This article is the fourth part in a series of posts on measuring what matters in organizations: the shift from outputs to outcomes. Today the focus is on measuring the crucial element of delighting customers: time.
Not so long ago, I ordered a pair of shoes from Zappo’s. It was around 10pm on Sunday evening. The price was very reasonable. I was also happy to see that two-day shipping was free and so I placed my order. The next morning around 8.30am, I opened my front door and found that my pair of shoes had arrived—a day and a half early. I wasn’t happy. I was delighted!
I asked myself: how was this possible? How could Zappo’s have possibly got the shoes to me so quickly? I found out later that it’s because Zappo’s doesn’t run its warehouse and shipping so as to minimize costs. Instead, it runs them so as to get the goods to customers as soon as possible. The result of my delight as a customer is to tell many other people of my experience: by delighting its customers Zappo’s turns them into the unpaid marketers for the firm. Zappo’s is thus using time as a powerful competitive weapon.
The traditional management treatment of time
This is not the way most firms in the Fortune 500 operate.
With their hierarchical bureaucracy, with multiple vertical layers of authority and many different departments and divisions, work jams are occurring all over these organizations on a daily basis. Typically no one recognizes them or does anything about them. Work sits waiting in queues. Approvals are holding things up. Customers are trying to get answers and waiting for responses or deliveries. Well-intended cost savings or big production runs implemented in one part of the organization are slowing things down in another part of the organization, retarding the overall delivery of value to customers. Big production runs are particularly costly because of the direct costs of working capital of warehousing as well as significant indirect costs and noxious secondary effects.
Time identified as a key competitive weapon
As a result, most Fortune 500 companies are not paying attention to one of the most important elements that will determine the future of their businesses: time. They might be surprised to learn that time as the key competitive weapon was clearly identified in Harvard Business Review over half a century ago.
- In 1958, Jay W. Forrester of MIT published a pioneering article in Harvard Business Review which established a model of time’s impact on an organization’s performance. The article showed how time flows through a system, and how focusing on time-based competitive performance results in improvements across the board. When work is done quickly, costs come down naturally. The article noted that companies generally become time-based competitors first by correcting their manufacturing techniques, then by fixing sales and distribution, and finally by adjusting their approach to innovation. Ultimately, it becomes the basis for a company’s overall strategy.
- Again in 1989, George Stalk Jr published in a brilliant article in Harvard Business Review, “Today, time is on the cutting edge. The ways leading companies manage time in every aspect of organizational performance-in production, in new product development and introduction, in sales and distribution-represent the most powerful new sources of competitive advantage. … While time is a basic business performance variable, management seldom monitors its consumption explicitly—almost never with the same precision accorded sales and costs. Yet time is a more critical competitive yardstick than traditional financial measurements.”
Despite these insights for over half a century, it is still true today that few traditional organizations monitor the consumption of time as explicitly and as carefully as they do for costs and sales.
Measuring time requires a different mindset
Why is it so difficult for traditional management to use time as a strategic weapon? It’s primarily because managing time requires a wholly different mental model of management.
So long as management is seen as the task of pushing products and services at customers, of tweaking the supply chain, of parsing and manufacturing demand, of increasing efficiency through economies of scale, with the single-minded goal of making money of shareholders, the question of when the customer actually receives products or services will always be a secondary consideration. Management is looking at the firm and its operations from the inside-out.
Sadly, this way of managing is increasingly unproductive. As Deloitte’s Shift Index shows, the rate of returns on assets of US firms is only one quarter of what it was in 1965. The life expectancy of a firm in the Fortune 500 is now less than 15 years and heading towards 5 years, unless something changes. Only one in five workers is fully engaged in his or her work.
From inside-out to outside-in
As a result of an epochal shift of power in the marketplace from seller to buyer, this way of management is being transformed to reflect the new reality that the customer is now in charge. As Professor Ranjay Gulati has pointed out in his book, Reorganize for Resilience, managers need to replace the inside-out perspective, with an outside-in perspective: they need to be seeing the firm from the customer’s point of view. Instead of trying to “parse and manufacture demand”, they need to be considering what the customer needs and wants and adjusting what the firm does to meet or exceed these expectations. The new bottom line of business is: is the customer delighted? As Umair Haque has pointed out in The New Capitalist Manifesto, it’s a fundamental shift from outputs to outcomes.
Time is one of the key determinants of customer delight. To prosper, firms must offer a continuing supply of new value and deliver it sooner. No matter what else the firm does, it has no chance of delighting the customer, if its products or services are not timely. It’s only when the management makes the transition in mindset from viewing the function of an organization as that of producing not just outputs, but outcomes for customers, that the vital importance of time comes into view.
A more disciplined approach to time
With the shift from outputs to outcomes, a more disciplined approach to the measurement of time becomes both possible and necessary.
