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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 Derek Hudson, host of the Essential Dynamics podcast. Today, I'm with my colleague, Dave Kane from Unconstrained. Dave, good morning. How are you?
Dave Kane:I'm doing great. How are you today?
Derek Hudson:I'm excited to continue, these deep conversations with interesting people. And, because this is like, my head is just full of stuff about essential dynamics. I don't know if that's a blessing or a curse, but, it keeps me, keeps me thinking anyway.
Dave Kane:As long as we keep finding the simplicity on the other side of complexity, we're good.
Derek Hudson:Yeah. You know what I find about that? Is that it's hard.
Dave Kane:That's what we talk about all the time, it's supposed to be hard.
Derek Hudson:It's supposed to be hard, but when I get to the simplicity, I always say, well, why didn't we just go straight there? And, I don't know how to do that, so.
Dave Kane:Yeah. But if if if you don't go through that complexity, and you're trying to present it to someone, it's so easy to get derailed because they'll go, well, what about this? It's like, well, I haven't I haven't thought through it far enough yet to to deal with those. Right? So you have to go through that exercise, or it's not it's not enduring. It won't stand up to the test that people put it through.
Derek Hudson:Yeah. I think there's a difference between, simple and, simplicity.
Dave Kane:Yes.
Derek Hudson:That's true. If you think about it, like for example, I think I've quoted this before, Isaac Newton said, nature is simple. And, it took him a long time to figure out how to explain that to us in terms of the laws of gravitation, and then they only held up for so long before before we needed more, because we understood more.
Dave Kane:Well, that's a good link back to what we've been talking about with systems. Right? Yes. We're mimicking nature with the complexity of it, and and trying not to look in silos. Right? So we we've been there for, what, 3, 4 episodes now.
Dave Kane:So
Derek Hudson:Yeah. So where are we going today?
Derek Hudson:I just wanna kinda wrap up this one with a bit of the the practicality of it. In that we talk about how systems and and flow is important, and we've gone through, you know, systems dysfunction and and on the system flow piece. But there's a practicality to it out there that sort of says it's great to focus on on the process rather than the outcome, but those above me and those within the organization want me to have measures on these things. Right? And so it's sort of like, but I'm on about the process.
Dave Kane:But, yeah, we still gotta still gotta have measures to it. So upwards with the governance, there's metrics and reporting. And then downwards or not downward, but within the organization about trying to get everyone to focus on the right thing, measures are are critical to all that. So what I'm kinda curious to explore is, you know, can can measures coexist with the focus on flow?
Derek Hudson:Well, they can, Dave, and I think I think they are critical. However, there are a lot of measures that can be, you know, destructive to flow or anti-flow. flow.
Dave Kane:Well, because we always jump to outcomes, output, or activities. Yeah. Right? We did stuff.
Derek Hudson:Yeah. Okay. Well, I'll just give you an example that came up as an activity measure, and I've talked about it before. When I was at Micralyne , we had a customer that, was using our product for as a major component for their product, and their product was taking off. And so they needed more and more and more of our product, and they had no other supplier.
Derek Hudson:And, because we hadn't completely refined the manufacturing system, this product was hard to make. And, and there are a lot of steps in the process where their product could fail because it was wafer fabrication and, tiny little devices. And anyway, at one point, in order to encourage us to produce more, we had a mandated number of wafers that we started every week. So that is an activity measure. That's an input measure.
Derek Hudson:That's right at the front end of the process. And if we didn't start the right number of wafers, then, you know, our customer wasn't happy. But the problem is, starting them is not the same as finishing them.
Dave Kane:Or finishing them well, yes.
Derek Hudson:Yeah. Yeah. And so, and so we just jammed up our system with stuff that wasn't moving. Because at some point in the middle of the process, there was a constraint that limited the flow. And if you started more every week than that constraint could handle, you just piled up.
Derek Hudson:Yeah. And so, the activity measure itself is not a great one. But there's some challenges with measuring the outcomes as well. And there's a one of the things I wanted to mention related to this is, if you don't follow the process that you have to get to the outcome, but you didn't follow the process to get to the outcome, and then you measure the outcome, you don't really know what's happening. So for example, let's say you don't get the outcome that you want, you don't produce enough units. The first question that management should ask, you know, in varying places in the organization is, are you following the process? And if the answer is, no, we couldn't because of this excuse or that excuse, it didn't work or whatever. Now we don't know anything.
Derek Hudson:We just know we didn't achieve the outcome. We don't know what to fix. But the opposite situation is also a problem. And that is, if you achieve the outcome, and you don't follow the process, then you may not be able to replicate it. Right.
Derek Hudson:You may not be able to scale it. You got 1, that's great. Now can you produce ten? Can you produce, you know, a hundred? Can you produce a thousand?
