Management Mythbusters

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.