Donald J. Patti

Archive for November, 2009|Monthly archive page

Taking Care of the Cobbler’s Children

In Economics, Entrepreneurship, management, Manufacturing, Small Business, Technology on 27 November 2009 at 8:35 am

“A cobbler’s children never have shoes,” a co-worker told me after we visited a healthy, thriving small business to provide consulting services. We met with the CEO, a talented entrepreneur who had built her business from one person into twenty in just under ten years. After two days of downtime, desperate to see her systems up and running and her client happy, she readily agreed to pay external bill rates for our repairing a critical part of their infrastructure. Yet, despite the obvious success of the business, the network equipment was nearly a decade old, all of the servers were used or refurbished and the employee’s desktop computers were more than two generations obsolete. “This was more than a case of the cobbler’s children being the last helped by the cobbler,” I thought. But, if not this, then why?

I recalled a day in economics class over decade before, when I learned about the Cobb-Douglas function (http://en.wikipedia.org/wiki/Cobb%E2%80%93Douglas), which states that productivity is a function of capital equipment, labor and technology. In short, Cobb-Douglas says that an increased investment in technology or capital equipment (machinery, tools) increases the productivity of your employees (laborers). This seemed obvious, so I tucked it away in my mind as a good example of conventional wisdom transformed in to a simple equation.

During my years consulting, I’ve seen Cobb-Douglas at work numerous times – at a large computer manufacturer where my team deployed over $1 million in computer hardware for collaboration for their 250,000 employees; at a global heavy manufacturer who built out identical server farms for their plants; at a top-10 financial institution where a dot-0 software upgrade (version 2.0, version 3.0, etc.) triggered the purchase of entirely new corresponding hardware. In most cases, we prepared business cases that showed (1) there were sizable productivity gains through the purchase and (2) the cost of replacing hardware during a corresponding software upgrade was far lower than waiting a year or two when the hardware was seeing high failure rates and affecting customers or workers.

I’ve also seen Cobb-Douglas ignored by otherwise-successful entrepreneurs. While this may seem surprising to some, if you understand the mindset of the entrepreneur, then you’ll understand why. You’ll also understand why this is not good policy for a thriving small business.

For many entrepreneurs, the key to initial success lies in boot-strapping – finding creative ways to deliver for customers despite the lack of resources necessary to get the job done. In most cases, small business owners build their business from the ground up by repeatedly stretching human resources to make up for the lack of capital investment or technology, rewarding these employees with equity or large delivery bonuses in exchange for working lots of overtime. As time passes, the entrepreneur equates scarcity and heavy workloads with success, and a pattern that ignores Cobb-Douglas is engrained.

All is well until the business grows, resource scarcity is no longer necessary and the rewards for burning the midnight oil are no longer available. The business has entered its teen years and is in need of some major infrastructure investments, but the entrepreneurial leader has trouble making the investment. Too many years of boot-strapping have made it difficult to imagine making a sizable, long term investment in technology or productive equipment. It’s safer, the thinking goes, to keep doing what made you successful – boot-strapping.

Yet the business has changed and the keys to past success are not the keys to future success. Businesses may start by successfully bootstrapping, but they grow by improving product quality, normalizing operations and building brand, all of which require substantial investment in technology, people and resources. Few entrepreneur’s recognize this shift occurring, so their business suffers “growing pains” until leadership transitions to someone else.  Dr. Rudy Lamone, a now-retired professor of Entrepreneurial Studies and former dean of the University of Maryland RH Smith School of Business, echoed the observation that entrepreneurs are often replaced once they’ve grown a business past a dozen employees, primarily because the behaviors that led to past successes are now detrimental to the business.

As a result, it’s not uncommon to encounter a small thriving business that uses ten-year-old computer hardware and six-year-old desktops for seemingly inexplicable reasons.  The cobbler’s children have no shoes, but not for lack of leather and nails.

What has been the impact?

