book, “Emergence”, in the section appropriately titled “The Myth of the Queen Ant”.

“there’s nothing hierarchical about the way an ant colony does its thinking.”
“Although queen is a term that reminds us of human political systems, Gordon [Deborah Gordon, Stanford Biological Sciences] explains, “the queen is not an authority figure…. She does not decide which worker does what… It would be physically impossible for the queen to direct every worker’s decision about which task to perform and when”
“Gordon gestures to the near corner of the top board, four inches from the ramp to the lower level, where a pile of strangely textured dust – littered with tiny shells and husks – pressed neatly against the wall. “That’s the midden,” she says. “It’s the town garbage dump.” She points to three ants marching up the ramp, each barely visible beneath a comically oversize shell. “These ants are on midden duty; they take the trash that’s left over from the food they’ve collected – in this case, the seeds from stalk grass – and deposit in the midden pile.”
“Gordon takes two quick steps down to the other side of the table, as the far end away from the ramp. She points to what looks like another pile of dust. “And this is the cemetery.” I look again, startled. She’s right; hundreds of ant carcasses are piled atop one, another, all carefully wedged against the table’s corner. It looks brutal, and yet strangely methodical.”
“I know enough about colony behaviour to nod in amazement. “So they’ve somehow collectively decided to utilize these two areas as trash heap and cemetery,” I say. No individual ant defined those areas, no central planner zoned one area for trash, the other for the dead. “It just sort of happened, right?”
“Gordon smiles, and it’s clear that I’ve missed something. “It’s better than that” she says. “Look at what actually happened here: they’ve built the cemetery as exactly the point furthest away from the colony. And the midden is even more interesting: they’ve put it at precisely the point that maximise its distance from both the colony and the cemetery.”
“I have to take a few seconds to do the geometry myself, and sure enough, the ants have got it right. I find myself laughing out loud at the thought: it’s as though they’ve solved one of those spatial math tests that appear on standardized tests, conjuring up a solution that’s perfectly tailored to their environment, a solution that might easily stump an eight year old human. The question is, who’s doing the conjuring?”

The answer is no single individual ant is in control. Rules are not handed down from management layers above. The ants however do share the same purpose; keep the colony alive and well. Each ant makes their own decisions and uses feedback loops of what is going on around them to base their decisions on. If they are on food foraging duty and come across a strong pheromone trail left by other ants they follow it to the food. If they meet too many ants on food foraging duty they change to midden clearing duty. Simple decisions with constant feedback loops create a highly organized and effective organization.

Why do we, us humans, with far greater intelligence than ants fail to create highly organized and effective organizations? It is because we believe that control should be centralized with higher authorities. When this happens chaos can occur as exemplified by Northwest Airlines in Detroit. It doesn’t even have to get to the chaos level, it is all the annoying dealings we have to go through in our every day lives as we try to negotiate the rules and procedures of organizations like, banks, insurance, electricity, telecoms, retailers, restaurants, etc.

Avoiding the Myth of Control

Control should not be centralized. What needs to be centralized and understood by all is the purpose of the organization. The purpose should not be “to make money”. The purpose is the outcome you are striving to achieve for your customers. This purpose provides everyone in the organization a basis for making any decision. That is, when making each decision I need to determine which answer is going to help or hinder my organization achieving our purpose?

Day to day decisions need to be pushed down the organization to the place where the people are in the best place to make those decisions. If you don’t trust them to make the decision find out why, don’t take the decision away from them. Maybe it is because they don’t have the right information to make the decision, if so work out how to give them the right information. Maybe it is because they don’t have the right skills therefore provide training or hire the right people.

Don’t take the decision making authority away from those who are in the best place to decide.
What is important is to create local feedback loops. People need to know the results of their decisions. Too often processes in organizations have no feedback loop. Even those where employees are following rules and procedures set by senior management. If no feedback loop exists the organization is making decisions blindly, not knowing whether the right or wrong decisions are being made.

Beware the myth of control!

The one "who".

