Measure What Matters To Customers

In Measure What Matters To Customers, Ron Baker challenges several common notions held by professional service firms including “costs drive prices” and “productivity can be measured by timesheets”. Too many firms, Baker says, are focused on optimizing production and lowering costs to the detriment of effectively serving their customers.

To be successful in today’s information economy, executives must shift their focus to ensuring the success of customers. In this new model, executives must increase the firm’s intellectual capital, price, and effectiveness. Baker advocates developing firm-wide Key Predictive Indicators–forward looking predictors of customer success, not backwards looking performance measures. If you are helping your customers be successful, it’s likely you will be as well. KPIs should be generated by hypothesis and periodically tested. If a KPI isn’t actually predicting your firm’s outcomes, go back to the whiteboard.

Baker presents Gordon Bethune’s transformation of Continental Airlines as an example of the new business model. In the 90’s, Continental was a budget airline so cheap nobody wanted to fly on it. It ranked last in all performance measures for airlines. All efforts had been made to reduce the cost per seat mile traveled. Bethune shifted the focus to customer metrics: on-time arrivals, luggage lost, and complaints received. The airline quickly won more customer satisfaction awards than any other airline in the world and the stock priced increased 25X.

Baker also discusses the rise of the intellectual worker. He regards the timesheet as a remnant of Taylorism. Knowledge workers are not like workers of the industrial revolution. They are paid for their ideas, not hours worked. Setting billable hour quotas is demoralizing. Knowledge workers should be, at least in part, compensated for the results they produce in the form of bonuses or stock options.

Without timesheets, how should services be billed for? Simple. Set the price of the service relative to its value to the customer. With a price set upfront, the firm can tailor its services’s cost appropriately. Decoupling the cost from hours works can lead to innovation within the company. By taking on the risk of a fixed price contract, the firm gains the ability to earn far more than margin on labor.*

I recommend this book to every professional services manager. Baker provides insight into where some of our widely held beliefs originated. I’m confident following his advice will help other’s find a profitable future serving others.

*For more on this topic, see his book Implementing Value Pricing.

Gordon Bethune on motivating your employees

I’m about to start reading From Worst to First by Gordon Bethune so I found this presentation to get an introduction. He describes how he transformed Continental from the worst performing airline to the best by focusing on how to motivate the employees to serve customers. I’d love to work for a company that shares the kind of culture he built at Continental.

Note: He has a few off-color remarks but look past those to the lesson he gives.

You should… A lesson from mentoring

When I started mentoring junior developers, I had a bad habit of saying things like “you should…<my opinion>”. When giving directions, it’s direct to the point, however I don’t think phrasing directions this way helps new developers learn as quickly as guiding them in a way that requires them to make decisions themselves. Today I find myself replacing those “you should” moments with phrases more like “Have you considered…?” or “In my experience…” or pointing them towards an article or specific MSDN page. Sometimes they’ll be able to explain what they want to do but don’t know the technical term for it. By supplying one it’s much easier for them to google for more resources. Once they have some good context on the problem, I’ve found that simply following a Socratic line of questioning about the details of the problem is very effective. Usually they interrupt with me with “Oh I have an idea now!”

Synergy

Perhaps the best business buzzword ever. Coming from the technical implementation side of business, I always hear it used by executives when talking strategy. To be honest, I didn’t realize it was an actual word until recently when I started seeing it in management books. I’ve previously interpreted it as a mashup of the words “synergistic” and “energy”.

Dictionary.com defines synergy as:

synergy. noun. the interaction of elements that when combined produce a total effect that is greater than the sum of the individual elements, contributions, etc.; synergism.

Merriam-Webster defines it as “the increased effectiveness that results when two or more people or businesses work together”.

The word actually comes from the Greek synergos meaning “working together” (syn: together; ergos: work) and was first used in English in 1650.

So synergy is more than just a harmonious partnership. It describes a partnership where the output is greater than the sum of the individual contributions. In the ideal case, I would say synergy is a positive feedback loop; each partner can draw more out of the other.

