It's Sunday morning... 6:30am. I've been up for an hour drinking coffee, eating breakfast, and scanning headlines. In a while, I'll dress myself in weather-appropriate biking gear and head out to meet friends for a 70 mile road ride in the rain. It's not everyone's idea of a perfect Sunday morning - I'll admit. But I'm a happier, more rounded person if I can burn off a few thousand calories several times a week. That means the people in my life find it easier to be around me... me included.
Sometimes the weather here in Seattle is less than ideal. That's because it really does rain here. October through June are generally wet months. What's a rider to do? Head indoors, of course. I belong to a gym that offers spin classes. In years past, I didn't have a lot of respect for the spinners. Why belong to a gym when you can just ride your bike? Duh! But after some prompting by my significant other ("You are driving me nuts, and not in a good way. Please, join a gym.") during an extended period off the bike due to weather, I tried it out. That first hour of spin class was one of the hardest hours of my life. Thoroughly humbled, I hobbled back home, grateful that I could train in a meaningful way indoors during the bad months.
I settled into a routine... spinning at least twice a week, and riding my bike as often as possible. What a great combo. But what became apparent to me was that the two groups of riders - spinners and cyclists - generally don't interact that much. Many cyclists never set foot in a spin class. And many spinners would feel extremely awkward clipping into a bicycle. In fact, there are even terms to help delineate the two activities - riding "outside" and "inside". "Do you ride outside?" my instructor/tormentor asked. I found out that she was exclusively an inside rider.
So what does this have to do with root cause analysis, you may ask?
When Apollo hosts training classes, attendees are "riding inside". The instructor has a lesson plan, manual, and example exercises. He/she fits the course regimen to the individual characteristics of each class. Investigation and analysis are simulated. It's a challenging class. But it's fun too - and students get a lot of value out of being challenged in the "inside" setting. It's also safe. There are no cars, potholes, slippery roads, jerky drivers, slippery manhole covers, drunk UFC fans (seriously)... nothing that will cause you physical harm. Root cause investigators put themselves at risk in the real world. They are held out to be experts. Their work is visible and often of great interest to the organization. But not while in the classroom... that's an intentionally safe environment.
But training is not just for fun. Once class is over, it's time to go to put your skills to work outside. Many RCA Facilitators find their first real investigation to be uncomfortable. This is because they are juggling two new and challenging tasks at once - analyzing a problem with a new methodology and facilitating a group of diverse, often skeptical, experts. Add to that the fact that many times people wait several weeks before putting their new skills to work... not a good idea. The skills you pick up in training have a half-life as does your confidence in those skills. Many attendees find out the hard way that they don't match up. Confidence remains high longer than the skills remain sharp.
To get the most out of root cause analysis training, we recommend you get started "riding outside" as soon as possible after class. No excuses - just do it (where have I heard that before?). What are you waiting for? A catastrophe? Believe me, that's no time to start.
Begin easy - don't put yourself at too much risk. Pick something simple, something that can be completed in a few hours. And then do it again at least two more times as soon as possible after class. This consolidates what you learned inside. You will effectively bridge the gap between the simulated class environment and the real-world investigative process. Involving others from your training will help. Take turns leading and offer helpful critique. And get your Apollo instructor involved - he/she will be more than happy to offer advice.
@brian_hughes
Sunday, March 27, 2011
Wednesday, March 2, 2011
Killng the concept of the 'cost center'
In my last post, I mentioned how my experience at the 2011 Pink Elephant (#pink11) conference in Las Vegas at the end of February reconfigured my understanding of the power of social media. After seeing my last entry retweeted 5 or 6 times, and picking up a few followers in the process, I think the conversion process is complete. So let the refining begin...
What I'd like to discuss today is the concept of the "Cost Center". As a root cause analysis consultant, most of our clients are considered to be overhead - Safety, Quality, Reliability, IT, Supply Chain, etc. We don't get a lot of sales/marketing people in our seminars. That's because the benefits of our products/services are often cast in the paradigm of future cost avoidance. "If we could just find the root cause of this problem, we could avoid all this in the future..." You get it.