2007-03-11T20:54:00.000-07:00

In my "about me" section on this blog I mention that I use the "five whys" to get to the root cause of management dynamics. At the Lean Thinking conference I went to Jim Womack said that instead of companies using the "five whys" to find out why a problem occured they look for the "one who" to blame. In the book I bought at the conference "Getting the Right Things Done" by Pascal Dennis he writes that "problems are treasures" they help us improve things. I wonder how many organizations think this way?

The Sporting Team Analogy

2007-03-11T20:26:00.000-07:00

Sporting teams have strong coaching staffs. Coaching staffs that work with their athletes/players to develop their knowledge of the sport, to train them both physically and mentality so that they can perform at the peak of their ability. They use training drills, videos of their performances, one on one reviews, physiotherapists, and sports psychologists. They have performance metrics, completed passes, intercepts, tackles, forced errors, unforced errors, backhands, forehands, volleys, first serves in, shots on goal, percentage of fairways hit, greens made in regulation, putts taken, oxygen intake rates, heart rates, etc. The coaching staffs decide who is on the team, who is not, who they need to let go and where they need to recruit.

The reason why sporting teams spend so much time and money on coaching, training and developing is because on game day the coaching staff can’t run out on to the field. There is also an easily seen direct link between all this work off the field and the results on the field.

Translate this sporting team analogy into modern day management practices. In many organizations the management team sits around a conference room table looking at last month’s results. “We lost more than we won”, says a surprised manager, “how come?” “It was probably because our team didn’t work hard enough” replies another. “I think you’re right, let’s tell them to work harder on the field”. This may sound over-simplified but how many senior managers actually go to the shop floor, the place where the real activity takes place. Instead they rely on the results being reported back to them usually in the form of financial numbers. It is a bit like a coach never going to a game and waiting to see the final scores to decide how to improve the team’s performance.

You see this all the time in organizations where the senior managers gather together in a conference room or offsite and discuss the results and how to improve them. What is missing is any information on what is happening at the shop floor. There seems to be this lack of understanding that if you can improve the day to day activities the end results will improve.
We think that it would be ridiculous for a coach not to go to the game. Yet in our professional organizations we don’t go to the game. We don’t work out the right performance metrics; we don’t measure them nor coach our people on how they can improve their performance.

Does your senior management team operate by reading the scores in Monday’s paper and wonder why they are not on target? Does your child’s little league team get more coaching than your employees?

National Foods efficiency calculation

2007-03-06T02:53:00.000-08:00

I attended a Lean Thinking conference today where National Foods presented a case study on their progress in adopting Lean Manufacturing (based on Toyota's Production system)

The interesting thing was how they calculated the efficiency of their plant. It was the;

actual amount of production time done divided by the total possible production time of the plant.

That is how effective are they in using all of the available capacity in their plant. This is very similar to the one I talk about in the mini-paper in this blog The Efficiency Myth.

Actual Mechanical Advantage divided by Ideal Mechanical Advantage = Efficiency of your engine/plant/process/etc.

The National Foods person went on to say that when they started this journey their efficiency measure was 38%. They have been able to improve that to 59% and have a target to get to 65%. These results demonstrate the power of avoiding the efficiency myth.

He went on to say that they have reduced their labour by 12%, that their employees are taking less sick leave down from 9% to less than 4% and their saftey record has improved dramatically.

All of this by not focussing on the end financial results or looking at cost cutting but by looking at making more effective use of their production capacity.

The Efficiency Myth

2007-03-03T21:33:00.000-08:00

We all want to create a highly efficient and effective organisation but along the way we fall into the trap of the efficiency myth. What is the efficiency myth? Let me answer that by asking when you are creating a highly efficient and effective organisation which do you tackle first, efficiency or effectiveness?

The efficiency myth is based on the fact that the majority of companies first tackle efficiency. At least they think that the actions they are taking are tackling efficiency. Management trends of implementing a shared services group, headcount reductions, centralized purchasing, outsourcing and offshoring are all about creating greater efficiencies. Announcements of merger and acquisitions often highlight the amount of efficiencies that can be gained. During any given financial year programs of cost cutting, travel restrictions, headcount freezes, restrictions on offsite meetings, encouragement to take leave, reduction in training and development regularly appear in order to gain efficiency. Many of these efficiency actions are strictly enforced, measured and monitored. Heaven help the manager whose department has increased spending when efficiencies are being sought. Efficiency is mistakenly equated to saving costs.