Derek Hudson:You don't actually know. And so, while the outcome is a useful measure and it's definitely what the customer is interested in, if you just focus on the outcome, you don't understand the process well enough to adapt when, when things either go really well, and you need to make more, or they don't go well because you have some quality problem or something like that. So yeah, we need to measure in the process.
Dave Kane:It sounds like you're you need a balance. So you can't have all on outcomes or all on process because you're you may get lost on the process and and not I mean, we've talked a lot about the need for that tension. Right? And I think having a bit of the focus on the outcomes creates a bit of that tension in the system.
Derek Hudson:Absolutely. So you're focused on outcomes. Sorry, not focused on outcomes, but your process is designed to create outcomes. And, and then you run the process and see if you achieve the outcomes. And then you tweak the process, but you need to understand, you know, if you're complying with the process or not.
Derek Hudson:I have, been in 2 or 3 situations myself, and I have a client who very clearly shared with me. He said, every time something goes wrong, then I get the phone call. My question asked, did you follow the process? The answer is, no, we didn't follow the process. Right?
Derek Hudson:So, there is some, value in measuring something in the process. We'll get to that in a second. I just wanted to talk about one more thing about the outcome. And that is, this idea of, variations in the outcome, happening either because of a variation in the process or because of random fluctuation or external events. And, it's really funny because accountants don't understand this at all, but engineers have this concept of signal to noise ratio.
Derek Hudson:Right. And, so if you, if your, if your sales are 105 units a day, and, all of a sudden you have 120, and then you go back to 105, The day after that, you don't know what's going to happen unless you understand, the signal. And whether that data point was a blip because someone mistakenly ordered twice as much as usual, or if that's, if that's a trend that you need to follow. And we typically don't have ways of detecting it or cancel, you know, sort of canceling out the noise. And and so if we just focus on measuring outcomes, we can always be trying to manage for something that's not actually happening.
Dave Kane:I would agree with that. The pieces I've seen along the way, though, if you're measuring outputs is it's not a point in time. And so if you are measuring a series of them, you can start to look at, is it an anomaly, or is it a change in trend? But, I I kinda get where you're going with your piece though.
Derek Hudson:Yeah, actually, and I think I mentioned to this, this to you earlier, that one of the ways I discovered this, and I am going to link it in the show notes, is this concept called the Hacker's Diet.
Dave Kane:I'm not familiar with that.
Derek Hudson:Yeah. So he was a computer software developer, who was stereotypical, in terms of he worked long hours, and didn't get any exercise, and, you know, ate junk food at his desk. And he was he found that his, his weight and his fitness and his overall well-being were not were not good. So he put an engineering, approach to it. And one of the things that he determined is, if you weigh yourself, were you sure that's a point in time that's a data point?
Derek Hudson:Mhmm. And depending on your fluid intake and other things that are going on in your body, you could vary, you know, 2 or 3 or 4 pounds and really be the same person and have the same health level. Yep. So his solution to that would be, was to make a 10 day, rolling weighted average, or yeah, 10 day average. And he built a spreadsheet that you put in your weight for the day, and then you get your trend weight, which is, which is the only one you look at.
Derek Hudson:You don't look at your weight for the day. Because if you eat pizza 1 night, wake up the next morning, you're £2 heavier, then you say, well, I'm never eating pizza again. You don't actually know if the pizza had anything to do with your weight.
Dave Kane:Okay.
Derek Hudson:But if you, if you track your weight over several days and make minor adjustments to the process, that trend should start to turn on you. And then, you have better information. So that signal to noise ratio and that idea that we shouldn't overreact to point in time measures is pretty solid.
Dave Kane:Also because, yeah, you wanna be able to determine what the cause of that was. And if you're not measuring your process or your system, you're not gonna know whether it was, you know, something you could tweak or change or something out of your control.
Derek Hudson:Yeah. So let's talk about the sort of in process measures. And there's, there's one, you know, sort of classic example, and that's the life insurance salesman. No one wants to think about the need for life insurance and they put off talking about it. But if you get approached by someone and they sit down and explain it to you, you might buy it.
Derek Hudson:So, pre anything, any technology, I guess, but maybe the telephone, The life insurance salesperson would just have to make cold calls door to door or on the phone, and try and find somebody to talk to. And they had ratios. If you do this many cold calls, you'll get this many meetings. You have this many meetings, you'll get this many leads. And if you have worked those leads, at some point, you'll get a sale.
Derek Hudson:And there's no replacing the cold calls in the pipeline, in the funnel. And so you can measure all those steps, and eventually, start to understand the relationship. And so typically, I think in that process, when people didn't do well, they weren't following the process. They weren't putting in the numbers that they needed to in the stage of starting with the cold calls. And we don't like that, because we'd rather figure out the shortcut.