As cost centers, someone somewhere (McKinsey? Accenture/Anderson? Tom Peters? Whoever it was, thanks...) came up with the concept that these cost centers need to consider themselves as blue-dollar revenue centers with customers, sales, expenses, etc. Their competition? Any market alternative. In other words, if a training department provides the service of identifying training needs and providers, negotiates pricing, provides facilities, conducts scheduling, and keeps track of records, then they need to do this at a price that is competitive. If some outside firm can provide equal or better services at a better price, then the internal training department is potentially at risk of being outsourced. The beauty and simplicity of the invisible hand at work... what could be more '90's than that?
Heck - I've bought into that concept since the first time I heard it. And I still do, but it's been modified by an experience I had at the Pink conference where I was fortunate enough to select a professional development session let by a man named Dr. George Westerman. Dr. Westerman is a research scientist at the MIT Center for Digital Business. His presentation stood out because a) I saw him last year, and he was great, and b) his topic was the value an IT organization brings to the business. He has a new book out on the subject "The Real Business of IT: How CIO's Create and Communicate Value" (written along with Richard Hunter, who is Vice President and Gartner Fellow at Gartner) which I'm still reading. But I'm incorporating the concepts with clients in two different ways already, and having some success. I think these guys are on to something that will impact both sales and service at Apollo, but also is relevant to the leadership of any "cost center".
Cost centers are seen as detrimental to the bottom line. The natural inclination is to reduce the cost of the cost center. Hence downward pressure on budgets, do more with less, maximize efficiencies, hiring freezes, and oh yeah - don't let service levels slip. But what if this thinking is wrong and the opposite were true? What if cost centers were critical to achieving bottom line goals? That would make them investment centers - a much more palatable label in my book. But if this is true, then managers need to change their thinking about exactly what value they bring to the party.
Step one in Hunter/Westerman's book is to change your thinking to avoid what they call "value traps". A value trap, as I understand it, is an inward focus on the metrics of the department rather than on the metrics of the business itself. In other words, maximizing critical asset uptime is a metric that maintenance/reliability people love to track. And in their world, it's important. But ask an account manager if he/she has ever even heard the term, let alone what it means to the overall goals of the business. Sure - everyone knows that if the critical machine stops stamping out widgets, no one's going to get paid. But if you focus on uptime and stop short of relating it directly to bottom line revenue for the period, you're stuck in a value trap. You're only a cost at that point - not an investment. And as a cost, you've only got downward pressure.
That actually leads to the second point of the book... show that your department provides value for the money. You've got to do the math and show it. Don't know how to do this? That's okay - there's a department called "Finance" that does. Get them involved - their third party assessment of the return on investment in reliability for the period will be more credible with others in the business anyway. These should be the metrics you share with the world and that drive your department - not uptime or other "machine" type metrics. Show the cost side as well... by showing the basis of the investment as well as it's return, you'll show exactly how your efforts have impacted the bottom line - not just the cost. Here's an analogy. A lineman in the NFL reports to a coach the time he's spent in the weight room, the miles he's run, and the films he's studied to show what he's doing for the team. If this is all he's doing, he's hosed. The coach (and fan base) cares about the key blocks he's made, the yards gained from those blocks, the number of sacks that come from his area versus others, etc. Align your metrics with bottom line performance.
So now that you've changed your focus from cost to investment, and you can actually report metrics showing your impact over time, now you need to improve your performance. Set achievable goals to move these metrics in the right direction. At this point, you're no longer managing the IT department, or the Human Resources Department - you're managing business performance. This has a bottom line impact - not merely a reduction in blue-dollar cost.
Finally, once you've moved through the three steps above, you can actually shape the direction of the business itself. Imagine that - a cost center leader having a direct impact on the future of the business.
Well, you kind of have to imagine it because it doesn't happen often. But these concepts struck bedrock with me. I'm always trying to get people to look at root cause analysis/problem management as an investment. Spend X on investigation/training and you'll get your money back as a reduction in future risk as your return. And they nod their heads in agreement in class when we discuss it... everyone agrees, at least while they are in class.
