Subscribe
Share
Share
Embed
Join Derek Hudson as he explores Essential Dynamics, a framework for approaching the challenges facing people and organizations. Consider your Quest!
Welcome to Essential Dynamics. I'm your host, Eric Hudson. Essential Dynamics podcast is based on Essential Dynamics, a thinking framework that I've been developing over the past few years to help solve business and, society's problems. And today, I'm joined with my colleague from Unconstrained, Dave Kane. Dave, thanks for coming back.
Dave:Thanks for having me back. I've been thinking about this one, and I think more and more, it's it's the whole conversation on productivity that we had last week and that we're gonna keep going here. It just it's everywhere in the media now, and I think it's just one to keep keep building upon.
Derek:Well, I I appreciate, the chance that we had to set it up in the last episode, and and I I think for me, I'm way more excited about this one. Last one was kind of setting up the, the issue of productivity in Canada. Some of the things that have been said by the Bank of Canada about how productivity might be, improved in Canada. And what we want to do today is talk about the essential dynamics view of how organizations can improve their productivity. So as you've been kind of mulling over this, Dave, what's, what's on your mind at the at the top of this?
Dave:Well, I just sort of, you know, reflecting on the conversation. The government and the country and the the economy are talking about a productivity issue, and and that's great, and there's lots of things and policies and stuff that they can do. And then we sort of took the conversation down to the organization. And, you know, you've talked a lot in the past on on the podcast about agency and about what can one organization do about it. And so it's it's not bad.
Dave:There's nothing wrong with whatever the government's going to do and where they're gonna go with it. But as an organization, it's what can I do while I'm waiting for this to happen? What what can I do to help my organization become more productive? But what you're really driving for is to make it more profitable, And the two go sort of hand in hand, but let's look at the agency side of, well, what can the organization do?
Derek:Abs absolutely. So the, the three principles that we've kind of settled on after the people, path, and purpose part of essential dynamics was set up. I thought about, well, what are the underlying principles that would allow that kind of thing to make sense? And I've I've come up with three and they've kind of stayed that way. And one of them is natural law, which is just the assumption that there are principles by which the world works, that if you learn them, you can apply them and get better.
Derek:You can, there's some predictability to things. The second is agency, that you can take that situation that natural law presents and choose, an action or choose a different action. And the third is abundance, which is those choices could serve to make things better. And so you're bang on, we have an issue nationally with productivity. Well, let's look to the level at which you, you know, you can operate as the organization that you're responsible for, that you're working in, and make choices that bring better results.
Derek:And so today we can talk about the choices that a business leader could take, that could end up with better results, which would be profitability. It could be a great place to work, provide great things for customers, and then that contribute to the economy, both by what it does and by the, the taxes and other things that it contributes that way. So if we if we think about that, actually, this is one thing I wanna interrupt myself. I wanna go back. I talked about this is what business leaders think about.
Derek:So if our listeners are not business leaders, there's two things you can do. One is look at the system that you can operate in and apply all those principles and apply your agency to your system. And the second is talk to your business leader and say, hey, do you think there's a different way to think about this stuff? And, and lead upwards. So let's talk about, using our agency well to improve the productivity of our organization.
Derek:Last time, Dave, I think you encouraged us. So let's, do this. Talk about the value chain and and how what does that contribute to productivity, that thinking?
Dave:Well, I think that understanding your value chain is because you talked about making choices. Right? And so making the right choice, finding the right place to start. And so by understanding your value chain or sort of, you know, starting to build that model that looks at, you know, what are my inputs, what am I doing with it, and what are my outputs, And then how am I getting that to the customer that you talked to it last time? By sort of diving into that, you're gonna get into your drivers and your constraints, and you're gonna start to look at, you know, where are the pinch points coming.
Dave:And it's those pinch points that if you start to improve them through either, you know, better processes or as, you know, the productivity guys talk about, better training or better tools, that's where your your productivity gains are gonna come by or they're they're gonna become fastest and with the best return, is by going after these leverage points or these pinch points.
Derek:So let me pick up on that. I'm working on a a case study that's kind of a composite of experiences I've had and that my clients have had. And I can't, you know, always share what my clients are working on right now because of confidentiality, but the principles are pretty broadly applicable. So I've I've come up with this, this really cool company. It's called Mel's Bakery.
