Measuring Right Things: Utilization Versus Efficiency

In manufacturing world, there is a direct correlation between how much machines are utilized and how much they produce. This works because machines do the work that is non-linear and there is very little variation in producing exactly same unit of work. Utilization is the extent to which installed capacity performs actual work. Less idle time means more utilization.

Knowledge work – where people find optimal ways to apply their knowledge to a given context in such a way that it produces the best possible business result – is very different. In this world of work, more utilization does NOT always equate with more productivity and efficiency. With re-usability, someone can churn a great deal of work in a short time whereas a tiny piece of work/defect may take up days to solve. Being busy, in this world, does not mean progress and when people seem to be sitting idle, it does not necessarily mean they are not working.

In HBR article “Six Myths of Product Development”, authors Stefan Thomke and Donald Reinertsen say –

Processes with high variability behave very differently. As utilization increases, delays lengthen dramatically. Add 5% more work, and completing it may take 100% longer. But few people understand this effect.

And when companies focus solely on measuring and improving utilization alone, people will respond to that expectation accordingly. People will seemingly remain (or report) busy all the day when nothing real is accomplished. More utilization without visible gain in efficiency is a waste.

Instead of focusing on utilization, we should focus on efficiency – how much real work gets shipped and how well. Efficiency encourages people to work smart, focus on quality and find best possible route to achieve the desired business results.

For this, we should focus on building a system where efficiency is more likely to happen. We need to engage our people to the purpose of our product/organization. We need to give them autonomy and promote self-organization. We need to share feedback early and often. Most importantly, we need to trust them.

And we need to monitor real progress instead of simply trying to occupy people for 8 hours everyday!

Quality and Quantity – The Conversation Continues

On 8th Jan, 2010, I wrote a post on Quality and Quantity – Compliance and Excellence. The post resulted in some very interesting conversations in form of comments and in-person conversations. The gist of my post was:

Quality is to first ask “Why are we doing it?”, “Is it worth doing it at-all?”. Quality is to first seek the purpose. Once purpose is clear, numbers can help you measure progress.

It is almost easy to figure out “What” and “How” of processes once you have addressed “Why”.

On 11th Jan 2010, Harvard Business Review’s blog featured a post titled “Why Good Spreadsheets Make Bad Strategies” by Roger Martin. The ideas presented in the post complements my views. Here is an excerpt of some key ideas presented in the post at HBR.

We live in a world obsessed with science, preoccupied with predictability and control, and enraptured with quantitative analysis. We live by adages like: "Show me the numbers" and truisms such as "If you can’t measure it, it doesn’t count."

The fundamental shortcoming is that all of these scientific methods depended entirely on quantities to produce the answers they were meant to generate. They were all blissfully ignorant of qualities.

Adding up the quantity of credit outstanding won’t tell us nearly enough about what role it will play in our economy. Adding up sales won’t tell us what kind of a company we really have. We need to have a much deeper understanding of their qualities — the ambiguous, hard-to-measure aspects of all of these features.

We must stop obsessing about measurement so much that we exclude essential but un-measurable qualities from our understanding of any given situation.

Spot on! 

To me, this is the power of social media. You take a subject to explore, think and write about it. On the other side of globe, someone else is thinking about the very same subject, but in a different context. Different views come out, complement each other and just take the subject forward. It is also a great validation of your thoughts.

Hat tip to my friend Tanveer Naseer for pointing me to the HBR post via Twitter.