Giving primary attention to time also has another crucial advantage: by doing things more quickly, costs come down of their own accord. In both lean manufacturing and software development, it has been shown that delivering value to customers sooner usually results in overall costs coming down of their own accord. Focusing on time thus produces a multiple wins.
George Stalk noted in 1989 that “as a strategic weapon, time is the equivalent of money, productivity, quality, even innovation.”
Shortened cycle time
From an organizational point of view, cycle time in terms of getting things to the ultimate customer is the crucial temporal dimension. In traditional management, attention is usually spent on improving internal processes, some of which are not adding any value to the ultimate customer. Instead improving them, management needs to eliminate them.
Cycle time must be looked at from the ultimate customer’s point of view. In development, how long does it take to go from concept to customer delight? Or in production, how long does it take to go from order to customer delight?
Short cycle times can give a firm an enormous competitive edge, by increasing its ability to offer a wider array of products and services sooner than its competitors. However, keeping track of total cycle times is only a beginning. The key step in managing time comes by identifying where delays in delivering products and services to the ultimate customer are occurring and systematically eliminate them. A key tool for this purpose is value-stream mapping.
Value stream mapping
Value stream mapping is a tool that can be used to measure time by identifying and eliminating delays in getting value to customers. It analyzes the flow of materials and information currently required to bring a product or service to a customer. In effect, the workplace is viewed from the ultimate customers’ point of view, with the object of accelerating or eliminating any step or activity that does not add value to them.
Although value stream mapping emerged in the manufacturing sector, it is also used in logistics, supply chain, service industries, health care, software development, and new product development.
The originator of value stream mapping in Toyota [TM], Shigeo Shingo, suggested drawing the value-adding steps horizontally across the map and the non-value-adding steps in vertical lines at right angles to the value stream. The vertical line is the “story” of a person or work station, and the horizontal line represents the “story” of the product being created. The object is to accelerate the horizontal story of delivering value to the customer by reducing or eliminating the steps represented by vertical lines. In most large hierarchies, much of the activity is represented by vertical lines because it doesn’t add value to the ultimate customer. A value stream map dramatically draws attention to this fact.
Meshing short work cycles with medium-term goals
Working in short iterations and focusing on eliminating delays doesn’t mean that there is no longer term view. Take OpenView Venture Partners, a Boston-based venture capital fund that got started in September 2006.13 It invests in small to medium sized software development firms, and provides operational assistance to those firms.
Founding managing director Scott Maxwell combines the work cycles of self-organizing teams with a balanced scorecard approach. At the highest level, the firm’s mission, vision, values are translated into strategic themes and goals for a year. Inside that is a quarterly cycle. And within that, the goals are broken down into initiatives, which can be spelled out in specific user stories to be implemented by the teams in weekly iterations. Maxwell calls it “extraordinary execution” and is introducing it to OpenVenture’s portfolio companies.
Maxwell says the approach works well because it helps deal with the reality that you can’t predict what’s going to happen. Traditional management assumes perfect predictability in which the entire project can be laid out from beginning to end, with a beautiful product coming out at the end of it.
In reality the world next month, or next quarter, will look very different from today, because the firm has impacted the world and because the world will have changed of its own accord. So drawing up a detailed plan about how exactly we are going to get to where we want to be three years from now is a waste of effort.
“Instead,” Maxwell says, “we need to put a stake in the ground as to where we want to be in three years, and then break that down. If we want to be there in three years, where ideally would we need to be in a year? And then let’s break that down further. If we want to be there in a year, what would we have to do? And so on. That then flows into the user stories to be implemented by the teams in weekly iterations.”
For other parts of this series:
1. Measuring customer delight at the organizational level (Part 1)
2. Measuring customer delight at the working level through user stories: (Part 2)
3. Part 3: Measuring customer delight: sizing and prioritizing user stories (Part 3)
Coming next: Measuring customer delight in real time: social media.
A different way of managing
Here, as elsewhere, the individual tools that are used to measure time are less important than the management mindset that deploys them. Effectively measuring time entails a wholly different way of thinking, speaking and acting in the workplace.
To learn more
To learn more about the principles and practices of managing time, read my book, The Leader’s Guide to Radical Management (Jossey-Bass, 2010) which provides a comprehensive overview.
If you would like to get together with others who are intent on mastering what’s involved in measuring time, and creating a workplace of continuous innovation and customer delight, please join me, Rod Collins (author of Leadership in a Wiki World, Seth Kahan (author of Getting Change Right) and others for two days on May 12-13 in Washington DC. Cool, innovative and serious fun. More details here.
 Jay W. Forrester: “Industrial Dynamics: A Major Breakthrough for Decision Makers” (July-August 1958).
 Stalk, G. “Time-The Next Source of Competitive Advantage” Harvard Business Review, 1989, Jul-Aug, 41-51.
 Stalk, op. cit. 41.
 For a good discussion of value stream mapping, see Poppendieck, M., and Poppendieck, T. Implementing Lean Software Development. Upper Saddle River, N.J.: Addison-Wesley, 2007.