The last thing your business needs is more metrics

The problem with metrics is that smart people try to game them, and dumb people try to achieve them.

You know the sort of person I mean…the one who dogmatically insists on continuing to do something they get measured on, all the while turning a deaf ear to the legions of customer complaints, wielding their weapon of choice… “company policy”… as the excuse for disappointing paying customers..

Difficult though this dynamic is for any business, the problem is more acute the more metrics, targets and KPIs your business has. I once ran the division of a multinational business where we had 42 different metrics to track and report on every month.

Each of these numbers had some degree of relevance…they were interesting, up to a point…but with 42 metrics to keep on track, that gave me about an hour a week on each of these apparently equally-important metrics.

Not that I actually had an hour a week to spend on any of those things. My experience is that businesses with lots of metrics also tend to have lots of meetings where the metrics they’re tracking are discussed, analysed, picked over and post-mortem’d.

Every metric had a manager somewhere who was responsible for that particular measure across all the divisions of the business, who in turn reported in to someone pretty important in the Head Office management structure.

Because each metric’s manager reported to a senior person at head office, each of them insisted on their own battery of meetings and reports…separate from, and in addition to, the corporate set of meetings and reports through the existing reporting structure…so each metric’s manager knew what was going on well enough to pass on their own reports through to their own bosses..

If you think that sounds like chaos, you’d be right. Very little ever got done to move the business forward. All our time was spent reporting on history or having meetings about it.

Here’s a new initiative – let’s make sure we’ve got some metrics in place

Part of the problem in that business was every time a new idea was sanctioned by the CEO or the Board, a raft of new metrics was brought in to make sure this new idea could be measured and tracked in minute detail across all the operating divisions of the business.

Thankfully, as you might have realised by now, it wasn’t very often that a new idea was actually implemented. That would have required us to stop talking about things that had happened in the past for long enough to have an idea or two about what we might like to do in the future.

As a Finance Director and CFO, this approach used to drive me crazy, (although I wasn’t the FD or CFO in this particular business, so just had to go along with it).

The amount of unproductive time spent in senior managers meeting with one another was beyond astounding. I reckoned the costs of measurement and reporting was possibly the single biggest cost the business had, even though resources were being starved from the front line at the time on the grounds of “cost pressures in the business”.

For every new XYZ Initiative Manager appointed, we could probably have put four people on the front-line where they were desperately needed. But the Chair, Board and Chief Executive of this business could never see things that way.

I’ve no doubt they were well-meaning. But they’d all taken on board the sort of thing people are taught at business school somewhat too literally, which made the whole thing unmanageable.

As a principle “what gets measured, gets managed” has something going for it, but carried to the extreme, all it does is seize up the inner workings of a business.

Of course businesses should have some basis for deciding whether the initiatives they’re implementing have some positive benefit to the business and its customers. But there are often simpler ways of achieving that objective.

After all, when you break it down, all any business is trying to do is bring in enough income from customers to cover their costs and leave a profit.

Since profit is calculated as a balancing figure, you’re only really managing two dimensions here – income and cost. Profit is what’s left over after deducting one from the other.

In most businesses, costs are either fixed (that is they don’t wary much from month to month, like salaries or rent) or variable on some predetermined formula (X per hour, Y per item produced, Z% share of income generated) or a mix of both, again on some predetermined basis (eg some permanent staff paid on a salary and some temporary staff paid on an hourly rate)..

Off-hand, it seems to me that the optimal number of metrics and KPIs to measure those mathematical relationships is some number a long way short of 42.

You might say…”that’s all well and good, but what about non-financial measures that matter to stakeholders?”

Fair point – how many of those do we need?

Treat people fairly, without bias, based on gender, ethnic background or belief systems? I’m all for that…

Ensure your people are safe from harm at work? Seems reasonable…

Buy your products fairly, without supporting exploitative labour practices in third world countries? Yup…

Reduce our impact on the planet? Another tick…

Operate according to the principles of good corporate governance? Yes to that one too.

There may be some industry-specific concerns over and above those. If you’re disposing of radioactive waste from a nuclear power station, I’d expect a few additional metrics around how you might do that without destroying half of the nearest town, for example.

But those should be pretty rare. There can’t be many businesses which need to track more than six or seven key metrics in detail. And even if you could, that doesn’t mean you should…especially when you consider the cost of collecting all the data you need for a never-ending round of review meetings about the latest metrics or KPIs.

The cost of measurement

You’d probably come to the same conclusion if you did what very few businesses bother to figure out – the cost of measuring and reporting on each initiative you think is important.

In the business I described earlier, pretty much every measure had its own manager to track each metric, so there was probably a 60-80 grand salary just in that.

But it gets worse…

Some of these people had their own departments to help them with their analysis and reporting. One, I recall, had a department of six, in addition to the manager, all on 40-50 grand salaries.

Measuring this particular feature of the business probably cost the thick end of £400,000 just in salary costs…maybe as much as half-a-million when you add in IT costs, facilities, travel and the costs of the conferences these people always seemed to be going to.

And that’s just the more obvious measurement and management costs.

On top of that there was my time, time spent by the other divisional heads, time spent by our respective teams collating the information in the first place…which, in some cases, required an investment in bits of kit or software where human beings just couldn’t collect the data quickly enough or accurately enough..

I couldn’t give a definitive picture of what that cost might add up to, but I guesstimated it at about half again of the costs incurred running the official “measuring departments”. And I’m probably being kind at that.

Although the 6-person measuring department was the worst example, multiply that guesstimated cost by 42…one for each metric which was “vital” to the business…and add on half again for our “in-house” costs at divisional level. You’ll quickly see why the cost of measurement was easily one of the biggest costs in this business, even though nobody ever thought of it like that..