Derek:And Mel Mel's a baker. Yep. And she has she really likes decorating beautiful cakes, and Mel's Bakery makes cakes and it makes cookies. And, I've come up with a simple value chain, and there's actually two in Mel's Bakery's business. One of them is is the cakes Mel makes are all custom designed for a customer.
Derek:And they're cakes that are used for celebrations. And I think they're I think the slogan is the cake makes the celebration or something like that. So the value chain there is, there's a sales process whereby someone is gonna come into the shop and say, will you make a cake for my parents' fiftieth wedding anniversary? And then there's another step, which is the consultation about what do you want and tell me about your parents and, you know, how big and how elaborate this cake might be. And then there's actually making the cake from the raw ingredients.
Derek:And then there's delivering the cake to the event, right on time for the big celebration. That's the value chain. Cookies one is a little bit different because you don't custom design every cookie, it's more manufacturing. We'll get to that, maybe at a different time. But for the making the cakes, that value chain only has a few steps.
Derek:And, I think it would be obvious to our listeners, you think about which is the step there, which is going to limit how many cakes that you can make. And I would say that that the trickiest step, the step that has the most value, the step where we're gonna find the constraint is actually making the cake.
Dave:Right. The the the level of customization and the level of change you make in each one is gonna impact the amount of effort you're putting in to do it.
Derek:And and so just like this is just a hint of this case study, and and that is that one of the things you want for this system to flow and to add a lot of value is you want your bakers to be decorating cakes all day every day. Because nobody else can do that, and anytime the baker spends not doing that is not producing. Right. So if a baker comes to work and does paperwork and does invoicing and cleans the shop, they're not decorating cakes, and the only way the company gets revenue is selling the cakes. Right.
Dave:And take it even further of where is the value being added in in in your process. And it's is it in, you know, the 16 flavors of cake? Probably not. Right? And so it's, like you say, in the decoration in the the final trimming.
Derek:Right. And so and so your, your cake batter might be premade or premixed or, that their individual, layers of the cake might be in the freezer already, and then it's it's all assembled together. I I ran into a great podcast. I'd I'd recommend it. It's called the melting pot, Dominic Monkhouse.
Derek:And, and he had a guest on, Andy Watt, who's steeped in the concepts of, theory of constraints because he he was in was in charge, maybe is in charge of Goldratt in in The UK. And he tells a story about a forge in Wales. And a forge, has one function, which is to pound steel to make it stronger. And, he was using that as an example. He said whenever he goes to an organization, and they tell him what the constraint to their flow is, it's not working.
Derek:When he goes to the plant, it's not up and running. It's not producing. This is like almost a, you know, it's like Andy's rule. You will not find the constraint operating. And of course, the example of the forge was interesting because everyone in the town knows when the forge is pounding and when it's not.
Derek:So you'd have a pretty good idea of how, productive the operation is just by, is that thing pounding all day, or is it not pounding all day? And in our organizations in different things where a value chain is invisible because you're doing knowledge work, and it's insurance claims, or it's software development, and you can't see it, it's harder to tell, but there's a lot to be said for understanding your value chain, and understanding what the trickiest and most valuable part is, and then making sure that, that is elevated to its highest capacity, and everything supports that.
Dave:Right. So if if you go back to, you're going in to see Mel for the first time or you're going into any of these sort of ones, for you, what what is sort of that simple first couple of questions help you identify these parts in the value chain that are the highest value or the ones that need the attention?
Derek:That's a great question. What are your questions? So, so Mel, why did you get in this business? We're gonna establish the purpose and that purpose is there's this tremendous creative need to help people have great celebrations by making these things that are beautiful and tasty, and people eat at the event. So that's great.
Derek:What's your other purpose, Mel? We would ask that question. And that the answer might be, to provide for my family or to provide opportunities for my employees who I feel deep connection to. And I've had owners tell me about those things. Okay.
Derek:So how do you create that value? Well, I have this reputation of being the cake for the event. And so I don't have to do a lot of work to get my, my calendar filled with cakes that we need to deliver. And then tell me how that goes. And so she would talk about how great the bakers are in decorating the cakes.
