Beyond Spreadsheets

When a new business process starts up, managers often track the progress on a spreadsheet. This is a good place to start and is certainly better than not having any system at all. And for some processes, a spreadsheet is all you'll ever need.

But there are limitations to what you can do with a spreadsheet. First, sharing information is cumbersome. Only one person at a time controls the latest and most accurate copy. If another team member needs to update the data, they have to get the latest copy and then make the update. The coordination is acceptable if a few people are involved, but can become unwieldy as the number of people or frequency of updates increases.

Second, you usually can't enforce data input standards. People can type in anything they want. For example they will spell the same company or product name with five different variations. People can also go back in time and overwrite previous results.

Third, because of the first two limitations, reporting on the process is difficult. Spreadsheets have impressive data analysis features, but managers often have to go back and 'scrub the data' before running the report.

Dexter's solutions store the information in a centralized database and provides mutli-user access via a web application. Everyone sees the most recent set of data. Data input is controlled and the results are normalized. And it doesn't matter what the time of day or whether your working in the office, at home, or somewhere in between.

  There are really only four kinds of work....

There are really only four kinds of work....

In the Dexter model, people create value and then are compensated for a particular type of work. We believe there actually are only four kinds of work: physical, human-interface, creative, and decision-judgment. Perhaps this is best explained by giving some examples...

Factory workers, farmers, miners, athletes, and telephone installers get paid to use their bodies. Although they may use tools, and may be very skillful, the value they create is essentially the result of their muscle. Take away their ability to lift, or move, or steer a truck and how much value can they create?

Sales people create value by presenting ideas to potential customers and, in various ways, persuading them to buy. Their work is human interface. Take away their ability to interact with other people, and how much value would they create? The same applies to customer service reps.

Software engineers, journalists, graphic designers, researchers, and analysts perform creative work. If they didn't create or produce anything, would you pay them?

Executives, managers, attorneys, doctors, and other high level professionals get paid for their decisions and judgments.

Some jobs require a combination of work types. For example, a sales engineer may perform both human interface and creative work. An orthopedic surgeon uses judgment to diagnose the need for a hip replacement, but will also perform physical work during the surgery itself. Peyton Manning, quarterback of the Indianapolis Colts, is primarily paid to throw the football down the field. But he also must make quick on-the-field judgments.

In the context of 21st century business processes, it's essential to identify the type of work people are being compensated for, and to understand their true role in the process. The performance of a business process depends on properly assigning various types work. It can be a mistake to tie up creative and human interface people with physical work.

  Operational Performance versus the Inflation Rate

At a minimum, companies need to improve productivity at the same rate as inflation. Here's why....

In the United States, the Consumer Price Index (CPI) is the most widely cited measure of inflation, estimating the average price of consumer goods and services purchased by households.   The CPI can be used to index wages, salaries, pensions, and regulated or contracted prices.   If a company has $10 million in annual expenses, and the CPI is 5%, it will cost the company an extra $500,000 to run the business next year (everything else being equal).

Consider an enterprise (Company A) with revenues of $11 million, expenses of $10 million, and a nice $1 million profit.   In the following years, CPI is 5% and their expenses rise accordingly.   Everything else being equal, the increased expenses eat into their profits, and within a few years they are losing money.

Year	Unit Price	Revenue	Expenses	Profit	Margin
1	$100	$11,000,000	$10,000,000	$1,000,000	9.1%
2	$100	$11,000,000	$10,500,000	$500,000	4.5%
3	$100	$11,000,000	$11,025,000	$(25,000)	-0.2%
4	$100	$11,000,000	$11,576,250	$(576,250)	-5.2%

Maybe Company A is lucky.   It can raise prices and pass on the additional costs to their customers.   If so, their profits also rise with inflation (albeit with inflated dollars), and their margin remains constant.

Year	Unit Price	Revenue	Expenses	Profit	Margin
1	$100	$11,000,000	$10,000,000	$1,000,000	9.1%
2	$105	$11,550,000	$10,500,000	$1,050,000	9.1%
3	$110	$12,127,500	$11,025,000	$1,102,500	9.1%
4	$116	$12,733,875	$11,576,250	$1,157,625	9.1%

But now assume Company A has a competitor - Company B.  Company B continually tweaks their business processes and improves their operational performance at approximately the same rate as CPI.  Year after year their expenses remain flat!  And within a few years they are making twice the profit as Company A.  They can return the extra profits to their shareholders, or re-invest in their business.