It’s been a while since I worked at this business. They may have changed since…although I wouldn’t bet on it. Some behaviours become too deeply ingrained to be changed under anything other than the most severe existential threats.

Don’t measure it, do it!

That business was the first thing going through my mind at the weekend as I read a succession of articles about changes people felt should be made to the business world.

These were changes for the good, let me add.

The articles suggested encouraging more women and minorities into senior roles, emitting less carbon from company vehicles, providing opportunities for young people trying to get onto the job ladder and so on.

I wouldn’t argue against any of those things.

However every article demanded additional metrics, tracking, targets and KPIs against each of those inherently worthy objectives.

But, thinking back to the place I used to work, I imagined the impact on that business if they picked up any one of those and started to carve out a six-person department to track progress and report to head office about it.

What would you rather have – £500,000 spent on measuring the recruitment of women and ethnic minority candidates into senor level posts or £500,000 spent giving women and ethnic minorities within the business the training, support or coaching they might need to be a credible candidate for the next senior role?

Which one is more likely to create the positive result you’re looking for…measuring it or doing it?

To quote one of the world’s foremost quality and efficiency experts…

…measurement of productivity does not improve productivity.

W Edwards Deming, “Out of the Crisis”, p15

I’d rather spend the money actually doing things that lead directly and tangibly to the outcome being sought, instead of spending the same sum measuring whether we’ve done it or not.

In fairness, I don’t think this is a position most people would argue with. The problem is that very few businesses know the true cost of their back office activities…including things like measuring and reporting on information, and the costs of managing those who do.

And, admittedly, while it’s not impossible to work out, it is tricky…and sometimes fairly approximate unless you have everyone in the business fill in time sheets all the time (which would, of course, require a Time Sheet Manager and a raft of people to collate, do the data entry and report on whatever the time sheet data told them…rather defeating the point!).

There are times when the cost of getting more accurate measurements just isn’t worth the cost involved. Intelligent approximations, consistently applied, will often get you close enough for most decision-making purposes.

When is the cost of measurement too high?

It’s hard to be dogmatic about this. If you’re servicing aircraft engines or conducting open heart surgery, you might think it was important to do a bit more tracking than you might for a business making black plastic refuse sacks.

But my personal “concern meter” goes off when the costs of administration are more than 5-10% of the project concerned.

On that basis, a budget of, say, £500,000 should have no more than £50,000 spent administering it and reporting on it. The rest should be spent doing whatever the objective might be.

In a large corporate environment, £50,000 doesn’t get you very far. It’s a small fraction of a C-Suite executive’s time. It might get you an Executive Assistant, or half a departmental manager…maybe most of a front-line manager.

When you approach measurement and metric setting from that perspective, it forces you to think about what you really need by way of metrics, KPIs, dashboards and whatever else you use in your business.

When you’ve only got a few grand to do your measuring with, you’re forced to concentrate only on the metrics that really matter…not every metric a full-time department of six might come up with between them after an all-day brainstorming session..

And in case you think this is impossible, I assure you it isn’t.

I once took a major organisation through an environmental certification process, which was important to them at that point in time for reasons I won’t go into here. I did it with a budget of zero and just little scraps of people’s time.

We invested every penny we could leverage out of existing budgets to support the process as best we were able and, in just a couple of years, went from being one of the sector’s poorer environmental performers to gaining a prestigious certification from an independent awarding body, which, in turn, helped boost our market positioning and ultimately our revenues.

We only had one metric – achieving, and subsequently sustaining, that accreditation.

I led meetings about once every two months, for a couple of hours each time, so we could catch up with the dozen or so people across the business who might be able to impact on this initiative.

At that meeting we identified what cash had been freed up from existing budgets and prioritised where we would spend it to make the fastest progress possible towards one or more of the certifying body’s assessment criteria.

In the three years or so I ran this initiative, I made one report to the Board, about 18 months in, to explain what we were doing and how we’d spent the money we’d found in pursuit of the objective to gain that certification. We did another session when we’d achieved the accreditation. That was it – maybe an hour in total over three years.

That apart, I refused to set up meeting cycles, reporting sessions, KPIs to track what people were getting up to or any of the usual stuff that people do in this situation.

There was no need for any of those things as I could manage it all through the bi-monthly meetings. So we spent little or nothing on administration, measurement and management. We spent everything we could achieving the objective.

Now I’ve got my good points, but there was nothing I did that nobody else couldn’t do with a bit of trust and some room for manoeuvre. There was no financial risk as everything we spent still had to be signed off through the normal approval processes.

My experience is that, given the will, and given an understanding of just how much management and monitoring costs the average business, there are very few projects which can’t be delivered the same way. You might surprised how quickly you can make progress, if anything.

But we can’t trust our people to operate like that…

When I tell this story to business leaders, I’m often told that they could never do things the same way because they can’t trust their people enough to operate without lots of reports and meetings.

I find this very sad…but this perspective raises an interesting question…

Who hired these people in the first place?

Well, it seems that was the same business leaders who claim they can’t trust the people they hired themselves!

Seems to me the solution to that problem is entirely in their own hands. Hiring people you can’t trust doesn’t sound like the smartest recruitment decision I ever heard.

“Oh, but the people we could trust are too expensive,” people sometimes respond, “so only have the budget for entry-level people.”

Again, the solution is in the hands of leaders. Running the business on cheap labour is often the most expensive way to run a business.

On the surface it looks cheap, but by the time you add in management, reporting, tracking and measurement systems sufficient to give at least a reasonable level of assurance that nothing is going badly wrong, this approach is often the most expensive option.

But this response is also an illustration of why the measurement, tracking, reporting process is fundamentally flawed.

Despite all the measurement, tracking and reporting they already have to regulate the behaviour of people they employ, those business leaders still don’t trust their staff.