But when reviewing analyses, I'm often astounded that people don't do what they agreed was a good idea in class. They often shortchange documenting the significance of the problem. Well, this is a value trap. The value the investigation provides doesn't stop at solving the problem. The value carries forward to the bottom line for the period. And if you can't or won't calculate it, you're selling yourself short. The business can only pat you on the shoulder and tell you to reduce your budget by 15% next year.
I mentioned at the beginning of this entry that I had incorporated this with customers in two ways.
First Way: Sales
Do I want people to budget for Apollo training, or invest in a root cause analysis/problem management program? Sure - both lead to sales for us, and I'm not too picky. But if I had my way, I'd much rather they consider money spent with Apollo as an investment with real future returns. So I change the conversation right away. It's not hard to get a prospect to see a commitment to Apollo as an investment. The hard part is asking them how they would measure the return which leads to the second way I'm incorporating this concept...
Second Way:
Knowing that they think of themselves as line items in a budget and not investments, I've first got to get them to see themselves as critical to achieving bottom line periodic business goals - as critical as any other department. What causes net income? Sales, or Human Resources? Sell all you want, but remember that one of the things you're selling is your staff. You've got to have both to be successful. Getting Safety, Reliability, Quality, and IT to recognize that they have real, measurable bottom line impact is critical. If money spent on Apollo is an investment, then by extension money spent on Safety is too. That's a powerful thought to those in the cost-center value trap.
I had my first success last week with a utility client. I had the pleasure of working with a new director of HR and her staff. They graciously let me fumble my way through explaining these new concepts. But I could see the light really come on when we distilled it down to this simple statement:
"The goals of this utility are to keep the lights and power on, and to do it at reasonable rates. There is no difference between the goals of the utility and the goals of the human resources department - you need to think of yourselves as keeping the lights on, the gas flowing, and the rates reasonable."
As their RCA/Problem Management consultant - those are my goals too...
What I'd like to discuss today is the concept of the "Cost Center". As a root cause analysis consultant, most of our clients are considered to be overhead - Safety, Quality, Reliability, IT, Supply Chain, etc. We don't get a lot of sales/marketing people in our seminars. That's because the benefits of our products/services are often cast in the paradigm of future cost avoidance. "If we could just find the root cause of this problem, we could avoid all this in the future..." You get it.
As cost centers, someone somewhere (McKinsey? Accenture/Anderson? Tom Peters? Whoever it was, thanks...) came up with the concept that these cost centers need to consider themselves as blue-dollar revenue centers with customers, sales, expenses, etc. Their competition? Any market alternative. In other words, if a training department provides the service of identifying training needs and providers, negotiates pricing, provides facilities, conducts scheduling, and keeps track of records, then they need to do this at a price that is competitive. If some outside firm can provide equal or better services at a better price, then the internal training department is potentially at risk of being outsourced. The beauty and simplicity of the invisible hand at work... what could be more '90's than that?
Heck - I've bought into that concept since the first time I heard it. And I still do, but it's been modified by an experience I had at the Pink conference where I was fortunate enough to select a professional development session let by a man named Dr. George Westerman. Dr. Westerman is a research scientist at the MIT Center for Digital Business. His presentation stood out because a) I saw him last year, and he was great, and b) his topic was the value an IT organization brings to the business. He has a new book out on the subject "The Real Business of IT: How CIO's Create and Communicate Value" (written along with Richard Hunter, who is Vice President and Gartner Fellow at Gartner) which I'm still reading. But I'm incorporating the concepts with clients in two different ways already, and having some success. I think these guys are on to something that will impact both sales and service at Apollo, but also is relevant to the leadership of any "cost center".
Cost centers are seen as detrimental to the bottom line. The natural inclination is to reduce the cost of the cost center. Hence downward pressure on budgets, do more with less, maximize efficiencies, hiring freezes, and oh yeah - don't let service levels slip. But what if this thinking is wrong and the opposite were true? What if cost centers were critical to achieving bottom line goals? That would make them investment centers - a much more palatable label in my book. But if this is true, then managers need to change their thinking about exactly what value they bring to the party.