What about effectiveness? The effort companies put into effectiveness appear as improvement programs, TQM, Six Sigma, High Performance Teams or Creating an Innovation Culture. In your company how strictly are these enforced? How long lasting are these programs or do they seem to come and go? A major factor for support of effectiveness programs is how we are going against our efficiency numbers. Usually the effective programs are rolled out at the start of the year, just after the budgets have been set and when the first forecasts show us making the year’s targets. Then along come the first quarter results and the switch of focus to efficiency happens faster than you can blink. Not only does it happen quickly it is universally accepted. “Yep, back to normal” we collectively think.

The emphasis today is on efficiency first with some flirtation with effectiveness programs. But chasing efficiency with these actions is actually a myth to explain let’s dig a bit deeper. What do we mean by efficiency and effectiveness? Borrowing from physics, mechanical efficiency is defined as:

Efficiency = Mechanical Advantage / Ideal Mechanical Advantage

In this definition, efficiency is a measure that compares the actual process (mechanical advantage) to the theoretical ideal process (ideal mechanical advantage). To help explain this imagine that your car’s engine was 100% efficient. All the car’s energy, gas in the fuel tank, is transformed into mechanical energy in your wheels. However this is not the case due to friction of the moving parts and the second law of thermodynamics - energy transformed from one state to another will always be less e.g., from chemical (gas) to mechanical (wheels). Efficiency here is actually measuring how effective your car’s engine is in transforming chemical energy into mechanical energy. If the actual Mechanical Advantage of your car’s engine is half that of the Ideal engine your car is 50% efficient. To improve your car’s efficiency engineer’s work on its effectiveness by reducing friction and improving the energy transformation to lower any waste, unburnt fuel or maximise optimal engine temperatures. The input is working on effectiveness the output is gains in efficiency.

However companies don’t think about efficiency in this way. As outlined above efficiency is equated to cost savings. In our car example to make the engine more efficient companies would buy cheaper fuel or downsize by turning off two cylinders. They wouldn’t think to make the engine more effective to reduce friction to use less fuel. They also wouldn’t consider whether the cheaper fuel makes the engine less effective. The cheaper fuel may have a lower octane rating, create greater friction or cause a non-optimal engine temperature? The cheaper fuel may actually decrease effectiveness which decreases efficiency. A bigger problem is that they won’t even know because the only thing companies usually measure is the cost of the inputs, fuel, not the level of effectiveness. In their quest to become more efficient they won’t even see that they are becoming less efficient. Of course companies should save costs where possible but only if it doesn’t decrease effectiveness.

This is the efficiency myth. Companies think about efficiency in the wrong way. They talk about efficiency as an input, “we are about to take some efficiency actions”. Instead efficiency is the measure of the outcome. It is more correct to say “we are about to take some effectiveness actions and the outcome will be improved efficiency”. You might think that this is semantics, that we all really mean the same thing. But it is more than that because thinking of efficiency as an input results in us making the wrong decisions such as buying cheaper fuel. Often our efficiency based decision making leads to less efficiency because it creates less effectiveness. In fact by understanding that we have to make effectiveness decisions first this will lead us to being more efficient, sometimes in ways we wouldn’t have guessed.

Thinking of efficiency in this way how efficient is your organisation? How much friction is there in your processes, internal non value adding work and energy transfer from department to department? What is the level of wastage, time in meetings, emails “cc-ed” to everyone, reports routinely created each week? Comparing your organisations way of working to the ideal 100% effective way where would you put yourselves? 50%, 70% or as low as 30%?

Let us look at a real life example the call centre. I love call centres, they are a microcosm of how the company operates. When you call a call centre and get the automated response you can tell how the company is structured. Press 1 for credit cards, 2 for mortgages, 3 for foreign exchange, etc. Guess what, the bank you called is made up of a credit card, personal banking and international division, etc. Try to update your home address for your credit card, savings account and have new cheques printed without ever being transferred to more than one agent and it is impossible. Today you don’t even know what country the person you are talking to is answering from.