Dave Kane:Everybody's now is, yeah, how can I hack this? How to make it there quicker?
Derek Hudson:Yeah. So there's that one, and then the other one, which I don't understand as well, which would be really fun. And if Brynn bursts in here, it's fine because it's the situation in high performance sports, where the outcome of a particular game can depend on a bunch of factors. Good coaches focus on the process and building the team into the process. And so then you measure in process measures, like in hockey, grade a scoring chances, and digging the puck out of the corner and things like that.
Derek Hudson:And then you've got something to work with with your team. I think, you know, the movie Moneyball and that and that concept that there's a way to win baseball games based on getting people on base, and there are things that you need to do to get people on base. And you run the system that way, then you're likely to do well. And if you're betting your system on a high performance, high paid athlete, and you don't understand the system, you might not get what you want. Mhmm.
Derek Hudson:But I haven't seen a ton of that in business. Now there's, like, a subset where I have seen it is in highly controlled, like quality assured manufacturing process. On a production environment.
Dave Kane:Yeah. Yeah.
Derek Hudson:Yeah. Yeah. So you can control tons of variables, and you measure tons of things. And if something is out of spec, you can, you know, push the red button and chase down the variation in the machine and get things running back again. And I, you know, and there's a lot that we can learn from manufacturing.
Derek Hudson:The problem is, is that so much of what we do is not manufacturing. And it's hard to fit into manufacturing. So I think at this point, we're probably in the learning mode of this particular episode. So what do we need to learn?
Dave Kane:So I'm sort of translating that. Okay. Production is easier because you kinda see it, so we're just moving along. But if I'm trying to figure out how to reflect something that looks at the health of the of the system and the flow of the system, I'm sort of curious to get your thoughts on how do you how do you do that, and do you take the same approach of, with other measures of, you know, trying to define what good looks like and then set expectations and measure going forward like you would other metrics? Or, like, how do you land on what you wanna communicate to say, yeah.
Dave Kane:Look. My my system is healthy, therefore I should get these outcomes in time because you're trying to convince your board or others that we need to invest and focus on these things. And I'm I haven't quite man, and I don't wanna get into, like, specific metrics you've used, but how would you approach trying to land on what the right ones are? Because when it's not obvious.
Derek Hudson:Well, let's talk about flow for a second. So we talked about system flow, and then there's, you know, like a physical flow in a production process. And we know that flow is limited. In a stable system, flow is limited by one constraint. If you have a few constraints that have capacity that's similar, then the actual constraint at any point in time can be 1 or the other of those, and it, you know, it can bounce around.
Derek Hudson:You can get a little bit more chaotic. But if you, if you've at least identified the constraint that you want to be the constraint, then you work on giving everything else more capacity. So then, what that creates is the opportunity to manage flow by looking at one resource in the system. And so then, there's some very simple things that you can measure. What's its capacity, in terms of production per hour or per unit of time?
Derek Hudson:What's its available uptime? You know, are we running a shift for 8 hours, or is it 24 hours? And, you know, is there maintenance breaks and stuff like that? What do we, you know, what's the actual utilization compared to the potential? And then when we look at what flows through that, and the best thing to look at is the flow of value.
Derek Hudson:Mhmm. So what's the value add that we can create in an hour or a day based on what's going through this, this constrained part of the system, or sometimes we call it a control point. So then, if you want to improve it, you increase the available time, increase the flow rate through, and then you optimize the mix of what's going through. And, that would mean, you know, higher value add things go get priority. And, and how many times have we been in a situation where we've been either a participant or a customer, and something in front of us is taking a long time.
Derek Hudson:And we don't think, that that's as high a value as another thing, whether that's us being served as a customer or not. And those things, though, I don't think they tend to be looked at very much. So you can measure those things. But we're typically stuck with measuring the financial impact of that in a month, and we usually get that information 1 or 2 or 3 weeks after it happened.
Dave Kane:Right. Yeah. That that's good. That's making a lot of sense because I'm I'm reflecting back, to when we're talking about flow and we're using the the river analogy and how to get the flow moving, we kinda constricted a bit. And so you're you're focusing in on on the constraint or the bottleneck or the, kind of the control point that you're talking about while also looking at what is flowing through, that river and and prioritizing stuff in there.
Dave Kane:That's not really the same as focusing on on, the driver, is it? Because this is more of a constrained conversation, and the mix and the prioritization was going through, as opposed to measuring and monitoring the driver in the process.
