Customer measures needed

Once, supply of most goods and services people wanted to buy was limited – suppliers thus had the whip-hand – for example, Ford could offer their ‘Model T’ cars using the strap line “any colour so long as it’s black”

Those days are long gone

Mid 20’th century and on, competition between suppliers started to become serious – first nationally, then globally – seeing profits being made by a few vanguard suppliers, others quickly moved in to their markets, some with new and better ways to do things and offerings for customers

The result of all this competition between suppliers is that customers now determine what and how much they sell (except when the supplier is a public sector monopoly offering an essential service the public cannot do without)

Initially, price was their main criteria for making their buying decisions – but, in the 70s/ 80s, quality and then service levels offered soon grew to be equally as important to most customers

Value for money was what most sought – if the price was high, quality and service levels were expected to be high – pay for a five star hotel and expect Savoy or Ritz standards, for example – pay for a one star B&B and expect a good night’s sleep, clean linen and a tasty ‘full English’ breakfast – both would be deemed ‘good value for money’

Hence, all suppliers, given the star rating they target, need to know what rating their customers give to the price charged versus the quality and service levels received – and, if the quality and service levels are below ‘top box’, they should seek to identify those specific criteria (used by customers, not assumed by suppliers) where they’re judged not to have performed well – and put them right quickly before their sales suffer badly

And the only way suppliers can do this is by conducting regular surveys of a sample of their customers whilst being wary of the many pitfalls connected with doing this

Last, a new major buying criteria has recently become important to many customers, inevitably attracting yet another TLA (Three Letter Acronym) – this time it’s CSR (Corporate Social Responsibility)

More and more customers will avoid suppliers who apparently show no concern for human or animal welfare, dodge paying fair taxes, damage the environment or sell products which are bad for their customers in order to feather their own nests

To counter this possibility, some companies now make ‘ethical statements’ in their annual accounts – and Big Four accountancies such as PWC and KPMG now claim they can measure corporate reputations enabling them to identify where they’re wanting

P.S. There are many other more detailed customer measures possible (e.g. sales or profit per customer, % repeat business) but they all depend on a supplier getting the above cardinals right in the first place

Customers don’t measure up

Supplier organisations have two sorts of customers – external and internal:

  • External customers pay for the goods or services private or public sector organisations offer them – it’s their money alone which keeps businesses in business and public services alive, and pays every employee and shareholders dividends – they decide whether or not to buy or use products or services based on price, quality and service levels offered them
  • Internal customers are fellow-workers further ‘down-the-line’ who depend on you to supply them with raw materials, semi-finished goods or paperwork so they can complete their work – they want to be passed stuff which is ‘right-first-time, not faulty or late causing them extra work and delays which also increases costs

Given such importance, one would expect all organisations to closely monitor how satisfied their customers were with what they were being offered – but most don’t know such important details

Instead, they rely on measures of sales volume, value and trends plus their own internal views on how good they are – if they’re not negative, they assume all things must be hunky dory – hence, many are surprised when existing customers become ex-customers

To be fair:

  • Some survey their customers’ satisfaction levels, albeit most do this badly – too infrequent or too often, thus irritating customers – sample sizes and/ or methods used are unrepresentative or inadequate – hence, they rarely identify important areas where they’re going wrong
  • Some analyse customer complaints, returns and warranty claims but they’re usually half-hearted and little effort is put into making amends, thus missing a golden opportunity to convert unhappy customers into repeat sales – they can also suffer a double whammy here as unhappy customers usually tell more people about their bad experiences than happy ones do about theirs, so more potential sales are lost
  • Some count customer footfall and monitor their average total purchases

However, most organisations have no good idea what their customers really think about what is offered them

In addition, most don’t fully understand the nature of the demand for their services – they assume all demand is equally valuable

But much demand (e.g. output units, episodes, incidents) is repeat demand for the same good or service simply because the original demand was not met ‘right first time’ – goods or services provided were flawed in some way requiring extra costly time to put things right whilst earning no extra revenue or funding e.g. units having to be replaced or patients catching MRSA whilst a patient in hospital

In many organisations, such failure demand can be over 50% of their total, but few know it – and even fewer believe it when told

And the cost of such failure demand to the customers is never considered – e.g. the cost of their wasting time, suffering longer, having to cope with broken down units or making repeat visits to hospital for the convenience of consultants, not them

Conclusions:

  • The business mantra, nowadays is “Put Customers First”
  • Such words are easy to say, and even easier to ignore
  • What most organisations actually do is put themselves first – they look inwards, not outwards – and they see only what they want to see
  • Hence it’s no surprise when experts claim there to be a long long tail of underperforming organisations in ALL sectors

Waste murders productivity

Whilst few managers measure productivity well, even fewer measure their waste of outputs and costly inputs

Waste arises both internally and externally:

  • Internal waste = When things are not done RFT (Right First Time) and work is rejected or has to be reworked
  • External waste = When things are delivered to customers either not as ordered or not to their satisfaction, so extra costs are incurred for no extra revenue e.g. replacing returns, making second deliveries, dealing with customers more than once to sort out their problems/ queries, patients catching MRSA whilst in hospital being treated

Such waste can be hugely costly viz:

  • Analyse customer demand, especially on service organisations and one can find at least 50% and up to 90% of all customers’ contacts are repeats because their queries were not dealt with right first time
  • To save money, eight London hospitals outsourced thousands of letters to India to be typed from dictaphones, but it didn’t go too well:
    • ‘Eustachian tube malfunction’ became ‘Euston Station Tube malfunction’
    • ‘Below-knee amputation’ became ‘baloney amputation’
    • ‘Phlebitis, left leg’ became ‘flea bite his left leg

The result of such waste is lost sales, extra input resource costs and/ or investment in additional output capacity well before needed

So what are the key measures of waste needed:

  • A% = % Availability of an input resource e.g. % labour not off sick and available for work, % materials in stock, % plant ready to go
  • U% = % Utilisation of said resource e.g. % of total time when at work spent productively rather than sat idle or attending a pointless meeting, say
  • E% = % Efficiency e.g. % actual total good output produced (after rejects, rework or replacements) versus the maximum possible – its capacity – e.g. how fast or slow it worked

The waste multiplier then comes into play viz:

AUE% = % Total net output/ Maximum output possible


It usually gives most managers some very unwelcome surprises – for example:

  • If labour A% was 90%, U% 80% and E% 70%, then the multiplier AUE% would be a mere 50%
  • And if a machine A% was 95%, U% 40% and E% 80%, then the multiplier would be a miserable 30%

In both cases, which are optimistic for many organisations, managers would surely be prompted not only ‘to do something’ but also have a steer on where best to act for biggest effect

But most managers do not have this information – they don’t realise such lost potential is typical, not unusual

In the NHS, for example, managers forever say: “Everyone is working hard and long hours so more cannot be done unless we get more resources” – so the government finds billions more to fund these extra resources, otherwise votes will be lost – taxpayers thus have to pay many more taxes than needed – meanwhile ministers and their advisers dabble with more NHS reforms without understanding what’s really needed or possible

And all because they lack basic measures of the waste of existing resources

Current productivity fog

All managers need to get the most out of all costly input resources they employ:

  1. In the private sector, to beat their competition in meeting customers’ needs whilst minimising unit costs and maximising sales and profit margins
  2. In the public sector, to optimise the number and quality of services on offer

However, most managers do not measure productivity well – they have plenty of financial productivity measures, perhaps too many, but little else – the result is most of them are far from getting the most out of their existing input resources

Why so – why should simple ratios of outputs over inputs not be found everywhere?

Survey after survey produce the same results – managers think productivity is too difficult to measure, not a boardroom issue, not the main determinant of their financial success, relevant only to the shop-floor or someone else’s problem

At the same time, leading management organisations and business schools ignore the subject – there’s no productivity headings or focus on their websites, nor any courses offered on it either – a sure indicator of the true importance they attach to the subject

So, given this paucity of measures and lack of interest at the top, is it any wonder that current productivity growth in most organisations and nations is (apparently) flat-lining

A big change in management attitudes is urgently needed

And, for this to happen, six major failings with existing productivity measures need to be addressed:

  1. A partial, not total, productivity picture painted:
  • Valued outputs nowadays are not just sales volumes (cars or insurance policies, say) but quality and service level outcomes for customers that go with those sales – yet performance measures that cover the latter are as rare as hens’ teeth
  • Wasted outputs i.e. repairs or replacements for no extra revenue, say – are often included in total output figures
  • Costly inputs include labour, materials, capex and IT systems – however, labour volumes (hours or FTEs) are the only ones measured – labour quality (i.e. skills, experience, education levels, qualifications) can make a big difference to productivity levels but is ignored
  • Wasted inputs – the time and resources spent on work which was not right first time, say, are usually submerged in total input figures
  • Hence, most productivity measures quoted can be seriously flawed and offer only a fraction of the ‘big performance picture’ needed – as a result, many productivity problems and improvement opportunities pass by unseen