More metrics isn’t the answer. They’ve got plenty of those already. But none of them do the job they really need doing.

Metrics won’t give you trust. At best they protect your downside a little, but they’re not infallible – many a formerly market-leading business has gone into administration even though all their metrics and reports were pointing in the right direction up till the moment the bank pulled the plug (Patisserie Valerie, anyone?).

Trust is an emotional construct, not something governed by the laws of physics which you can measure mechanically and improve in a factory.

If trust is what you want to create, don’t imagine traditional reporting mechanisms will help. They won’t.

Instead, work on trust (pausing to reflect, at least briefly, on whether the problem might be with you, rather than with your people).

Get that in place, and redeploy most of the resources (keeping back a reasonable 5-10% so you can do the tracking that really needs doing) spent on managing, reporting and tracking things into making your overarching objective happen.

From the moment you do that, your business will march towards your objectives faster than you can imagine. You’ll get where you want to go faster, more profitably and with a lot less stress and strain on your life and your calendar.

And if you think this is just my own personal opinion, no less an authority than Dr W Edwards Deming, the father of modern quality control, had as part of his famous 14 Principles “Eliminate management by numbers and numerical goals, Substitute leadership.”

Go on. Give it a go. You might be surprised how good your business can be when you don’t measure things.

(Picture credit: Tyler Easton on Unsplash

How to remix your way from good to great

Change programmes. Meat and drink to the red-braces wearing, MBA-toting, PowerPoint-wielding 25 year-olds the big consulting firms send in to tell you what’s wrong with your business.

Nearly always, the answer to whatever’s wrong is a “change programme” of some sort. Mainly because when you’re 25 and don’t have any business experience of your own to draw on, you do what the partners back at Head Office tell you. And they like change programmes, because there’s big money to be made by locking a client into at least a year’s-worth of fees.

So when a partner in a big consulting firm tells their 25 year-old associates to say the answer to their client’s troubles is “a change programme”, that’s exactly the prescription they’re going to write.

What the big consultancies don’t tell you is that all change programmes suffer from the same problem.

They throw out everything to start again. Some things deserve to be thrown out – after all, they caused all the problems in the first place.

But the vast majority of things in the business probably didn’t need to be changed just to fit in with some corporate visioning piece the aforementioned big consultancy has also told the client they needed.

The hardest part in a change programme isn’t throwing everything out and starting again. Any idiot can do that…and quite a few idiots do every year.

That’s one of the reasons change programmes only rarely deliver on the promises made upfront. Even McKinsey admit that 70% of change initiatives fail every year.

Frankly these aren’t a whole lot better than the odds you’d get sitting round a Las Vegas card table. Maybe there’s a way to improve those odds a little….

If the hardest part isn’t throwing everything out, what is?

No, the hardest part isn’t throwing everything out with a single stroke of a red pen and starting again.

The hardest part is deciding what bits to keep.

What’s working now? Don’t change it.

What do customers like? Don’t change it.

What do staff enjoy about being part of your team? Don’t change it.

There are usually lots of things you shouldn’t change, if for no other reason than you’ll be upsetting a large proportion of your workforce (80%…90%…?) who are doing just fine already.

The likelihood is whatever the change programme comes up with won’t be any better.

It’s more likely to be worse because those staff members already doing a great job will be demotivated by being told to do something clearly insane by someone wearing red braces who doesn’t know what they’re talking about.

Even if the change programme develops a new way of working that’s some tiny fraction of a penny cheaper every time an individual staff member cranks the handle at their workstation, the loss in motivation means you might not really be saving those fractions of a penny after all.

Instead, you’re losing some of the productive capacity you benefit from now, without realising it or paying for it, because motivated staff work better and harder than unmotivated staff. This doesn’t look like a cost in a bookkeeping sense, but the difference between motivated and unmotivated staff in a business is one of the biggest costs there is.

You’re saving fractions of a penny and you’re giving up pounds or dollars or euros to do it. That’s poor economics.

Except for the consulting firm you’re paying millions to. Their economics on the deal are pretty sweet. They’re quite happy about the way things worked out.

And, in fairness, you’ll feel pretty good in the short run too.

The high-end consultancies know you want to feel good about your decision to pay them millions of dollars, so they’re going to gather plenty of evidence about how you paid them, let’s say, $5 million but they’ve worked out a plan to save you $20 million in return.

They know sooner or later someone’s going to ask, so they make sure to give you the answer before you’re asked the question. That way you look like someone who’s in charge…and if your boss is doing the asking you look like a person destined for promotion by giving an immediate answer.

Being able to parrot a quick metric about superficial short-term cost savings usually chokes off most questions about why the business is doing catastrophically stupid things. Especially so the further away from the shop floor the person asking why changes need to be made has their office.

And of course, the big consultancies will write you up in glowing terms on their website. You’ll be in the glossy printed magazine they send round all their CEO contacts. You’ll be invited to ask to speak at their conferences.

They’ll make you feel on top of the world.

But odds are you’ve sown the seeds of your own destruction. Previously loyal employees start “exploring opportunities to develop their career elsewhere”. Some of your best customers don’t seem quite so enthusiastic about sending orders your way. Some of your key partners and suppliers start citing contractual terms to you, rather than rolling with the punches like they used to do, knowing if they scratched your back today you’d scratch theirs right back again tomorrow.

On the surface, especially with the PR machine of a big consultancy behind you, there might be a good enough story to tell for a couple of years. But somehow the magic has started leeching away from your business. Once that starts, the direction of travel is usually set. The only question is how long it takes to go from change programme to basket case.

How do you know what to keep?

Knowing what to keep is tricky. That’s why it’s a lot easier to throw everything out and start again as that requires no critical or analytical skills whatsoever.

The best analogy I can give you is from the music industry.

