The Value of Root Causes

A high end equipment manufacturer incurred large wastes in excess capacity to accommodate the quarter end spike in shipping requirements. It was widely, though erroneously, believed that the ‘hockey stick’ spike at quarter end was caused by the customers’ preference to buy at end of quarter – perhaps motivated by the perception that the Sales Reps cut the best deals then. Because this driving factor was beyond the manufacturer’s control, year after year, they incurred millions in excess costs without testing their assumption about the cause.

 

At a commercial print shop, the plant manager was very frustrated. He had chartered an improvement team to address excess paper waste and – unlike the high end equipment manufacturer described above – the team gathered facts and data. But here, too, the results ultimately disappointed.

In each of these cases, people were convinced they understood what was causing the problem and what was needed to fix it. In each case, they were mistaken and left significant amounts of waste in their organizations.

 

How does your organization search for root causes? 

 

More ideas…

 

Another Method for Increasing Sales Revenue

In our previous post we suggested one way to grow revenue involved “looking outward” to identify opportunities for improvement. But that approach alone is most often not enough! We must also look inward…

What processes do you use to generate sales?  How well are these processes working?  How do you know? You can study and improve your sales generation process just as you can improve any other process — by gathering facts and data about how the process is currently working, identifying the waste in the process, addressing the underlying causes, and measuring and standardizing the results of the improvements.  What process do you use to acquire new accounts?  What process do you use to grow sales with existing accounts? 

Below are several different processes that businesses use to generate sales:

  • Sales Calls 
    • Improve process
    • Improve targeting
    • Improve frequency 
  • Promotions 
  • Distribution Channels 
  • Pricing

      As we described above, to sell more and grow, it is necessary to understand customers and their current needs and values and also to have the cold, hard facts about your current processes. 

     

    Understanding Customer Needs

    Several of our recent posts reference efforts to increase sales revenue. One suggestion involved “looking outward” to study customer preferences – what your customers and your competitors’ customers care about most. 

    A tool that might help with this task is the Kano analysis. The Kano Model is a systemic approach to understanding customer needs and wants and the value that customers place on the various features your product or service offers. It was developed by Noriaki Kano, a Japanese educator, and was designed to help answer the questions:

    • What does the customer need?

    • What does the customer value?

    • What does the customer expect?

    • What delights the customer? Customers often cannot pinpoint these needs and expectations, but when these unexpected features or products are offered, they “wow” the customer.

    For additional information about The Kano Model, please visit our Website.

    And, of course, we’d love to hear about how your organization has been able to study customer needs!

     

     

    Process Innovation

    Many people believe that process innovation is a fundamental ingredient to improvement.

    However, we’ve found that the word “innovation” is frequently misunderstood and often confused with the word “creativity.”

    Creativity 
    has been defined as the process of inventing something or making something new.  Innovation, on the other hand, typically involves making something that has already been created come into use – making something new happen as opposed to making something new

    Examples: Al Gross invented the walkie-talkie, the first wireless pager, and the cordless phone. But his patents expired before any of his inventions were ever commercialized. He was good at invention, but not at innovation. Conversely, many of us were taught Robert Fulton invented the steam boat, but it was John Fitch who, in actuality, invented and presented it first in Philadelphia in 1787.  Fulton was not the inventor but rather the innovator who made the steamboat era idea happen.

    Merriam-Webster’s dictionary defines innovation as “…the introduction of a new idea or method.”  Wikipedia states, “…innovation is a change in the thought process for doing something, or the useful application of new inventions or discoveries.”

    Just as process innovation is a fundamental component of improvement, innovation is the process that can more readily drive our success – which will very often involve making existing ideas better or changing things for the better.  

    Taking the Growth Path

    As noted in our previous post, when we don’t have enough sales a common tendency is to cut jobs, cut capacity and “whack” the costs.  Some years ago, Bill Conway  had a poster made.  It looked something like this:

    No Growth Path
    Growth Path
    People make improvements
    People make improvements
    Need fewer people to do the work
    Need the same or more people to do more work
    Eliminate people’s jobs
    Greater added value for everybody
    A lot less interest in any more improvement
    Further improvements

    Clearly we cannot cut our way to success.  Growth is an option, but it doesn’t just happen.  There are concrete steps we need to take to improve revenue growth, just as we improve any other aspect of the business.

    We all need better methods for increasing sales. What methods have worked well for you? 

    Nothing Happens Until…

    You may be familiar with Arthur “Red” Motley’s quote, “Nothing happens until somebody sells something!”

    Leaving aside the extent to which Motley’s perspective might be true, effectively managing the sales process and maintaining a path of steady revenue growth are every-day objectives within organizations of all types and sizes.  And while many external factors, such as variation in the economy or competition, can significantly impact results, the selling process — like all processes — can and must be studied and continually improved.  

    In fact, when we recently surveyed a diverse group of business leaders about the greatest challenge facing their organizations in the near term and long term, we heard that the biggest challenge was to grow revenue. As noted in a previous post, we will be focusing on this subject from time to time going forward. In the meantime, a few strategies you might consider adding to your approach involve:

    • Looking outward to test or confirm what customers deem most important
    • Looking inward for opportunities to improve the sales process
    • Looking forward to maintain an innovative edge, based on 3 key criteria

    A more thorough explanation of these activities can be found in one of our recent newsletters.