  1. One entrepreneur lost their largest client by failing to buy and implement a defect tracking system capable of handling a dozen developers and QA resources. The software was delivered, but it was so defect-ridden that the client’s employees could hardly use it.
  2. Another entrepreneur lost two key developers who grew tired of developing on old desktops and outdated software.  When the phone call came from a recruiter to work for a business that provided new equipment and regular training, they jumped ship, creating a one month backlog of development work in their wake.
  3. A third entrepreneur suffered a one week outage of their production system because they failed to stock a redundant firewall for their network.  The pricey firewall, a $5000 unit, had a one week lead time for replacement.  The cost was $80,000 in revenue and breach-of-contract complaints from nearly every client.
  4. A fourth entrepreneur, mentioned at the beginning of this blog, suffered a three-day outage, but was able to avoid a breach of service level agreements by holding the network together for two more months, then upgrading the infrastructure after the contract was renewed.

The effects of tacking care of the cobbler’s children are evident to me, but they’re still anecdotal.  So, I’m asking small business owners and entrepreneurs – when your business is thriving, do you hesitate to make long-term investments in infrastructure? If so, why? If not, what criteria do you use to make the buying decision?

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When Taking Over Means “Steady as She Goes”

In Business, leadership, management, project management, Small Business on 15 November 2009 at 8:00 pm

You’ve taken a new leadership position, so you’re ready to take charge and make your mark. There’s just one problem – all’s well. The division you’ve inherited is running smoothly, or the project you’ve taken over is on target. What do you do? Here’s how to tell you’re in this leadership situation, and what to do if you are.

Confirming All’s Well

Because leadership changes usually occur when change is needed, it may be difficult to tell that nothing is wrong. But there are a number of indicators that appear when everything is just fine. If you answer “yes” to most of these questions, you’ve probably inherited a steady ship:

  1. Your predecessor retired. While some people are forced in to retirement and not all recent retirees were good leaders, it’s a good sign that all was managed well if your predecessor retired in the position.
  2. Your predecessor held the position for more than 10 years. Particularly in disciplines like information technology and marketing, ten years is a mark of seasoned leadership. While times may have changed and forced a change in leadership, it’s a good sign that your predecessor enjoyed the position enough to stay in it for a decade or more.
  3. Turnover was low. You’ve talked to the staff below the prior leader and they average five years or more with the company. This means the prior leader knew how to hire and retain the right people for their positions.
  4. The numbers are good. Whether the key performance measures for the division are customer satisfaction, profit-per-unit-sold or days-ahead-of-schedule, the key measures all look good, especially after some independent validation confirms they’re accurate.
  5. You’re allowed to phone your predecessor. When both sides haven’t parted on good terms, it’s rare that you’re allowed to pick up the phone and call your predecessor. When you ask, “Do you mind if I give the prior manager a call?” an answer of “yes” with no cautions or caveats is a good sign.
  6. The echo of kind words. In initial conversations about your predecessor and their work, co-workers and subordinates speak fondly of them and readily point to past successes.

If you’ve responded, “yes” to 4 of 6 of the indicators above or more, there’s a very good chance you’re inheriting a well run division or team that needs few short-term changes. The next section describes how to lead in this situation.

An Even Keel

Once you’ve confirmed that all is well, you have quite a management challenge ahead of you. (Yes, that’s correct – a challenge). Your predecessor was well liked, the team performed well, and you have to do at least as well for the transition to be considered successful. Here’s what you should and should not do:

  1. Give credit. Once you’ve confirmed prior success, give credit to your predecessor and the team, noting that you respect what they’ve already accomplished. This is more than phony ego-stroking, it’s confirmation for your staff that you knew can properly assess a business situation and take the correct actions moving forward. They’ll appreciate that you’re recognizing them, but they’ll respect your business intuition even more.
  2. Avoid radical change. While it’s very tempting, do not try to transform the organization to suit your own management style and don’t attempt a major reorganization. It’s likely to cause resentment by your co-workers and subordinates who were very happy with the way things were. Even worse, it may turn a productive team into an unproductive one.
  3. Make change slowly. An obvious converse of the prior point, if some changes are necessary, make them slowly. This will give people an opportunity to know and trust you, but it will also give you time to understand why the team was so successful in the past. After a little wait, you may find that some of the changes you’ve planned aren’t needed and it will definitely put the distance of time between you and your predecessor.
  4. Learn from the management style of your predecessor. They were successful sitting in the same chair you now hold – who better to study than them? Review old reports and deliverables, review performance results going a few years back, and see how the division ran in the past.
  5. Give them a call. Invite your predecessor to lunch and ask them what worked so well. What management style did they use, what methodologies or techniques. Also, if possible, ask them about your staff – what are their likes and dislikes, what makes team members tick, who doesn’t get along with whom? In a couple of hours, you’ll be a lot closer to making a smooth transition.
  6. Review goals, then consider more ambitious ones. It’s possible your predecessor already set some pretty solid target for the team, but there’s also a very good chance that the bar has been a little too low most recently. If this is the case, raise expectations a bit, work with the team to identify new opportunities to excel, then add them to your strategic plan. By doing so, you’re most likely to add value to an already good situation.
  7. Adjust. While it may not be YOUR management style, your predecessor’s approach worked well. Consider adopting all or part of it, even if it’s a stretch for you. You may find that you grow as a leader by adding arrows to your quiver in this way.