If a song’s not working for them, they don’t throw out every note and start again. They work with what’s already there to build a new, and hopefully better, end product than they had before. That’s called a remix.

But this is the key bit…

The record companies actually change very little of what they started with for a remix… 5-10% tops.

The challenge is to change as little as possible, not as much as possible.

They don’t write a whole new song – that would be more like the traditional change programme approach where everything is thrown out and you start again..

Even the term “change programme” or “change management” implies “everything is going to be different around here”.

When record companies sanction a remix, the expectation is that most things won’t change at all. But some new elements will be introduced to try and create the magic that wasn’t quite there the first time round.

Perhaps weirdly, changing as little as possible on tunes nobody cares about can turn them into worldwide hit records.

In case you doubt that, here’s three quick examples…

3 hugely successful remixes

In 1997, a obscure British indie-rock band just about limped into the music industry’s consciousness when their song “Brimful of Asha” asthmatically climbed all the way up to number 60 in the singles charts before being quickly forgotten.

Except by Norman Cook (perhaps better known under his stage name of Fatboy Slim). His remix…almost identical to Cornershop’s original…shot to the top of the UK singles charts in February 1998. The extra few percent Fatboy Slim added made a record nobody had ever heard of into a platinum-selling Number 1.

(For any music fans reading this, the original version is here…nice enough but a bit insipid. The Number 1 remixed version is here.)

You might never have heard of Cornershop…at least before their Number 1 record…but I can virtually guarantee you’ve heard of Elvis Presley. The “King of Rock and Roll” is the best-selling solo artist in the history of recorded music and a 20th Century cultural icon.

But even Elvis had some duds…until the remixers came along.

The King had recorded a song called “A Little Less Conversation” as the B-side for a 1968 single that went absolutely nowhere. This was before his Comeback Tour. These were the lean years for Elvis when the record-buying public stopped caring about his music as much as they used to.

That obscure B-side had been long forgotten, except among die-hard Elvis fans, by the early 2000s.

At least until JXL remixed “A Little Less Conversation” in 2002. Then everybody knew about it.

The remix was a UK Number 1 single for four weeks and a cut-down version of the remix was chosen for that year’s World Cup theme tune as well, boosting its popularity even further..

If you listen to the two versions side by side, the surprising thing again is how little changed. But a sprinkle of remix magic made a long-forgotten B-side recorded 35 years earlier by the King of Rock and Roll into a Number One hit record 25 years after he’d passed away. That’s a pretty neat trick however you look at it. (Original here, remix here.)

And finally, just in case you think this trick only worked decades ago, one of the biggest hits of recent years was Mike Posner’s “Ibiza”.

You’ll have heard it hundreds of times even if you don’t remember the singer’s name or the song’s title. “Ibiza” was never off the radio for much of 2015 and 2016. It was Number 1 in the UK for four weeks, and hit the top of the charts around the world.

But the smash-hit version you’ll have heard is a remix. I can virtually guarantee you’ll never have heard the original.

That’s because the original disappeared down a rabbit hole pretty much as soon as it left the recording studio. Almost nobody was interested, except Norwegian remixers Seeb, who thought they could do something interesting with what was at the time a rather glum acoustic guitar-based song.

Their extra couple of percent made a record nobody wanted to listen to into a 5-times platinum record in the UK alone, and a platinum-selling record around the world. (Original version here, Seeb’s remix here. Please note there is a parental advisory on the lyrics for this song, so don’t listen if you’re likely to be offended. Strong language apart, it’s a great song.)

What does this mean for your business?

I could go on, but I won’t. I’m sure you get the idea. Countless hit records have been created over the years as a result of taking a record nobody liked very much and changing just a few percent of it.

Changing that few percent was all it took to take those songs from good to great…or perhaps more accurately “completely unknown to worldwide number one”…

Think about this. The record company made million-selling hit records out of material they had already recorded by changing very little and spending little or no money.

And they did this even though all remixes, including those cited above, are by definition the same song in both “hit” and “non-hit” versions.

The melodic structure doesn’t change. The chords don’t change. The lead vocal doesn’t change.

What changes are the subtleties…the feel, the ambience, the rhythm, the instrumentation…mostly things you only notice subliminally. Together they change how you feel about a song and make you want to put your hand in your pocket to buy a copy.

For a skilled remixer, knowing what to leave the same is at least as important as knowing what needs to change.

So it is in your business.

If things could be better, perhaps you don’t need a change programme at all. Maybe you need to think in terms of a remix, where most things stay the same, than a change programme where you throw everything out and start again.

Perhaps think about the business subtleties as the place to start and leave the bulk of things just as they are, like a remixer would.

Leadership, customer experience and employee engagement are often great starting points. All of those alter the look and feel of your business, just like Seeb, JXL and Fatboy Slim did for those unloved songs gathering dust in their record companies’ vaults.

And, at the risk of over-extending the metaphor, doing a remix is also several orders of magnitude cheaper than recording an original song from scratch.

Your high-end consultancy-driven change programme is like recording a song from scratch. It’s a major investment that might go nowhere.

You might even be worse off than when you started in the pretty likely event the change programme doesn’t achieve its objectives, a fate which you’ll remember even McKinsey admits befalls 70% or so of change programmes.

A remix is the investment of a few grand in your business…actually often nothing at all except some salary time you’re already paying for…tinkering around with the bits that don’t quite work and putting them right, often for little or no cash investment.

So next time a freshly-minted MBA with a business card from a big consultancy turns up and tries to persuade you to embark on an ambitious change programme which involves throwing everything out and starting again, just remember these two things.

Firstly, whatever he or she is proposing is very unlikely to do anything close to what they’re telling you (since that’s the outcome 70% of the time, you’ve got less than a 1-in-3 chance that you’ll be one of the lucky ones).