The trend in call centres is to structure them around what is called “skills based” routing. That is all credit card enquiries go to the same group of agents, all home loan enquiries to a different group of agents and so on. Efficiency thinking is the reason behind this. The belief is that if we have agents handling the same type of enquiry everyday they will become proficient with them and handle them much more quickly and to a better level of service for the customer. A key metric in call centres is average call handling time that is, how fast you can complete calls over your shift. Greater proficiency gained from skills based routing means getting through the calls more quickly which means more calls handled per shift. In addition by getting the same type of enquiry means that the company can hire people with lower skill which attract lower wagers or even cheaper they can offshore the work. More calls completed, with lower skills required with lower wages leads to greater efficiency, or does it? Sounds a lot like buying cheaper fuel and what about the impact on effectiveness?

Do you like calling the call centre of your electricity, gas, telecoms, banking, and insurance company? How effective do you find the experience?

Thinking of it from the call centre agent’s point of view, how rewarding do you imagine it is answering the same inquiries about the same product over and over again. While at the same time being measured on how fast you can get through the calls? How motivated are you to provide a high level of customer service versus getting through the calls as fast as possible? No wonder there is such high turnover of staff in call centres.

“Skills based” routing is very much like buying cheaper fuel. It appears to save on labour costs but at the same time it increases friction, creates lots of energy transfer from agent to agent and therefore lowers effectiveness. The end result can actually be higher total labour costs when more agents are required to get through the same amount of work while generating lower customer service.

Let’s look at this in a different way and apply the thinking of tackling effectiveness first to produce an outcome of greater efficiency in the call centre environment. The incorrect premise of skills based routing is that the skill required is defined by the company’s products not by the customer’s needs. Therefore the only time skills based routing works effectively is when the customer need happens to align 100% to the company’s products. Pity the poor customer whose request spans over multiple products such as changing your home address in our banking example above.

Thinking from an effectiveness point of view leads us to implement “customer based” routing. Instead of defining incoming inquires by the company’s products they are defined by customer needs. Customers are segmented on their needs and or behaviours. Segments can be small enterprises, retirees, young family, high net worth individuals, etc. This of course is adapted for your industry and appropriate customer segments. The next step is to break down these segments even further so that each customer is assigned an individual agent. This can be done on a geography basis for example retiree customers in Hartford, Connecticut. What this means is that whenever Nancy a retiree in Hartford calls she always gets the same call centre agent, let’s say Peter.

Before I go any further let me ask a question. When calling a call centre if you were given the option of leaving a voicemail to have your inquiry addressed would you?

A problem for call centres is that there is typically a peak of calls mid morning and another one mid afternoon. This call volume profile makes it very hard to optimise agent staffing levels. Before and after the peaks the staffing levels are too high and agents have no calls to answer. During the peaks the staffing levels are not high enough leading to long wait times for customer and high abandonment rates, customers giving up and hanging up. But what if customers were prepared to leave a voicemail? Peak volume is flattened out as customers leave voicemails that can be called back later in the morning or afternoon outside of the peak times. Staffing levels can now be optimised to handle the steadier stream of work. In fact overall staffing levels can be reduced while at the same time increasing customer service.

But wait a minute! I bet when I asked you the question about leaving a voicemail you said no. You probably said no because you don’t trust the call centre to call you back or to carry out your request left in the voicemail. This is because there is no personal relationship between you and a call centre agent. From past experience the level of care you have received from call centres hasn’t been particularly high, in fact it feels like all they want to do is get you off the phone (surprise, surprise given their measurements) and to trust them via a voicemail is a big ask.

But this changes with customer based routing. Going back to Nancy and Peter, every time Nancy calls her supplier Peter answers the phone. If Peter is busy Nancy has the option to either leave a voicemail or be transferred to one of Peter’s team members. Peter works in a team of ten agents that have their own geographies in Connecticut. His team members know if Peter is away for the day or just having lunch and either can handle Nancy’s inquiry or leave a message for Peter. If Peter doesn’t return Nancy’s call and she has to call again guess who she gets? Peter. With customer based routing Nancy, like we would, has much more confidence in leaving a voicemail. In fact Nancy has much more confidence that Peter will provide her with a greater level of service overall because he is now 100% accountable for her satisfaction. In the skills based routing approach there is no accountability, just get through your calls and collect your pay check.