Derek:Then I would say, Hey, can I see, the operation? And go in the back? And according to this dialogue which we just had, the bakers would not be decorating cakes at the time we would look at them. But, yeah, there would be there would be a backlog of, cakes to be to be worked on. And and so so that, those simple questions about where does, you know, where do things stop?
Derek:How good are you at delivering on time? Is there a rush? Do you have to work overtime? Those are things that kinda identify when there's not flow. And it's, it's sometimes not that hard.
Derek:So here's a question back to you. If it's easy to answer those questions when they get asked, why do organizations not naturally think of the work they do in terms of productivity and flow and value chains?
Dave:Well, a lot of times, it's because they don't have that capacity to step back and look at it that way. So the first time for to answer your question is, you know, they don't get the opportunity to answer that question in that they're fighting the fires. They're too they're too busy in the day to day, just trying to, you know, get things out the door. But when they can step back, I think a lot of it is is they're trying to maximize the resources that they have of those bakers by keeping them, you know, busy and moving things through the process, not necessarily having them do what their highest value is and looking at the whole flow. Right?
Derek:Solid point. So let's go back to we can't cover all of this on this podcast, but here's something to think about. If you go back to the definition of productivity that you gave in the previous episode, you said that, productivity really means the economic output per hour of work. When, when my teenage daughters used to work as servers in restaurants. When they, when they came home from a shift, I said I would ask them, how did it go?
Derek:And, they would say, oh, not bad. You know, I I made, like, $25 an hour today. And I would say, well, like, you don't make $25 an hour. And they said, well, dad, you know, my, my base is 15, but then there's tips, but then I have to pay the back of house. And so so my calculation of, what I take home divided by my hours is $25 an hour.
Derek:Yep. That's the same math that the Bank of Canada uses. And so what I would propose for Mel's Bakery is if you wanna look at your productivity, there's really two measures you look at. One is, what's our cake contribution. That's not the revenue we get from our cakes, because there's a lot of materials in there, but after materials, that's my contribution.
Derek:What's that per hour of baker time? And then my other question would be, how many productive hours of baker time do I get when a baker shows up for a shift? Yeah. Yeah. And you can apply that to a law office, an engineering firm, a manufacturing facility, software development.
Derek:You can say, what's my contribution, my value add per hour of work, or even more specifically per hour of constrained resource?
Dave:I think, yeah, that's the key is that constrained resource. But the other piece I would just as I was listening, that's interesting to bring in is it's not always just output. It's like you sort of say contribution or output to rev like with a revenue behind it. Because with Mel and the example you gave, it's fine that, you know, she has more demand than she can fulfill, and so it's how many cakes she can get out the door. But there's lots of manufacturing places that, you know, if if they have idle time, they're gonna go and keep producing, and they just build up inventory, and that's not productive.
Dave:Right? So it has to be, matched with the the market demand or the sales you can actually bring on it because, that's another kind of interesting one that that we've seen of, I'm being really productive. I have these idle resources, and I need to make them work, so they're being productive. But But when you don't match that to revenue, that's not productivity.
Derek:That's not productivity. And and the other thing is that there's another angle of productivity, which kinda flies in the face of maybe even stuff some of the stuff that Bank of Canada has talked about. And that is one of the best ways to be more productive, on an economic basis is to charge more, is to increase your prices, because you do the same work, and and your organization takes more in. Now you can't do that willy nilly, or it seems it seems you can right now in this Yeah.
Dave:In Yeah. Inflationary. Charging higher prices. You're you're just sort of increasing the the recognized value for it, and that's how you're charging a higher price. You're not just purely inflationary here.
Dave:It's it's what you're creating has higher value.
Derek:So Higher has higher value. And and, of course, you always want, I think, to be have a sustainable business, you wanna be actually delivering the value for which charge. And so if you're gonna have premium pricing, you better have a premium product. And sometimes that premium product is design or quality assurance, or it might be customer experience and responsiveness in terms of delivery times and stuff like that. But you would you would want an organization to have the highest possible quality, and then confidently charge a customer for that, and have the customer say, I'm receiving great value.