Secondly, remember that you might not need a change programme at all. Try a remix first. You’ll be surprised how far a few grand well-spent can take you.

In a musical sense, it can give you a worldwide Number 1.

In a business sense, a remix really can take you from good to great..

(Picture credit: Leo Wieling on Unsplash )

Why thorough processes delivered to a high standard might account for all the problems in your business

The world is becoming increasingly process-orientated. There are positive aspects to that – if you’re the pilot of a 747, the Operations Director of a nuclear power plant or a surgeon carrying out microsurgery on a vital organ, I’d feel a lot more comfortable knowing that what you do, and the order you do them in, has been designed in a reliable, dependable way.

Even though most of our daily work activities aren’t anything like as mission-critical as those examples, the business world seems determined to introduce ever-greater numbers of processes and procedures to govern every aspect of what they do.

I’m not sure that’s a good thing for a number of reasons, but in my capacity as a Finance Director and CFO what bothers me most about our process-heavy world is that this approach often turns into a really expensive way to do something simple, and can easily lead to a range of less-than-wise decisions.

There is a better way…which we’ll get there in a moment…

But first, the inspiration

This article was inspired by a tweet from the always-interesting Mark Pollard (@MarkPollard on Twitter) reporting on a conversation with Phil Adams (@Phil_Adams). Here it is:

Their conversation was specifically in the context of producing good creative work, but I’d argue this concept matters for just about everything a business does.

The maths is unarguable.

Phil Adams points out, correctly, that even with just a 5-step process, where each step is done right 90% of the time, the likelihood of getting to a perfect answer each time is less than 60% (59.049% to be exact), assuming we’re dealing with a sequence of independent events (quick statistics primer here if you would like a refresher)..

Yet the holy grail for most large corporations is a detailed process with dozens of precisely crafted steps, each done right at least 95% of the time.

For a business process with even just 12 steps, however, each done right 95% f the time, the likelihood of everything happening exactly as planned is even less than Phil Adam’s example above. In fact, that process will only work as intended 54.04% of the time on average for a 12-step process, or not much over half.

Think about this. With a 12-step process where each step is done right 95% of the time, nearly half the time this process will go wrong somewhere along the line.

With a more complicated process, say one with twice that number of steps, you’re down to things going right less than 30% of of the time (29.2%). More than two-thirds of the time, your customers will be disappointed or something will be going wrong in your business. This will inevitably, one way or another, increase your costs.

I’ve worked for some large multinationals in my time and it was never much of a challenge to find processes 24 steps (or more) long. But even in relatively small businesses activities such as manufacturing products, responding to customer enquiries and tendering for new contracts can quite easily have two dozen steps or more to follow before reaching the right answer.

So this is a real problem for many businesses. Especially in large businesses which don’t often realise how often the end-to-end process goes wrong because each department involved in the process trumpets their 95% success rates on the individual elements.

That goes double when the process involves several different departments within the business and everyone tries to claim their share of the credit for doing their bit well, while doing their best to deflect the blame for customer dissatisfaction, or manufacturing inefficiencies, onto some other part of the process for which they are not responsible.

But it gets worse…

After a while, let’s say someone notices that the customer service department has ballooned to 20 people because of the volume of customer service incidents generated. Each of these customer service people costs £30,000 a year with on-costs.

Someone who feels they have a point to prove about how good their thrusting entrepreneurialism is for the business turns up at a management meeting and says something like “over half a million quid a year on the call centre – we need to save some of that cost”.

Strategies what what happens next vary, but common solutions are one or more of the following…

First, starting salaries get pared back. In a high labour-turnover environment like a call centre, there are always people leaving. So, thinks some aspiring company superstar, when one of our £30,000 a year people leave, we’ll replace them with someone on minimum wage so that, over time, we’ll only spend half as much. The Finance Director and the CEO will be delighted, they imagine.

I’m all for saving money and for giving entry-level people an opportunity to embark on a meaningful career. The part of the equation that’s often overlooked is that junior, inexperienced people are very unlikely to carry out the assigned tasks as well as the more experienced person who has just left.

Our 95% success rate for each step in the process goes down to 90%, let’s say. So our 12-step process with each step done right 90% of the time means only 28.24% of transactions will go through properly. And for a 24-step process at 90%, only 7.97% of transactions will go through right first time.

What looks superficially like a smart cost-saving move is often one of the least smart decisions a business can take, for reasons we’ll cover in a moment.

Another popular option is to look at a £600,000 cost and try to outsource the work. Although the outsourced customer service industry doesn’t enjoy the best of press, there are good businesses in there (I know, I used to run one of them).

But the first thing any self-respecting customer service outsourcer will do is ask you to be really explicit on what steps there are in the process, how you want their agent to respond in a number of different scenarios, how the interface to the client’s IT systems will work and so on.

It’s almost nailed on that your 12-step process will have just increased to, let’s say, an 18-step process. However your 95% success rate for each step is unlikely to change. After all, you’ve told the outsourcer exactly what to do, haven’t you, which you’ve naturally based on what your current staff do now.

An 18-step process performed as intended 95% of the time will have a 39.72% rate of successful completion. A similar 50% uplift on a 24 stage process means it’s right just 15.8% of the time.

I won’t even calculate the 90% options – let’s just say they’re almost never right.

These scenarios are not the fault of either the new, junior member of staff or the outsourcer. They’re only working with the material you’ve given them, and frankly they were never likely to result in a positive outcome, although both are common “budget saving” strategies.

The final common approach is to decide that everything is going to be self-service through your website which means you don’t need a customer service department at all.

There are two major problems with this.

Firstly, it is literally impossible to do everything through a self-service website. Even the kings of web self-service, Amazon, have telephone based support for particularly thorny issues…which is, perhaps surprisingly, very good, in my own experience.