Voicemail is a piece of technology that we all use today, email is another. Do you think Nancy would send Peter an email? Instead of a return phone call Peter can email Nancy the answer. What about the Internet? Peter can show Nancy how she can address her simple requests (probably the ones that align 100% to the company’s products) through an online service that his company provides. Now the relationship starts to work the other way. Nancy has a feeling of accountability to Peter. She remembers how Peter patiently showed her how to pay her bills on line and instead of bothering him she now does it that way saving direct calls for the more complicated matters. Peter now has the time to become proactive. He notices (or a computer system tells Peter) that Nancy is late on a payment and sends her an email as a reminder. Nancy appreciates this helpful email from Peter especially as she has been very busy and clean forgot. She likes this much more than getting the red ink late payment letter in the mail. What Nancy doesn’t realise is that Peter is actually looking after more customers than ever because of the effectiveness of the new forms of interaction. Peter is actually receiving fewer phone calls in servicing his greater number of customers because many customers are now self servicing using his company’s online systems, sending him emails or leaving voicemails. These new customers have come on board because they heard about the good service Peter’s company is providing.
Peter is also much happier about his performance metrics. Instead of being measured on how many calls he completed in a day he is measured on the business success of his company in the Hartford area, his customer’s area. He was very pleased with a bonus he received for the extra business his company has done. Secretly he is more pleased with the fact he recently won an award for his improvement suggestions which came from encountering the same calls from his customers. Peter was motivated to do something about these problems because he knew he would always get the calls and they were now his customers.

The effects of the change from skills based routing to customer based routing are dramatic. Calls have been converted into voicemails, emails or not at all through self service online websites. This has the effect of streamlining call volumes throughout the day to better optimise staffing levels which by the way can be reduced because the call volumes are lower. Customer satisfaction increases because their needs are being addressed and they are now being serviced by their call centre agent not just being responded to as quickly as possible. The call centre agent turnover is reduced and their motivation increased because they are achieving something, they are making their customers happy. Low performing agents are weeded out because they can now be held identified and held accountable. With skills based routing there is no direct link between customer service and an individual agent, with customer based routing there is a hard line linkage. High performing agents can be also be identified and rewarded which leads to recruitment of further high performing agents because everyone wants to work there.

A further counterintuitive thing emerges and that is the agents become more skilled. By addressing the same customer segment across all their needs the agents learn far more about their customers and the goods and services of their company that meet their needs. While the skill based model is believed to create a greater skill the higher agent turnover becomes self defeating. A constant effort of recruitment and training is required to keep up. It is like having a hole in a bucket and you have to keep topping the bucket up.

Customer based routing makes the call centre more effective, it lowers friction and reduces energy transfer and this leads to greater efficiency. Customers are more satisfied, employees are more motivated and the company results are greatly improved. A far cry from buying cheaper fuel!

Effectiveness thinking such as “customer based” routing applies elsewhere. A great example is the way General Bill Creech of the USA Air Force realigned the maintenance organisation of the Tactical Air Command (TAC) from being skilled based – mechanics, electricians, etc, to individual plane based.

"the one large flightline-wide maintenance organization was broken into three identical 'squadron' teams. Each was responsible for its own twenty four aircraft, and each squadron was broken into four flights of six aircraft. Within each squadron and flight all the various disciplines worked together in small teams to get the job done. Each squadron had its own goals. Each did its own scheduling which had been done centrally before. Each made its own decisions and charted its own course. And we carried those themes of ownership and empowerment down all the way to the frontline level."

"For example, each fighter aircraft was assigned a 'dedicated crew chief' who, with an assistant, was totally responsible for that specific aircraft. We painted his or her name on the side of the fighter, and they went with it everywhere." [along the lines of Nancy being assigned Peter]

"We had gone from a vertical [skills based] to a horizontal [customer or plane based] arrangement and the authority and accountability flowed in that manner. That gave focus to authority and accountability in an integrated product sense; and it removed the ambiguity about who was accountable for what. Before, the aircraft mechanics and various specialists might work on as many as six different aircraft a day, and on a different six the following day. That approach of unfocused responsibility was replaced by the integrated teams, providing ample focal points at all levels for product focus and performance assessment."