2. A lack of useful benchmarks:

  • External best practice information is usually only sought by better private sector companies – and rarely by any public sector unit, even though such information should be in the public domain and readily available to them
  • However, caution is needed before copying another firm’s best practices – there will always be differences preventing exact copying but knowing others do things differently with better results should make managers ask whether they could be doing as well
  • Most organisations have no idea what their overall output capacity is because of the variety of goods and/ or services they offer – this means they don’t know how much more they could do with the resources they’ve already got – as a result, many invest big money in extra capacity well before needed

3. A lack of regular, timely measures:

  • Important performance information is often produced quarterly yet a manager may need it weekly, say, for her to take appropriate action in good time

4. Few clear links down/ up to lower/ higher levels of management:

  • Managers cannot drill down their set of measures to identify problem causes – nor up and across to those of others and check on the impact of any proposed changes
  • Different management levels often use quite different performance measures, so they don’t talk the same language, so they don’t understand each others’ problems
  • There should be just one set of performance measures linking all managers to all levels

5. Too short a time horizon often used:

  • Some companies have to invest heavily upfront (e.g. oil wells, coal mines), make big money with stuff that’s easy to extract, then less and less per barrel or ton as extraction becomes more difficult until all peters out
  • In such cases, whole-life productivity measures are needed

6. Too much aggregation destroys value of information:

  • One cannot mix quite different outputs, or inputs, to calculate overall productivity levels unless they’re converted into cash
  • This aggregation problem increases the higher one goes in any organisation
  • It’s worse still at national level where official productivity measures have been described as ‘pointless and unusable’ – they spread misinformation, not knowledge

Conclusions:

  • Overall, productivity must be measured well if it is to be managed well
  • At present, few managers do this well – most are ‘flying blind’ and so not in good control
  • Managers need to make their decisions based on good performance data, not opinions
  • It’s at organisation level where most (80%?) national productivity improvement potential lies – and it’s managers, not workers, at that level who have the power to make the improvements necessary
  • But, to do this, they first need to know where, when and how to act

NHS targets have had their day

Lord Prior of Brampton is reported by The Times as saying: “NHS staff suffer from learned helplessness in a dysfunctional system”

So what prompted this mystifying statement?

A&E units are currently reporting their worst numbers of patients waiting longer than four hours, many on trolleys as no beds were available – the NHS Confederation of Managers says the system is “buckling under the strain of rising patient numbers”

Prior claims this is because targets, competition and a reliance on inspectors have led to a ‘disjointed system and demoralised staff’ – breaking up the NHS into autonomous hospitals has made ‘ driving an integrated strategy across the service almost impossible – you could not have designed something that had at its heart more dysfunction’

Chaotic organisation and overuse of targets has led to ‘a disempowered culture, a learned helplessness culture, a top-down looking upwards culture, a very hierarchical culture’ – targets which once worked well when waiting times were unacceptable ‘have had their day’

At present, hospital bosses are under such enormous pressure to hit their targets that there is now ‘widespread gaming of the system’ – frantic efforts are made to get patients out after three hours and 55 minutes waiting, but care stops once the target is missed

Hence, Prior seeks ways to address these cultural issues and bring back the vocation he remembers doctors and nurses once had viz:

  • Junior doctors would say ‘at the end of our day when we’re about to go home, we’d always walk back to A&E to lend a hand if there was a problem – now we go home’
  • When GPs and nurses qualified for their maximum pension, most would stay on for at least another two years – now they simply say: “I’m going”

The issue is how to regain that engaged spirit ‘which would take care of so many of the NHS’s other problems’

But Taj Hassan, president of the Royal College of Emergency Medicine, offers a cautionary note – “If policymakers and governments choose to scrap these targets, they must be held accountable for any impact on patient safety and the added risk of harm or avoidable death”

Conclusions:

Targets still have a role to play in the NHS – the issue is not whether they’re needed (some are, some are not) but how the important few are used

A wholesale NHS management culture change is indeed needed – targets should never be imposed from ‘on-high’ and managers told to ‘get on with it (or else)’ – they need to agree their targets first, taking account of the resources available to them, and then be left alone to figure out how best to meet them – words like challenge, reward, empowerment and accountability should replace the current central control, hit-squads, penalties and micro-meddling that many hospital bosses fear at present