If Amazon can’t make an entirely web-based service work, let’s just operate under the assumption that your business is unlikely to achieve a goal Amazon hasn’t any time soon.

The second issue is that developing web self-service options to cover every eventuality is expensive. An external firm will charge a high six-figure sum to develop one for you, or you can do it yourself but you’ll need to beef up your IT department to do it. At least over time, you’re likely to spend as much in IT resources, internal and external, as you’ve been spending in customer service costs.

Oh no, it’s even worse than that…

Sorry to say, we haven’t finished with things getting worse.

All the common solutions lead to an increase in costs.

Hire much less-experienced labour who get things wrong more often and you’ll have to beef up your management resources to deal with queries, handle dissatisfied customers and authorise refunds, special deliveries and whatever it takes to try and put things right again for the customer.

You have fewer £30,000 a year call centre agents, but a lot more £50,000 a year managers to look after the new minimum wage staff. (Again, this is not the staff’s fault, the deck has been unwittingly stacked against them.)

Outsourcing can be a good idea, but if you’ve got a £600,000 a year outsourcing contract which is your main interface with all your customers, unless you’re an extreme risk-taker (which I don’t recommend if you still want to have a business to run in a couple of years) you’ll need a relatively senior manager to make sure the outsourcer keeps on their toes and delivers what they say they will.

So you can probably add £70-80,000 back into whatever savings you make…perhaps even more than that if you deal with complex processes or work in an industry where there’s regulatory oversight to contend with.

And as for the web self-service option, there’s a real danger that you’ll just swap 20 customer service agents on £30,000 a year for 10 software engineers in the IT department, each on £60,000 a year.

The simple, low-cost solution

The biggest, fastest, lowest risk way to reduce your costs (outside the flight deck of a 747 or the control room of a nuclear power station) is to look at the process and take some of the steps out.

If you reduce the steps by only 25%, what was a 12-step process becomes a 9-step process. At a 95% success rate for each step. a 9-step process goes right first time 63% of the time.

That’s getting on for a 20% improvement over the 12-step process, even though the average success rate for each individual step has not improved. In my experience, they often do, just because there’s less going on in a customer service agent’s mind and they’re likely to make fewer errors. But let’s not even factor that very pleasant surprise on the upside into the equation.

If we consider the 24-step process with the same success rates as above, a similar 25% reduction in the number of steps makes it into an 18-step process. End-to-end, that’s likely to work as intended 39.7% of the time. That might not sound like much to write home about, but it’s about 30% better than the old 24-step process.

The changes are even more dramatic when the percentage going right is 90% instead of 95%.

The old 12-step process, now a 9-step process, is now right 38.7% of the time, and the old 24-step process, now 18 steps, is right 15% of the time. That’s a 30% improvement and a near-doubling, respectively, compared to the original success rates.

So next time you want to save money, don’t just work with the numbers, think about the underlying processes. Simplify those and you’re well on the way to a low-risk way to save a lot of your budget.

And maybe ease back on the need to have detailed processes at all.

Years ago, I heard the CEO or Ritz-Carlton speak at an event and they had absolutely minimal procedures for their staff. Instead they told their staff to focus on the customers needs and deliver whatever they, in their best judgement, thought best-served the customer’s needs.

My memory is a little hazy on the detail, but I seem to remember that any staff member could, on their own authority spend a significant amount of money on the spot to satisfy a customer need. It might even have been as much as $5.000, but don’t quote me on that. It was certainly a number in the thousands of dollars.

I remember most of the audience wincing at this approach, but it’s actually one of the smartest ideas I ever heard.

How many complaints did Ritz-Carlton get into their call centre? Almost none as all their customers were satisfied at the point the problem arose. They spent a bit more on the front end, but they saved a fortune in their call centre.

How much did Ritz-Carlton need to spend in IT resources to develop a self-service model? Nothing at all. The staff member they first spoke to sorted out whatever the problem was and they never had to go onto the website to try to find a way to resolve their issues.

And how much did this really cost Ritz-Carlton? The CEO was a little coy on that point, but he did say that firstly they worked hard to make sure very few customers were dissatisfied, so complaints were relatively few anyway. Secondly, he hinted that the average charge was a lot less than the $5,000 (or whatever the number was).

Of course, some did cost the full allowance, and some went over that limit at which point a manager did need to get involved. The impetus was still centred around making the customer happy, so there were still no calls to the call centre and so on, but a manager had to authorise the budget in light of the amounts involved.

More often, I’m sure the guest’s problems would be rectified with some express dry cleaning or the cost of an extra cab to send on the glasses someone had left in the hotel. Minimal costs against a top-dollar five-star hotel room.

And that, for me, is the secret to cost saving.

To people who hadn’t thought this through, giving every member of staff $5,000 they could spend if they had to sounded like a needless extravagance.

It was actually the cheapest way to run their business. There was just a single step in the process “do whatever it takes to satisfy the customer, up to a limit of $5,000”.

In practice only tiny amounts were spent by staff members and Ritz-Carlton saved a fortune on call centre and IT resources.

I’m not suggesting this is the right approach for every business in every set of circumstances, but there’s definitely something worth thinking about in there.

So next time you want to do things differently in your business, or you’re under pressure to save costs, why not experiment with having fewer steps in your processes, or even just fewer processes, full stop.

Perhaps try giving your people a little more discretion. Even allowing for the fact that they’ll get it wrong some of the time, this is likely to be a much cheaper way of running your business than adding an extra half-dozen steps to your current processes in an ultimately futile attempt to “engineer out” things that go wrong.

It might seem a little counter-intuitive for a Finance Director or CFO to recommend a lighter touch on the process front, but even after allowing for the fact that things will still go wrong from time to time, that may very well reduce the overall costs in your business. And isn’t that what a good Finance Director or CFO is supposed to be concentrating on?