"Accountability for poor performance was easy to track. It was equally easy to single out those who deserved recognition for stellar performance - both individuals and groups. Our measurements of those focal points soon began to reflect the power of motivation, pride and commitment."

"The motivational aspects of the new approach can perhaps best be described by citing the insights of a young three-striper crew chief. Not long after we began, I was visiting one of TAC's many bases. As usual I was mingling with the workers at the frontline level to find out what was really going on. The first crew chief I approached smiled as he shook my hand and said, "I really like the new arrangement and the dedicated crew chief program General Creech", I said I did too, and asked him why he liked it so much. He responded, "When was the last time you washed a rental car?" That said it all. He and his colleagues now exercised real ownership."

"The fighters still landed with problems from time to time, of course, as airliners do. But they were fixed and returned to service far more rapidly. For example, we improved by an astounding 270 percent the rate of fixing aircraft on the same day they landed 'broke'. We were now able to fix more than four out of five aircraft immediately. As opposed to only one out of five under the old system. That meant they were available within minutes or a few hours, as contrasted to a day or days before. We also more than doubled our ability to generate sorties in combat." General Bill Creech

By organising around effectiveness and not the original vertical skills structure the Tactical Air Command “doubled our ability to generate sorties in combat”. In other words they were able to do twice as much work with the same number of planes or do the same amount of work with half the number of planes, now that’s efficiency.

An example of how this effectiveness can appear in unexpected places was observed by Mark Sanborn. Mark was so impressed with his U.S. Postal Carrier, mailman Fred Shea, he wrote a book about him called “The Fred Factor”.

“Just days after I moved in, I heard a knock on my front door. When I opened it I saw a mailman standing on my porch. “Good morning, Mr Sandborn!” he said cheerfully. “My name is Fred, and I’m your postal carrier. I just stopped by to introduce myself.”
“I was a bit startled. Like most of us, I had been receiving mail for years, but I had never had this kind of personal encounter with my postal carrier.”

Mark goes on to explain how Fred would never let mail pile up while he was away to make it obvious no one was at home. One time Fred retrieved an incorrectly delivered parcel from UPS four doors down and Mark could always tell when another postal carrier delivered the mail because the mail was jammed into the mail box instead of being neatly bundled. Fred’s service was so good Mark writes the question that we are all probably thinking “Does this guy really work for the U.S. Postal Service?”

The main point of Sanborn’s book is that there are a lot of “Freds” out there; we just need to find and encourage them. I agree with him in fact I believe that the majority of people out there are Fred’s we have just squashed them by our efficiency measures. By putting effectiveness thinking first it is amazing how many Freds you will find. The following stories demonstrate the uncovering of a Fred, before and after.

Before – Tom the Delivery Man with efficiency thinking

Tom, the delivery company driver arrives for work. He is given a schedule of parcels to deliver, already sequenced in the most efficient route order. A computer somewhere has produced his optimal delivery route. In order to met the company's performance target each driver is expected to make fifty deliveries a day. It doesn't seem to matter if the fifty parcels are delivered in half a day or a full day as long as they make the fifty deliveries. In addition a block of time is kept available in the afternoon to pick up parcels that are usually called in on the 1-800 number.

The delivery man that usually deliver's packages for me is Tom. Although Tom drops the package off at my door I don't often talk to him except when I have to sign for a parcel. When I need Tom to pick up a parcel I don't call Tom, I call a 1 800 number. It is always after 3 in the afternoon when Tom comes to pick up my parcels. Sometimes its the same day sometimes its the next one. The process works fine until today when I need a parcel shipped and I won't be home this afternoon. I need Tom this morning. Worst of all I can see his van going up the road outside my place.

Tom's running late. The delivery route the computer produced didn't know about the road works in Oak Street. He had to detour a fair way out of his way to stick to the schedule. It would have been better if he could have changed things around a bit but the company was strict on staying to the schedule. As he hurried up Lakeside Avenue going past Mr Roe's house Tom wondered if he would be returning there later to pick up any parcels today.

