West Corporation

Posted on July 15, 2013 by West Corporation 



Does Your Company Measure Its Cost of Being Reactive?

A Stitch in Time Saves Nine
Reactive maintenance resources can average 30 percent or more than the required resources in a proactive work model. In manufacturing, production downtime losses can average four times the wasted maintenance resources. Companies in service industries also suffer from spikes in resource costs from being reactive but have difficulty measuring them, tending to highly underestimate the impact by considering only the direct human costs.

In a customer-satisfaction-driven environment, employees are typically measured by metrics such as first-call resolution, average handle time (AHT), mean time to resolution, etc. When the policies and procedures are lacking around how to manage and document resolutions and employees are empowered to “do whatever it takes” to make the clients happy, it becomes nearly impossible to measure the cost of individual issue management.

It’s human nature to fix problems fast and hope the problem doesn’t resurface. How many times has your IT department asked you to simply reboot your PC to see if that fixes the problem? How many times does an issue have to occur before your development organization admits that it is a software issue and prioritizes a fix in the next enhancement release? How long does it take you to patch the leaky pipe under your kitchen sink before calling a plumber to fix the issue permanently? The old adage of “a stitch in time saves nine” applies more often than we all care to admit.

You Can’t Always Count on Your Offense
Football fans applaud the safety for his ability to prevent a touchdown by the other team, but they often overlook the missed tackles from the defensive line that allowed it to happen in the first place. The effectiveness of a team’s defense is measure by yards given up in a game. It is then the job of the defense coach to look at the game film later, break down the plays in slow motion, to discover how the team as a whole failed to execute and make adjustments for the next game.

Similarly, most companies operate with a system that thrives on reactive responses rather than the less exciting but far more effective preventive (proactive) approach to invest to reduce, or ideally prevent issues from occurring in the first place. You’ll also likely find reward programs where employees are recognized and applauded for how they saved the day because of their willingness to work overtime and resolve the problem with a smile.

Most organizations can usually calculate the majority of the direct costs in a budgeted mode: maintenance labor, materials, tools, equipment, contractors, etc., that are allocated to maintenance roles. Indirect costs incurred because of decreased maintenance efficiency and effectiveness are not always known or as easy to calculate.

For example, do you know what it costs the company or the customer when a product is not released on schedule? What were the effects of the late delivery on idle resources waiting to engage in their stage of the development lifecycle? What was the cost of the trip where the CEO, COO and CTO had to travel to the customer’s site to smooth over a dissatisfied or at-risk customer?

Supporting new customer sales and prioritizing maintenance issues affecting customers can quickly absorb available resources. When resources have already been cut back to meet monthly and quarterly cost containment objectives, proactive work is put on hold. The near-term consequences are obviously higher, and it is a quick decision on where to focus resources. However, while seemingly isolated to the issue at hand, the longer-term impact of delayed projects and employee morale can have a nasty ripple effect throughout a business. You can be the best executive in the world, but you’ll fail in a compromised morale environment if your employees don’t execute the business plan. This greatest indirect cost, the drop in employee morale, has a multiplier effect, and it’s not a good one. It changes companies — and not for the better.

One Step Forward, Two Steps Back …
Accounting systems work well for what can be easily counted and monetized. But this tends to undermine the value of the avoided cost, of understating the real value of sensible preventive investment. We are even taught in business school that with good decision analysis you should include alternative scenarios, weighing the near term returns versus the long term and estimating the likeliness of the scenario occurring. A best-case-versus-worst-case approach can provide leadership with a range of likely risk and reward. Unfortunately, we tend to get lazy when it becomes difficult to value an uncertain avoided cost. We also don’t have a lot of time to develop and think through alternatives when customers demand answers to why their software enhancements haven’t been delivered or aren’t working as promised.

There is also a fundamental societal challenge that undermines our ability to pursue sensible risk management objectives. It is our ability to see the forest through the trees and invest appropriately today to avoid higher (often significantly higher) costs tomorrow. There is little incentive for an operations executive to invest in a solution that won’t pay off for 5 or more years when his or her annual bonus is based on managing costs. You think being a good executive means a laser focus to squeeze every last ounce of productivity out of the business. But the very best executives — the ones whom I admire — have balance. They strike a critical balance between productivity and the overall health of the company, because they fully acknowledge all of these indirect effects on the business long term.

We also recognize from many published examples that companies that do not invest in R&D and innovation (both technology and process) tend to be behind the market, developing me-too technologies and trying to differentiate themselves through customer service, and these organizations are at a higher risk for becoming obsolete. We see this in healthcare. The United States has been described as the best reactive healthcare system in the world. We do relatively poorly at preventive and routine care but have some fantastic high-end long-term care capabilities.

The Answer: Proactive Risk Management
The mistake that growing companies make is having a culture based too heavily around productivity. Good executives strive to find a sensible balance between investing in upfront planning and providing top-notch customer care. Proactivity needs to be a recurring business objective. It should be a mantra to drive the underlying business culture. Planning steps must be incorporated into all project plans and go, no-go decisions should be incorporated into key project milestones.

Incite your employees to be proactive. Build incentive plans that reward employees for the long-term benefits of their actions. Drive product readiness, but be careful not to expect 100 percent accuracy. Plan technology, operational and sales and marketing readiness frameworks so that tweaks can be made as you learn over time rather than starting and stopping over and over again with entirely new formulas or approaches. It is wasteful.

None of us can be proactive in everything we do — but we can move in a proactive direction so we can reap the benefits of all of the strategies of being successful, without having to take backward steps that cause loss of time and money. And face it, people really appreciate that balance and company focus on their own personal growth rather than just the near term, top-line. It ultimately helps ensure a culture of teamwork and satisfied employees.

So, how much is your company willing to spend to move from a reactive to proactive maintenance business model?

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