(Photo by Campaign Creators on Unsplash)

How sweary chefs, innuendo-fuelled bakers and exasperated hoteliers guarantee great customer service

Great businesses are built on great customer service.

The word-of-mouth marketing benefits alone make great customer service a smart business decision. And usually good customer service doesn’t cost any more than dreadful customer service…yet amazingly there are still plenty of example of poor customer service about.

Every once in a while, a business owner or a member of their staff decides they need to do something about the level of customer service the business provides.

Maybe they’re getting lots of complaints, or maybe they just want more business and have read a magazine article highlighting the importance of top-notch customer service.

So they introduce new customer service procedures to make things better. Often that’s where the problems start…

Don’t mistake activity for progress

One of my favourite Ronald Reagan quips is “Don’t just do something, Stand there!” It always reminds me that we shouldn’t mistake activity for making improvements.

Sometimes “doing something” is worse than doing nothing at all.

Of course, there’s the illusion of progress when someone introduces a raft of new procedures…and perhaps even invests in new technology to help out.

After all, if that isn’t tangible evidence of how serious we are about improving customer service, what is?.

Sadly, in the pursuit of great customer service there are nearly always better, simpler and more cost-effective ways of making improvements than introducing new procedures. (In fact I’d argue that I’ve never seen a new formalised procedure, beyond a threshold level, adding any value from a customer’s perspective at all.)

Almost nobody thinks about what they should stop doing to improve customer service.

But if you’re serious about creating a world-class experience for your customers, your first question…to real customers, rather than your marketing department, a software vendor or a consulting firm…should be “what specifically do we do now that irritates or annoys you?”.

Then, whatever they say annoys them, stop doing that as quickly as you can unless there’s some legal reason you can’t.

.And in a sense it shouldn’t be too surprising that you can improve customer service by taking things away.

Sweary chefs, bawdy bakers and exasperated hoteliers…

Watch just about any one of those Gordon Ramsay programmes where he turns around an under-performing restaurant. Part of his turnaround plan is nearly always paring down a hugely ambitious menu with 77 different choices across 8 different styles of cuisine down to a dozen or fewer meal options.

Seemingly overnight, the business becomes easier to run, quality tends to be better, service happens as it should and customers leave at the end of the evening, well-fed and happy, intending to recommend the revamped restaurant to all their friends.

Same for The Great British Bake Off. Hugely talented bakers try to squeeze too much into the available time and end up crashing out of the competition.

A simpler approach would have resulted in a cake they could have been proud of, not a collapsing sponge with decorative icing a 4 year-old might have been ashamed to bring in for “cake day” at their primary school.

And you see it in just about any edition of my favourite reality show… “The Hotel Inspector”.

You can really sense Alex Polizzi’s intense frustration as, for the umpteenth time, she summons every last ounce of her sorely-tested patience to explain that the hotel owner’s extensive Lego collection has no place in the hotel bar…or that pet lizards shouldn’t be allowed to roam the hotel corridors during the day…or how “tasteful” Victorian prints don’t especially complement a shoe-box motel tacked onto the motorway services.

All these would-be hoteliers say the same thing… “none of our guests have ever complained about our Lego (or lizards or whatever) so we thought people liked them”.

The tragedy is, the hotel owner is usually right. I’m sure very few guests did complain about the hotel owner’s personal interests manifesting themselves somewhere in the hotel.

The owner just presumed that “no complaints” equalled “good news” and never noticed that very few guests came to stay more than once…always a good double-check that what you think is good service is seen as such by your customers.

So before you try improving customer service by adding in more things, have a really good think about what you’re already doing and see if you can remove some of the things which annoy, irritate or frustrate your customers first.

Your business will be easier to run, your running costs will be lower and your customers will be happier.

The hidden knack to great customer relationships

But there’s a hidden knack to this.

Normally people like me, Finance Directors and CFOs, are happy at the prospect of doing fewer things because they quickly work out if you fire half the call centre then the wage bill halves as well. Usually, not doing things is a popular choice for a red pen-wielding Finance Director or CFO.

However life isn’t as simple as they teach you at bookkeeping school.

Although our sweary chefs, innuendo-fuelled bakers and exasperated hoteliers do cut down the menu choices and remove hotel owners’ personal garbage from their guest rooms, that’s only to get the business to “ground zero”.

It’s what they do next that is the ultimate secret of their success.

Yes, they do fewer things. But they do them so much better than they used to.

Instead of frozen steaks of questionable provenance, Gordon Ramsay brings in fresh, grass-fed Aberdeen Angus steak…sometimes even at a higher price than the restaurant paid before (although, surprisingly perhaps, that’s not always the case).

Sometimes the prices even go up a little to reflect the higher input costs, but the value delivered to customers increases exponentially, even after any price increase, so they’re happy to pay the new, higher prices.

Out goes elaborate decorative icing on a Bake Off cake. Instead the baker concentrated on getting the taste of the icing absolutely perfect. Simple piping allied with great flavours tend to win more often than over-ambitious creations which the baker couldn’t finish properly in the time available..

And Alex Polizzi might well get rid of all the hotel’s pet lizards, but she also does a stylish refurbishment of the previously tatty bar to attract guests and locals alike. They’re happy to spend their hard-earned cash at the hotel bar now, in a way they weren’t before.

Building a reputation for great customer service is hard.

But one of the quickest ways to make a positive impact is just to cut out all the things you do now that annoys or frustrates your customers.

To really cement the relationship, you then take what’s left and dramatically improve the quality of your solution so that customers experience a massively improved service.

Do that well, and you’ll be the envy of your industry in no time at all.