One day a parcel didn't turn up as expected even though express service had been paid for. I wanted to call Tom to find out where it was but I couldn't. Instead I had to call the 1 800 number. They took down my details and promised to call me back. When I called them an hour later and explained the situation to a different agent I was told that I hadn't been home when the driver came to my house. They were sure of this because that is what the computer said.

Tom's route for that day had been a stinker. Although he only had the usual fifty deliveries they were all over town. He had five parcels to go to meet his target of fifty for the day. Four of them were in a straight line but one, Mr Roe’s, took him out of his way. Still smarting from the lecture that morning by his supervisor for not meeting his delivery target the previous day, mainly because Oak Street road works were still causing problems, Tom decided that I probably wouldn't be home. He could drop off the four parcels, code mine up as "not at home" and still make his delivery target, at least according to the computer.

My parcel came the next day. I asked Tom if anyone had called him about it. "No sir" he replied, "see you next time", he called as he drove off.

After – Tom the Delivery Man with effectiveness thinking

Tom arrives for work and receives his suggested delivery route. He smiles to himself as he thinks this is going to have to change given the road works in Oak Street. The computer usually gets it fairly right but there always seems to be a need to work around some unexpected variables. He has fifty-five parcels to deliver today. Being able to tweak the route he has found he is able to deliver more than the old target of fifty. In fact fifty used to be a struggle, now fifty-five is a snap. As he drives off he wonders what would be the most he could do in a day.

Everyone in town knows Tom. It's not just because he works for a nationally recognized delivery company but because this town is his responsibility. On the door of his van Tom's name is printed along with his mobile phone number. Tom even has his own business cards that he hands out to customers. If someone is not home he leaves a card to give him a call and maybe he can swing back when he is next close by. Because of this, the amount of returns to the depot and second and third attempts to the customers has dropped off dramatically. Not to mention the reduction in administration work. Maybe that's why he can make more deliveries he wonders.

I have a parcel that needs to go today but I won't be home this afternoon, so I ring up Tom. "Hello Mr Roe", Tom answers. His phone (actually a wireless PDA) has been programmed with all his customers' details so with caller id my name appears on the screen. Tom could also add in new names or make changes to existing ones, he doesn't have to have the call centre to do it and each night the updates are sent to the central computer. The company’s customer database has never been so up to date. I explain about my parcel and that I won't be in this afternoon. Tom looks at his delivery schedule and suggest that he could drop by around 11:00 to pick it up, after all he will be driving right by my house. I say great and hang up.

Sometimes when I ring Tom Sally answers, Sally is Tom's call centre partner. When Tom's phone is engaged or he is otherwise occupied the phone diverts to Sally. Not often but occasionally it goes to Sally's voicemail. I always leave a message because she is very good at getting back to me. I think it is because she knows I am going to get her if I call again. Today Sally answers, 'Hello Mr Roe she answers. "How is that weather you are having at the moment?" Sally supports Tom and the drivers in the two neighbouring towns therefore she knows about the snow we have had in the last two days. "It's pretty cold and I need Tom to pick up a parcel for me, how is he going in the snow." Sally replies, "I do know he is running late because of the weather but according to his delivery schedule and where his GPS is locating him he should be near your house around lunchtime. I'll send him a message to give you a call". Ten minutes later Tom calls.

Tom enjoys work much more these days. His customers greet him with a smile and he even gets free coffee from the coffee shop. He has noticed that more and more people in town are using his company for deliveries. Often his regulars ask him for additional business cards to pass on to their friends. With more deliveries he is able to drop off and pick up more parcels in a shorter space in time and with the dramatic reduction in wasted time on administration, which he hated, he is now doing eighty deliveries a day with a personal best of ninety five. One day he hopes to beat one hundred. The town, his town, really rely on him and it irks Tom if he feels he or his company has let them down. Sally sure is a big help, keeping him and his customers on track.

The other day Tom's supervisor came along for the day to see how things were going and if there were ways to improve things. Tom was amazed when the suggestion he made were put in to place straight away. As he drives along now he is thinking of new ways to make things even better.