Rules for custom software

  1. Custom software should enable your core business. There are countless software packages on the market serving common business functions. It makes no sense to invest in expensive custom software if it is not driving your bottom line. Successful custom software projects will enable your business to do more of what it does best. A consultant should help you evaluate where using custom software makes sense and offer off-the-shelf alternatives if an appropriate solution already exists.
  2. Custom software pays for itself. You should be able to quantify your expected ROI before signing a development contract. In some cases this is easy to do: software that increases throughput, helps win additional business, or directly generates revenue in some other way can easily prove it’s worth. In some cases the payoff of software is less visible: reduction of employee time spent on overhead tasks, elimination of human error, or even increased employee morale can all result from better software. I believe a successful project should deliver at least 3X ROI in the first year after implementation.
  3. If you’re being charged by the hour, run like hell. There is an Ed Kless quote I really like: “If you aren’t good at what you do, charge by the hour.” A qualified developer who is genuinely interested in your business’s success will take the time to understand your situation, identify potential roadblocks, and design an effective solution that fits your budget. Based on their past experience they will be able to provide an accurate quote or fixed price agreement for the project.
  4. Custom software requires maintenance. Just like Microsoft regularly releases updates to Windows and Office, custom software also requires periodic care to address bug fixes, changes in business processes, and changes in 3rd party APIs. As part of a development contract, your software provider should provide a retainer to address issues such as bug fixes or user support questions. Information about future maintenance costs should be included as part of buyer education before you sign a contract.
  5. Custom software should be agile. It’s all too common that a consultant shows up, listens to your problems, and then disappears for months to code up a solution. When they return, it’s inevitable that somewhere there was a miscommunication and the software does not exactly fit your business. Efforts to modify the software result in expensive change orders. A reputable consultant should engage the buyer and end users regularly during the development cycle to discover misunderstandings as quickly as possible. Minor changes which do not affect the development schedule should not incur additional cost.

The future of IT spending

I just saw this on another post and wanted to share it here as well.

Recently the vice president of Gartner India said, “CIOs are soon going to be an endangered species in the new digital business era.” The primary threat: business units are increasing acting independently. 38% of IT spending is currently outside the IT department and that number is expected to be over 50% in 2017.

Why are businesses abandoning IT? Likely because few CEOs see CIOs as technology evangelists. Traditionally IT departments have guarded technology decisions as too complicated and favored systems that require frequent IT intervention. With the rise of cloud-based SaaS services, business units are finding solutions outside their company.

Gartner’s advice for a CIO watching out for their job: have frequent contact with the other business unit leaders and listen to their needs. Present feasible options to the business and when they’ve made a decision and be the champion to roll out the solution. There are still many factors you should have influence over including the security of proprietary information and compatibility with existing systems.

Source: http://www.cio.in/topstory/cios-are-becoming-endangered-species%3A-gartner-

Case Study: Saving employee time by migrating error prone Excel spreadsheets to custom software

Before the financial crash in 2008, I was working with a commodity brokerage to develop a suite of internal compliance and automation software products for their back office. This company utilized a large number of spreadsheets in carrying out the trade settlement process. In this case, they were creating a separate spreadsheet for each trade. We’re talking hundreds of trades each month. These trades were structured so that if the market price moved above or below certain levels, the behavior of the trade would change. At month end, an employee would open each spreadsheet and enter each day’s market price and range for the month. The final settlement quantity and prices would be copied from the spreadsheet back to another trade management system. This was a time consuming process, taking approximately 80 hours per month. Due to the time constraints and lack of understanding of the complex math behind the spreadsheets, nobody in the office was routinely auditing the process.

In talking with the back office employees, we learned that this was one of the most dreaded tasks and it kept the entire team in the office for several evenings each month-end. They had developed several techniques for splitting up the task to optimize copy-pasting settlement data into each spreadsheet.

The solution my team built was an application which imported the active trades from the other system each day, listened to live market data, and posted periodic updates back to the other system. Whenever a critical event occurred, we could now alert customers in real time. Trades which had unusual behavior or could not be reconciled with the other system would be summarized in a report to senior back office personnel. The dreaded 80 hour a month process was converted into a task which only required the attention of a manager for a few hours to resolve the mismatched trades over the course of each month.

During the rollout of this system, we backtested it on previous data. To the surprise of everyone, we discovered six figures worth of over payments to customers. The copious copy-pasting and lack of auditing had let human error accumulate. We now know this won’t be an issue going forward and is an additional huge cost savings to the firm.

I’m very proud of this project. It involved learning trade pricing rules which really clicked with my inner physicist geek. Beyond the original time savings from the project, it was also a huge morale boost to the employees who no longer had to sacrifice their evenings to reconciling spreadsheets. Due to the success of our project, my team became the go-to consultants for several more automation projects within this office.