Derek:So it's not just like jacking up your prices. It's it's increasing the value and then increasing the recognition of the value as it as it flows through the value chain. That's probably the first thing, but you have to have the quality to support it. The second thing would be to increase the flow through the constraint, because it doesn't cost you more. Once your materials are taken out, you know, the bakers sitting there, they're gonna you're gonna pay them, whether they work on paperwork or cakes, might as well have them work on cakes.
Derek:The the the forge has, takes up space in the factory. It has a maintenance cost. You gotta pay that whether it's operating or not, might as well have it operating. And these are the kinds of things that anyone can do better at if they think about their business and think about that value chain and the flow in the value chain that I don't know what kind of government policy or action can affect that other than one suggestion that I have. And as we wrap up, this is a shameless pitch, for the services of organizations like Unconstraint.
Derek:And if government wants to support this rather than calling for increased competition or in increased capital investment, let's level up the expertise that we organizations have in terms of management. Let's get let's get to be better managers and support organizations that help people be better managers, whether that's industry associations, chambers of commerce, advanced education, consultants and trainers and stuff like that. Let's get let's become better managers.
Dave:Absolutely. Because, you know, adding more skilled labor or adding more investment takes capital and it takes time. Whereas unlocking what you have, you know, if there's a constraint there that can be fixed through management attention or, you know, sort of these leverage points, you're gonna get the best value for what you've already put in
Derek:place. Well, and and there's reasons that, you know, our economy, settles the way it is. There's like natural forces, natural laws, supply and demand, natural selection. And so we're here where we are for a good reason. So you kinda have to honor that, and then move from where we are with, addressing the lever leverage points.
Derek:And that that's the best way to have an integrated economy. That's the best way to scale a company. If we wanna lurch to, we're gonna throw out this economy and create a new one, not based on energy or a new one based on this dream industry, that doesn't work. That's that's not how nature works. We've got these symbiotic ecosystems, and we need to step it up in the context of that.
Derek:And addressing your leverage points in organization is the best way to do that. And I don't expect a brilliant, business owner to know how to do this stuff because they're spending their time taking care of their customer. And so that's why organizations like Unconstrained exist, is to be that guide, that partner with an organization that's really good, that could get that much better.
Dave:Absolutely. Like, because the people who've started up some of these these great organizations have have, you know, done it by focusing on bringing out their product, meeting the customer need, and they grow. And it's just like we sort of said before that as the business grows and the complexity grows, the decisions, you know, get more and more complicated or just more and more quantity of them. And, eventually, managers and leaders, they just get stuck, like and so it's not a matter of adding more equipment on top of this in a lot of cases, and it's not to the fault of any of these organizations. It's just things get busy, things get complicated, and sometimes you just need to step back and have a bit of help to figure out, okay.
Dave:Well, how do I get past this? How do I get moving again? And how do I get past these these few challenging decisions that have slowed me down? And then you start using what you've already invested in better, and then you start seeing the productivity you've you've built.
Derek:So if we were to give this speech about, Canada's productivity emergency, we might say Canada's productivity emergency is that we could be better managers. And that's no offense to the point that we've got ourselves to at this point, but we know we could be better. And so let's figure out ways that we can support each other, and that policymakers and funders can support every every organization's management to get better. And, I think that's a quest. That's the quest that I signed up for a long time ago.
Derek:Dave, thanks very much for this conversation. I feel actually optimistic and excited about Canada's productivity potential. And if I'm gonna keep my alliteration going in the productivity prescription, let's let's level up management.
Dave:Yeah. And I'm I'm glad that the the Bank of Canada, like, they came out and they raised this, and they said it's not our job to fix it, but we need to get the conversation started. And I think just continuing it and and the more the more we can have it at all levels within the economy of, you know, federal policy all the way down to what a manager can do for his own company is better for everybody in the economy. So let's just keep the conversation going.
Derek:And as you said at the beginning, it respects our agency because every business owner and actually everyone in an organization can make decisions that, make things better. So let's do that. So, Dave, thanks very much. Dave and I are both with Unconstrained, and Unconstrained brings you essential dynamics, a couple of times a month. We also like to thank Brynn Griffiths who, makes us sound good on the podcast.
Derek:And until next time, consider your request.