Overcoming the Efficiency Myth

The old adage of you can’t manage what you don’t measure is equally true for overcoming the efficiency myth. The reason we fall into the trap of thinking efficiency is an input is because what we measure inside our organisation are financials. We measure items like labour costs, travel expenses, marketing expenditure and training costs. When managing by financials it is easy to make “efficiency lead” decisions designed to reduce these costs. If your company is not yet ready to carry out a big step like restructuring based on customers instead of products (skills) you can start by implementing some effectiveness measures.

Measuring effectiveness is not as easy as it seems. If it was we would already be doing it. You may conduct customer satisfaction surveys or employee opinions polls but these are usually too fluffy! What we need are measures at the coalface that tell us what is happening today and is that an improvement on yesterday. In Jim Collins book “Good to Great” he analysed the Fortune 500 companies over the last forty years to find only 11 GREAT companies. Jim’s definition of great was ones that went from industry norm performance to outperforming their competitors consistently over fifteen years. The bar for outperforming was to beat the Dow Jones Industrial index by at least three times! In his analysis of these eleven companies he found a consistent formula with one of the factors being what he called “the hedgehog concept”. The hedgehog concept included the idea of an “insight into your economic engine –what is your denominator”, Jim explains this as;

“If you could pick one and only one ratio – profit per x – to systematically increase over time, what x would have the greatest and most sustainable impact on your economic engine?”

One of the eleven companies was Walgreens drug stores. Walgreens changed from using an efficiency style ratio of “profit per store” to an effectiveness measure of “profit per customer visit”. Measuring profit per customer visit is very much at the coalface and it is very different thinking from putting efficiency first. What Walgreens hit upon was that convenient locations were more effective in increasing “profit per customer visit” than inconvenient ones. Here is what they did;

“It embarked on a systemic program to replace all inconvenient locations with more convenient ones, preferably corner lots where customers could easily enter and exit from multiple directions. If a great corner location would open up just half a block away from a profitable Walgreens store in a good location, the company would close the good store (even at a cost of $1 million to get out of the lease) to open a great new store on the corner. Walgreens pioneered drive-through pharmacies, and found customers liked the idea, and built hundreds of them. In urban areas, they company clustered its stores tightly together, on the precept that no one should have to walk more than a few blocks to reach a Walgreen. In downtown San Francisco, for example, Walgreens clustered nine stores within a one-mile radius. Nine stores! If you look closely, you will see Walgreens stores as densely packed in some cities as Starbucks coffee in Seattle.”

Jim Collins goes on to contrast this with the efficiency thinking of profit per store;

“Recall how Walgreens switched its focus from profit per store to profit per customer visit. Convenient locations are expensive, but by increasing profit per customer visit, Walgreens was able to increase convenience (nine stores in a mile!) and simultaneously increase profitability across its entire system. The standard metric of profit per store would have run contrary to the convenience concept. (The quickest way to increase profit per store is to decrease the number of stores and put them in less expensive locations. This would have destroyed the convenience concept.)”

Walgreens followed an approach of being effective, profit per customer visits, convenient locations over following the efficiency myth, profit per store. From 1975 to 2000 Walgreens generated cumulative stock returns that outperformed the market by more than fifteen times. Would your company move one of your sites, at the cost of $1million to get out of the existing lease, just because a new site is more effective?

What are the effectiveness metrics for your company? Do you measure them? And by measuring them I mean actually what is going on, profit per customer visit, not customer satisfaction surveys that ask “do you think our store locations are convenient?” You can start small it doesn’t mean you have to leap into moving site locations or restructuring but putting in place some effectiveness measures can be very illuminating on your decision making.

Technology today is increasing our ability to measure our effectiveness at the coalface. I am not talking about implementing a big ERP system but the fact that real time activity tracking through barcode scanning or Radio Frequency Identification chips (RFID) can provide much of the data to measure true coalface effectiveness metrics. The data probably exists in your company today you just have to work out the right metrics and produce the report. Don’t stop the financial metrics, just add one or two effectiveness ones and make sure you look at them first at your next monthly review meeting.

To know what are the right effectiveness metrics you need to look from the customer’s point of view. After all, effectiveness is about satisfying the needs of the customer. Going back to the analogy of the car engine, your company’s engine is how well you satisfy the needs of your customers, without friction or energy wastage. Are you firing on all cylinders or buying cheaper fuel?

Beware the efficiency myth!