Lesson 5: Alchemy

Service improvement AlchemyCheap and Fast, It Won’t Be Good

There is an old adage about service, it goes something like this:

We offer three types of service, cheap, fast and good.  Pick any two:

  • Cheap and Fast, won’t be Good
  • Fast and Good, sure ain’t Cheap
  • Cheap and Good, isn’t Fast

It is a nice little adage and we all believe it.  It is just common sense.

But you can have your cake and eat it.  You can be cheap, fast and good; you can do a bit of alchemy and turn lead into gold.

To understand how, we need to start by thinking about the way things are normally done…  Normally we focus on one thing, I should say obsess about one thing, cost.

The Problem with Focusing on Cost

I was cycling through deepest Norfolk with my daughter.  It was raining, hard.  My daughter had started complaining, moaning in my ear the way only a daughter can.  A tea shop loomed into sight, it was dry and warm and served tea and cake.  It was the answer to my prayers.

Twenty five minutes later, happy and content, I went to pay the bill. They told me that they didn’t take credit cards.  I am like the Queen, I don’t carry cash and I stopped bringing my cheque book with me in 1992.  The “hostess” sneered at me that the Post Office might still be open.  So I left my daughter (made me feel good about myself) and found the post office.  It was closed.  I went back and offered an IOU, not a winning option.  Next she pointed me at the corner store which gave cash back if you spent more than £10.  2 packets of overpriced coffee later I paid my bill in cash and left under the disapproving eye of the owner.

No doubt she saved herself 50p by applying this payment rule, but am I ever likely to go back?  And more to the point, how many of my friends will I tell?

I can recommend Swallows Restaurant and Guest House, Walsingham, Norfolk.  Particularly if you want to feel like a criminal.  

I know that was petty.  But if they offer a penny-pinching service.  One that doesn’t accept plastic.  Then they should put a sign on the door.

It is easy to take cost out of an operation.  The problem is, if you aren’t clever about it, you will just upset your customers.

The Cost of Poor Service

People can see cost.  They see it leaking away out of their bank accounts.  What they can’t see is the upside, how much they could be making.  If you do a little maths the numbers start to add up.  Let’s take my example:

How much am I worth as a customer?

Two cups of tea and two cakes, £5.98 at a variable margin of 66%, call it £4

How many times would I visit?

I don’t go that way often, so say twice a year, but for locals maybe once a month.

How many of my friends would I tell?

I was sad enough to post it on the internet, but let’s say 5.

How many customers feel the same as me?

I am feeling generous, they only upset one customer per day, 200 days per year, so 200 of them.

Total missed opportunity per year?

  • £4 margin
  • 12 visits p.a.
  • 5 friends
  • 200 unhappy customers p.a

I make that £48,000 (and we can argue about the logic).  That seems like a lot of money to me, but it is OK because they saved £0.50p on my transaction.  I would have paid the 50p if they had asked.

You don’t save yourself rich ~ anon

Focusing on Service Isn’t Much Better

Focusing on service also plays to the two out of three story.  What does good, quick and expensive service look like?

My wife has bought a new car, a BMW.  “The ultimate driving machine”.  I have to admit it is nice.  She took it in for its first service the other day.  A smartly dressed gentleman met her at the door with a “Good morning Mrs Lawther”.  Presumably he had a list of registration numbers to look out for, a nice touch.  Unfortunately there was a queue at the service desk, so he poured her a cup of tea whilst she waited.

After booking her car in, my wife wanted to catch the free shuttle bus back into the city to work.  Unfortunately there had been a bit of a mix up and there wasn’t a place for her on it.  Quick as a flash a fully paid for taxi materialised that took her straight to her office.  When she went to pick the car up they hadn’t finished the service, a part was missing.  The garage apologised and offered to finish the job tomorrow.  They also offered to give her car an “executive valet” to make amends.

The garage takes customer service seriously.  Rightly so, given the cost of a luxury German motor car, but ask yourself, was that good service?  All my wife wanted was a mechanic to check over her car.

Focusing on service isn’t much better than focusing on cost.

Where Is the Alchemy?

People believe that “You get what you pay for”.  This may be true for a consumer but not a supplier.  For a supplier, the lowest cost position is when the customer gets exactly what they expect.  Nothing more and nothing less.

Cost and Quality

This means that there is a “sweet spot”.  The point where you get the lowest costs and the customer gets what they expect.  The café I visited was sitting firmly on the left, I am never going back.  The dealership was over on the right.  It is nice to have taxis and valets, but unnecessary.

How to Find the Sweet Spot

It sounds complicated and theoretical, but it is easy.  All you have to do is point out the stupid stuff that you do.  Then you stop doing it.

The manufacturing guys have a neat trick.  It is an “Ohno circle”.  They paint circles on the floor at different points in factories.  Then the team leader stands in the circle with a clip board for 30 minutes.  He writes down everything that he can see that doesn’t work.  Finally he spends the last 30 minutes fixing one of the things he has seen.  This is a great exercise for 3 reasons:

  1. It forces the managers onto the shop floor.
  2. The managers think about the process and its failures
  3. Something gets fixed

You could do the same thing, but as you probably work in an office it would be even easier.  You could sit down whilst you were doing it.

The Chrysler Syndrome

Alchemy is great.  It works and you will improve the quality of the service you deliver, whilst at the same time reducing cost.  There is a downside.  Like all good things in life, it takes some thinking about.  You have to work at it.  But it is better than the alternative…

In 2009 the US government bailed out the Chrysler Motor Corporation to the tune of $7 billion.  In efforts to repay the loan it took some drastic actions.  Initiatives included:

  • Taking all the clocks off the walls in their headquarters in Auburn Hills.  This saved $20,000 per year in batteries and the time spent changing them.
  • Not snow ploughing the top floors of five multi story garages and five parking areas. This saved $350,000 each winter.
  • Reducing the central heating from 22 to 20 degrees centigrade saved $70,000 per year.
  • Taking out half of the 80,000 light bulbs in the headquarters building.  $400,000 per year.
  • They cut Christmas decoration spending by about $11,000 to just $1,000.
  • They sold 32 pieces of artwork valued in 2007 at $2.3 million.

Either they were squeezing every last penny of efficiency out of their supply chain.  Leaving no stone unturned.  Or this was desperation taking hold.  Driving efficiency into an operation isn’t a quick fix, it takes time and perseverance.  Waiting until there is a budget crisis is leaving it a little too late.

Perhaps now is the time to start.

Homework

The task for this week is to create your own “Ohno Circle”.  Prove to yourself that cost and service are not diametrically opposed

  1. Pick an area of your organisation where you have cost challenges.
  2. Book a 30 minute slot with a staff member to work alongside them and understand what they do.
  3. Explain to the staff member that you are here to investigate the system, not spy on them.
  4. As they conduct their work check how well they complete each task.
  5. Ask yourself if the task could this have been done better.  If the answer was “yes” write down how.  Compare performance against an “ideal world”, otherwise you won’t really be fessing up.
  6. Think about the system / process not the staff member.
  7. Share your findings with the member of staff.  Get their feedback into the underlying reasons for performance.

How much opportunity for improvement did you find?  Could you fix anything?  Start now!  Don’t fall for the Chrysler syndrome.

In the next lesson we will explore the concept of waste and show you how it is in everything you do.

Thank you for reading.

There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible ~ Henry Ford.

 

Post Script

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