Step one in Hunter/Westerman's book is to change your thinking to avoid what they call "value traps". A value trap, as I understand it, is an inward focus on the metrics of the department rather than on the metrics of the business itself. In other words, maximizing critical asset uptime is a metric that maintenance/reliability people love to track. And in their world, it's important. But ask an account manager if he/she has ever even heard the term, let alone what it means to the overall goals of the business. Sure - everyone knows that if the critical machine stops stamping out widgets, no one's going to get paid. But if you focus on uptime and stop short of relating it directly to bottom line revenue for the period, you're stuck in a value trap. You're only a cost at that point - not an investment. And as a cost, you've only got downward pressure.
That actually leads to the second point of the book... show that your department provides value for the money. You've got to do the math and show it. Don't know how to do this? That's okay - there's a department called "Finance" that does. Get them involved - their third party assessment of the return on investment in reliability for the period will be more credible with others in the business anyway. These should be the metrics you share with the world and that drive your department - not uptime or other "machine" type metrics. Show the cost side as well... by showing the basis of the investment as well as it's return, you'll show exactly how your efforts have impacted the bottom line - not just the cost. Here's an analogy. A lineman in the NFL reports to a coach the time he's spent in the weight room, the miles he's run, and the films he's studied to show what he's doing for the team. If this is all he's doing, he's hosed. The coach (and fan base) cares about the key blocks he's made, the yards gained from those blocks, the number of sacks that come from his area versus others, etc. Align your metrics with bottom line performance.
So now that you've changed your focus from cost to investment, and you can actually report metrics showing your impact over time, now you need to improve your performance. Set achievable goals to move these metrics in the right direction. At this point, you're no longer managing the IT department, or the Human Resources Department - you're managing business performance. This has a bottom line impact - not merely a reduction in blue-dollar cost.
Finally, once you've moved through the three steps above, you can actually shape the direction of the business itself. Imagine that - a cost center leader having a direct impact on the future of the business.
Well, you kind of have to imagine it because it doesn't happen often. But these concepts struck bedrock with me. I'm always trying to get people to look at root cause analysis/problem management as an investment. Spend X on investigation/training and you'll get your money back as a reduction in future risk as your return. And they nod their heads in agreement in class when we discuss it... everyone agrees, at least while they are in class.
But when reviewing analyses, I'm often astounded that people don't do what they agreed was a good idea in class. They often shortchange documenting the significance of the problem. Well, this is a value trap. The value the investigation provides doesn't stop at solving the problem. The value carries forward to the bottom line for the period. And if you can't or won't calculate it, you're selling yourself short. The business can only pat you on the shoulder and tell you to reduce your budget by 15% next year.
I mentioned at the beginning of this entry that I had incorporated this with customers in two ways.
First Way: Sales
Do I want people to budget for Apollo training, or invest in a root cause analysis/problem management program? Sure - both lead to sales for us, and I'm not too picky. But if I had my way, I'd much rather they consider money spent with Apollo as an investment with real future returns. So I change the conversation right away. It's not hard to get a prospect to see a commitment to Apollo as an investment. The hard part is asking them how they would measure the return which leads to the second way I'm incorporating this concept...
Second Way:
Knowing that they think of themselves as line items in a budget and not investments, I've first got to get them to see themselves as critical to achieving bottom line periodic business goals - as critical as any other department. What causes net income? Sales, or Human Resources? Sell all you want, but remember that one of the things you're selling is your staff. You've got to have both to be successful. Getting Safety, Reliability, Quality, and IT to recognize that they have real, measurable bottom line impact is critical. If money spent on Apollo is an investment, then by extension money spent on Safety is too. That's a powerful thought to those in the cost-center value trap.
I had my first success last week with a utility client. I had the pleasure of working with a new director of HR and her staff. They graciously let me fumble my way through explaining these new concepts. But I could see the light really come on when we distilled it down to this simple statement:
"The goals of this utility are to keep the lights and power on, and to do it at reasonable rates. There is no difference between the goals of the utility and the goals of the human resources department - you need to think of yourselves as keeping the lights on, the gas flowing, and the rates reasonable."
As their RCA/Problem Management consultant - those are my goals too...
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