Derek Hudson:Well, the driver creates the demand in one sense, or it maybe creates the level of energy at which things flow through the system. And so it's relevant, but once the driver exceeds the constraint, you get more out if you deal with the constraint. But I think we've all been in situations where the pipeline is dry, and, you can do all the management of the process that you want. You need you need an injection in the system of energy, or demand, or capacity, something like that.
Dave Kane:You need your measures up on the sales and the funnel side. Yeah.
Derek Hudson:That's right. Yeah. For sure. But but when you have when you have demand, then, there's not that many things you have to look at, I guess, is what I'm saying, even in a complex system. Stabilize it by focusing on one point as being the control point.
Derek Hudson:Typically, it's best if that's the most expensive or intricate part of the process, because you wanna focus on that anyway. And then you're looking at, is it is it working? Are we working on the right stuff? Are we getting quality out the other end? Because any time lost in the constraint is lost to the system forever.
Derek Hudson:Whereas, upstream and downstream, you can have can have a little buffer and you can work on stuff when the constraint's not working. So there's ways there's ways to measure that, and I don't think that's the purpose of this podcast, is to speak about the details around. But the principle is that to have flow, we have to look at, you know, where it's constrained, making sure that's flowing as much of the time available as possible. That, you know, could we increase the capacity in some other way? You know, turn up the juice.
Derek Hudson:And then, is the mix of things going through, the right mix? And so, you mean, you think of the idea of emergency room triage. Some conditions could actually be fixed in 12 or 24 or 48 hours, and the person would be just as fine, except maybe inconvenience to other conditions, if they're not dealt with in minutes. But you you don't get to keep playing.
Dave Kane:Yeah. That okay. That this is actually very helpful. So it's it's sort of got got me a bit clear. And I think the other takeaway I'm I'm drawing from the processing this is also it's focusing in on the right things and getting the measures on these things as opposed to an overwhelming number of measures, that get this and everything else.
Dave Kane:Because what I find a lot of times is well, I guess maybe I should clarify. There's a difference between measurement for the purpose of reporting, which is to me a lot more required and just there's all these things that you're expected to report on as opposed to measurement for the purpose of making the right decisions. Measurement for managing. Right? And so, I think what you could focus on here is measure the right things.
Dave Kane:Don't distract yourself with too many other things because I feel quite often that, you know, metrics measurement inadvertently stall the flow. You've put on too many things.
Derek Hudson:The right things. Dave, there's a ton of what you just said. So we don't want measurements to be a distraction. Because, our attention is, you know, the ultimate resource that we have. We can't get more of it.
Derek Hudson:And, And you want to make sure that the measurement is used to run the system. So I have been the guy at corporate asking for the information, and I can tell you this, if the information they send to me is used in the operations, it's current, it's good, I can rely on it. If it's not used in the operations, if it's just tallied up for a corporate report, there's no self correcting mechanism in there. Right? If it's garbage, then no one knows because they don't do anything with it except send it up to corporate.
Derek Hudson:But if, if the system says there's 8 items in the bin, and you go to the bin, because there's a customer waiting for it, and there's no items in the bin, then you correct that, and that system gets tight, so you can rely on the numbers that say what's in the bin, if you're using it. That's actually the specific example, I think, where I learned that. So as a as a corporate governor or executive, I would rather that the measurement system was designed to help run the system. And then, and then just, you know, send me a copy, send me the weekly summary. I can trust that stuff.
Derek Hudson:If it's made-up garbage for corporate, it's garbage.
Dave Kane:Yes. And I would I would sort of add to that. There's some dynamic adaptation almost that you you wanna expect of. It's not the same metrics we've had or the same measuring pattern we've we've had for the past 3 years. It's if you're measuring your process and your flow, there's a consistency there, but there's also that willingness to adapt as you're learning and you're proving your process, start measuring other things, or as your your constraint evolves, you can measure it in a different way.
Derek Hudson:Well, yeah. And if you can stabilize something down to, you know, that it's always within tolerance, then that's probably not the thing to focus your management attention on.
Dave Kane:Okay. I like that. I mean, the big different conversation today, you know, it's a little bit more on on I guess it's the the account and you and me coming out, but, I think that's helpful because the the questions I keep running into are are along that sort of way of, yeah, how do I show it? So I think this has been quite helpful for me. Thanks.
Derek Hudson:Well, well, it is very relevant in the in that business world that we're talking about, but just as I said, I'll put notes to the Hacker's Diet, and there's there's nobody that can't use this to improve other aspects of their lives. Well, thanks very much, Dave. And thanks, Bryn Griffiths for supporting us, from from the back.
Derek Hudson:Dave and I are with Unconstrained, and you can find you can find us at get unconstrained.com. Very interested in continuing the conversation on Essential Dynamics and how it can help us run our organizations and improve our lives. And until next time, consider your quest.