    How Do You Grow Revenue?

    When we recently surveyed a diverse group of business leaders about the greatest challenge facing their organizations in the near term and long term, we heard from most that by far the biggest challenge was to grow revenue.

    Many of them have accomplished great productivity improvements, but until demand increases, the additional capacity cannot be put to profitable use. In fact, throughout the world, economies are suffering from excess capacity which leads to high levels of unemployment.

    When we don’t have enough sales, our tendency is to cut jobs, cut capacity and lower costs. But, as many of you may know, this approach does nothing to grow sales revenue and often results in some dire circumstances.

    Clearly there are alternatives… and we plan to present additional information on this subject going forward. In the meantime, maybe you’d like to share some success stories about how your organization has grown sales revenue?

    Motivation for Improvement

    In order to make the kinds of improvements in business that we all aim for, we need to motivate people to engage their brains to the fullest, examine the current work processes critically, think deeply about root causes, and think expansively about possible solutions. We want them to consider alternatives, anticipate and minimize risks, implement planfully, and measure and evaluate results. And we usually want people to do all this while keeping up operational responsibilities as well.

    So the challenge of motivating our team becomes very important.

    In his recent book, Drive, the Surprising Truth About What Motivates Us, Daniel Pink explores the impact on performance of different approaches to motivation. His research might surprise you!

    For more details, we highly recommend his book. You might also read more on the subject in one of our recent newsletter articles.

    Partners in Improvement

    Conway Management Company has recently created a “Partners in Improvement” group, which is comprised of select experts and leaders in Improvement from around North America.

    We conduct periodic meetings, during which participants share fresh ideas, best practices and solutions to common problems and challenges associated with Continuous Improvement. Over time, we plan to post some of our findings in this blog and on the Conway Management Website – so please stay tuned!

    We hope you find this of interest and welcome your input as well.

    Method to Madness?

    Anybody might make an irrational decision now and then, right?

    For example, anyone might occasionally spend more on something than it is worth, become too attached to a particular investment, make an employment decision based on gut feel when the facts are against it. But in his book, Predictably Irrational, Dan Ariely asserts that in addition to being vulnerable to an occasional random bad call, we human beings are predictably irrational. There is, it seems, some method in our madness.

    Remember those supply/demand curves in Economics class that have us neatly arriving at a price where supply and demand are in perfect equilibrium? Hogwash!

    Ariely cites a number of experiments that show that that the prices at which people are willing to buy or to sell are influenced by factors that have absolutely nothing to do with the intrinsic value of the object or service. Decisions humans make about the price at which to buy or sell are influenced by factors that are, in fact, quite irrational – but predictably so!

    For example, in one experiment, Ariely passes out to his class a sheet of items he intends to auction off. But first he asks the group to write down the last two digits of their social security numbers next to each item and also to note whether they would, hypothetically, be willing to pay that price for the item. Then they are allowed to bid on any of the items they would like. When asked if the silly exercise with the social security numbers had influenced their bids, the participants said “no way!” – yet those who wrote social security digits between 80 to 99 placed bids that were 2-3 times higher than those students whose last two social security digits were between 00 and 20.  Ariely concludes that market decisions can be greatly influenced simply by having considered whether an item was a good deal at a certain price – even if that price was obviously randomly selected.


    Ariely presents other experiments designed to identify the hidden forces that affect our decisions, many of which are irrational in a strictly economical sense. What are the implications for business if buying and selling decisions are so strongly influenced by irrelevant factors? Can a better understanding of your customers’ decision making process help you sell more and grow?

    Pricing is not the only way that human decisions are influenced in a predictably irrational way. In other experiments, Ariely tests the forces that affect honesty and the willingness to cheat to make a buck. In these experiments, he found that people were predictably less likely to cheat if they were reminded of an obligation for honesty (unenforceable though it was) immediately before the opportunity to cheat presented itself. Interesting.

    Even without the toothless exhortation for honesty, participants refrained from wholesale cheating for cash rewards — even when they could feel sure of getting away with it. There was some cheating to be sure, but not nearly as much as the opportunity deliberately allowed. But when the rewards were provided in the form of tokens instead of cash, the amount of cheating soared. The tokens could be exchanged for cold, hard cash at a table just a few feet away, so they were nearly the same as cash. Nonetheless, the scruples that prevented people from dishonestly acquiring actual cash lost their efficacy when those people were faced with an opportunity to dishonestly acquire a cash-equivalent!

    If scruples lose their power and influence over people as they become removed from actual cash currency, what are the implications in our increasingly cashless economy? What are the implications for the contingency compensation packages that have become so commonplace? Could this phenomenon have led to some of the previous decade’s egregious instances of ‘cooking the books’ from Enron to Madoff?


    Predictably Irrational illustrates interesting facets of human decision making. Understanding the patterns of the irrational biases and influences might help us anticipate and avoid unintended consequences of the decisions we make.

    What do you think? Do you see any signs of this behavior in your experience?

     

     

    Challenges and best practices associated with continuous improvement