Same Crew, More Knots

As a manager and leader, taking on a successful team may be the most challenging experience you ever face. It’s likely you’re a leader because you can take charge in difficult times to steer a new course, but the winds of change simply aren’t blowing. In this case, the most prudent course is to learn from the successes of the past and adapt to the new team. It will take longer, but eventually your team will improve upon past successes. If nothing else, resist the temptation to immediately set a new course – ironically, you’re far more likely to fail.

When Quality is Too Costly

In Business, management, project management, Quality, Software Development, Technology on 2 November 2009 at 8:15 am

Throughout his career, my father served as an engineering manager in the aerospace industry, where the parts he and his teams developed were used for missiles and spacecraft. Sometimes, these parts were required to meet specifications within one ten-thousandth (0.0001) of an inch, a level of quality rarely seen in any industry. I remember discussing the day his company announced they would enter the automotive parts market, which used similar components.

“You should be quite successful,” I told my father, “if you’re able to deliver products that are of such high quality to the automotive industry. Who wouldn’t buy a product that meets specifications so precisely?”

“That’s actually the problem,” my father responded. “We can build parts to one ten-thousandth of an inch, but the automotive market doesn’t need anything that precise and isn’t willing to pay for it. It costs an awful lot of money to build something that precise and to verify that it meets that standard.” He continued, “It will take us a while to figure out how to mass-produce products with much lower tolerances that are also competitively priced.”

Many years later, I encountered the same issue in my own career. Educated like many others in the principles of total quality management (TQM) and the concept of “zero defects”, I believed that the key to building excellent software was a clean defect log.  Budgeting time for multiple rounds and types of testing, my team and I dutifully worked to test 100% of all functionality in our systems and didn’t release our software until every known defect was repaired.

The day came to release our software and I was met with an unexpected surprise. Sure enough, not many defects were reported back, but there were defects reported. Why?

It turned out that our large user base was exposing problems that neither our QA team nor our beta testers encountered or anticipated. Only through the rigors of production use did these defects come to the surface. This was my first lesson about the limitations of preaching a “zero-defect” mantra – nothing replaces the “test” of production.

During our project retrospective, an even more important downside to the blind pursuit of “zero defects” surfaced. Over the two extra months our team spent addressing low-severity defects, our client lost roughly $400,000 in new sales because the new system was not available to collect them. (I had done the ROI calculations at the beginning of the project showing a $200K per month of new income, but had completely forgotten that holding on to the system for a couple of months meant the client would be deprived of this money entirely-they were not merely delayed). For the sake of perfection, zero-defects meant withholding key benefits – this was a far more important lesson than the first.

Certainly, few users want to deal with defects in software, particularly software that’s not ready to deliver. And, of course there are software products where a near-zero defect rate is extremely important. For example, I’d be quite upset if a zero-defect standard weren’t set for the key functionality in an air traffic control system or in certain military, aerospace, medical and financial systems.

But now, before I recommend a zero-defect quality target for any project, I make certain that the costs of such a high level of quality are not only beneficial to the client, I make certain I include in my calculations the lost benefits the product will bring to the users by holding it back until this level of quality is achieved. After all, none of us like defects, but would we really want to wait the months or years it might take before we reap the benefits from a new version of our favorite software?