And don’t just take my word for it…sweary chefs, innuendo-filled baking programmes and exasperated hoteliers find the quickest way to improve customer service is to do less, not more.

So will you.

We should fire him for not hitting his targets…or should we?

Being a Finance Director or CFO means you spend a lot of your time working out what people’s targets should be, tracking their performance against those targets, and reporting any under-performance.

While there are some intellectual challenges to the target setting process, those are generally within the control of the Finance Director or CFO as they are working on a model they built themselves.

What’s much harder to assess is what…if anything…it means when people don’t hit their targets and what…if anything…the business should do about it.

But wait, I hear you say, if someone doesn’t hit their targets, shouldn’t we send them on their way and find someone else who can deliver what we need instead?

If only life was that simple.

Firstly, there’s an underlying assumption here that the person you’ll bring in instead will do a better job than the person you get rid of. I’ve seen this hundreds, perhaps thousands, of times and all I can say is that in a significant number of those cases that assumption turns out to be wildly over-optimistic.

There’s also an assumption that the reason for under-performance is the fault of the individual. This is often overly simplistic. Yes, maybe you have other people who can hit their targets, which in your mind means it isn’t impossible for everyone to do so. But perhaps there are other factors which mean that in practice not everybody can.

In a surprising number of cases, a thorough investigation into the reasons for an apparent under-performance throws up some systems or process issues outside the control of the staff member which means they were never going to achieve the targets which had been set.

Of course, statistics cuts both ways, so just as there are people who vastly under-perform against some sort of average, there will be people who vastly out-perform. That, after all, is how calculating an average works – there will always be some people above the line as well as some people below the line.

So just not hitting a target (which is nearly always calculated as an average of some sort) doesn’t necessarily mean anything at all. I once heard a speaker say that at school he was in the 10% of the class that made the top 90% possible.

It was a matter of fact that he was below the class average, but statistics says that any time you measure the performance of a group of people, somewhere around 50% of them will probably be below the average of the group as a whole, and a broadly similar proportion will be above it.

The degree of variation is the key here.

W. Edwards Deming’s work on statistical control is the definitive manual on acceptable degrees of variation in work performance. I won’t go into the maths in detail here, but in Deming’s book “Out Of The Crisis” he shows how to calculate the level of acceptable variance in a stable system that’s operating under statistical process.

In our modern world full of “knowledge work” this is less obvious than when people are watching over car parts hurtling down a high-speed factory production line. But exactly the same principles apply.

In Deming’s world, the acceptable degree of performance around an average, or arithmetic mean if we’re being statistical about it, was +/- 3 times the square root of the average actual performance. (Please note that whatever you had set as a target isn’t relevant for this purpose as there may be factors affecting the group as a whole, either positively or negatively, which could make any target either too easy or too difficult to achieve.)

When you work through the maths, you’ll realise that the boundaries for acceptable performance are much wider than businesses typically allow in their performance management systems where amounts somewhere between 0% and 5% tend to be arbitrarily used to determine an acceptable degree of shortfall, if any, in meeting targets.

Deming’s view, as one of the foremost management thinkers of all time, is that the responsibility for under-performance is more often down to management’s poor understanding of the laws of statistics and unwillingness to improve the systems and processes used in the business which would raise the standards of everyone working in it.

And if you don’t think that’s possible, have a chat with your front line staff and your customers. I can guarantee they’ve got a long list of things that would help the business run more smoothly, even if you can’t immediately think of anything.

That’s not your fault. If you’re not working on the front line you’ve no way of knowing what that experience is like.

But it is your fault if you never ask the people who do work there how to make things better for them, and, in the long run, for the business too.

So next time someone isn’t meeting their targets what should you do?

Apply a bit of Deming’s thinking, even if just in concept without getting too deep into the statistical modelling, to work out whether the problem is really with the member of staff or with the systems and processes instead, even if other people are somehow able to achieve the targets.

Perhaps without realising it you just got lucky in the employee lottery and ended up hiring a bunch of people who happened to be unusually good performers who somehow managed to get the results you were hoping for in your initial planning assumptions.

More often than not firing people is a very expensive way of trying to solve a problem. Studies have shown that the cost of recruiting and training a new person to replace someone who’s left can equate to between six and twelve months’ salary.

And if all you end up with is someone the same or only slightly better…which statistically is a likely outcome…all you’re doing is loading cost into the business for no meaningful return.

So next time you’re wondering whether to fire someone who isn’t meeting their target, pause for breath. It’s probably not going to help solve whatever you think the problem is.

For sure, it’s harder work getting stuck into the issues and unpicking whatever is getting in the way of people hitting their targets. But it’s the only way to fix the problem for good.

Maybe a few exceptional performers can hit the targets anyway, even with less-than-perfect systems and processes to support them, Building your business model on the basis that every person you hire will turn out to be an exceptional performer is an assumption I’ve seen many business make, explicitly or implicitly. Although I’ve yet to see one where that superficially reasonable-sounding objective was ever their experience in reality.

Mostly those businesses were on a perpetual “hire ’em and fire ’em” cycle which led to enormous hidden costs within the business…bloated HR departments to handle all the hiring and firing, costs for advertising vacancies, reductions in customer loyalty and lifetime value as a result of putting rafts of under-trained, less-experienced new hires on the customer service front line and many other costs that dragged the business down, although they never appeared explicitly on anyone’s budget report. (If they had, someone would have done something about it long before now.)

Don’t be that business. Next time someone appears to be performing poorly, break out a calculator and see how the numbers stack up first. The staff member may well be doing their best in a difficult situation…the problem may, in reality, be something else.

I can’t claim statistics is always fun. But, done properly, I can claim that it helps prevent making the same mistake over and over again without realising it…which has got to be a good move for your business.

(Photo by Annie Spratt on Unsplash )