Year	Unit Price	Revenue	Expenses	Profit	Margin
1	$100	$11,000,000	$10,000,000	$1,000,000	9.1%
2	$105	$11,550,000	$10,000,000	$1,550,000	13.4%
3	$110	$12,127,500	$10,000,000	$2,127,500	17.5%
4	$116	$12,733,875	$10,000,000	$2,733,875	21.5%

But Company B is ruthless.   It doesn't raise prices!   Since they've improved productivity they don't have to.   They can keep prices flat and pass on the savings to their customers; and in the following years they have a substantial unit price advantage.   All other things being equal, who is going to be the market leader?

Year	Company A Unit Price	Company B Unit Price	Difference
1	$100	$100	0%
2	$105	$100	5%
3	$110	$100	10%
4	$116	$100	16%

  Mature, Developing, and Out-of-control Processes

Consider three managers: Tom, Dick, and Harry. Let's stipulate that each is competent, experienced, and has a specific span of control.

Tom gets to work, reads through his emails and answers his voicemails, but by late morning finds he doesn't have anything to do. Why? It turns out he is sitting on top of a number of mature processes.

Mature processes tend to run themselves. They run like clockwork. Everyone in the chain of command knows what to do. Tom and his staff need to keep an eye on things and handle the exceptions. It's the place you want to be.

Dick gets to work, and finds a lot of people are asking him questions. He spends a lot of time in meetings and on conference calls. Why? It turns out he is sitting on top of a number of developing processes.

Developing processes are not stable. They haven't matured to the point where all steps are defined and implemented or all of the exceptions are handled. The staff is always questioning what they should do in different situations. The processes do not handle all the scenarios or all the variability. There are a large number of exceptions.

Harry has had a bad night. His cell phone has been ringing constantly from customers and his superiors. When he gets to work he finds his inbox is full email marked "urgent". He spends his entire day putting out fires. Why? Harry's processes are out of control.

Out of control processes occur for a variety of reasons. An external change happens and people are not paying attention. Have you ever heard the term "putting out fires"? Requirements can change.

Tom, owner of the mature processes, should focus on improving operational performance. It's only a matter of time before a competitor will figure out how to execute a similar process more efficiently. Instead of coasting, he needs to spend time asking questions and digging into the process data. It could be that there are more resources allocated than necessary. If he can't get the data he needs, he needs to talk to Dexter about a line of sight solution.

Dick, owner of the developing processes, should focus on understanding, defining, and training. He should ask if his staff has access to all the data they need. Is everyone reading from the same sheet of paper? Do they have all the tools they need? He should ask how cumbersome and timely the data collection process is. Are they or will they be in need of something more than a spreadsheet to track things? Hopefully, Dick has the foresight to contact Dexter and talk about a workflow solution.

Harry needs to get his processes, and perhaps his blood pressure, under control. He is reacting instead of acting. In a quiet moment he needs to ask himself: What is causing the exceptions? Is there a lack of standardization? What systems do we have in place? Do we have any kind of process tracking at all? If he hasn't already, he should have his staff track the process and report results on a spreadsheet. Once he has handle on some data, he should talk to Dexter about a tracking system.

  Agile Methodology

Agile development is a recent buzzword in software development circles, but Dexter has been practicing it for years. Essentially it reflects an attitude that there's an efficient way to build custom software applications. It works especially well in workflow and mechanization applications where full requirements cannot be established up front, and are likely to change as the application matures.

Agile Development begins with continual day-to-day interface with the customer, especially the "subject matter experts" in the customer's domain. Frequent contact with the customer, preferably face-to-face, means the project stays on track. It prevents the scenario where the developers disappear after the requirements are laid out, then show up months later with an application dramatically different than expected. Dexter's use of Agile Development practices is reflected in our motto; "The only surprises should be good surprises."

Second, Dexter utilizes a paired development process. This means that a minimum of two developers continually work together, so that the development and support can continue in the absence of one of the developers. One of the real dangers in custom development is having one person know everything - and the project grinds to a halt when that person is unavailable.

Third, Dexter focuses on small frequent releases rather than fewer big ones. Projects often start with a series of prototypes that enable customers to review and evaluate. There is a heavy feedback component from the users and subject matter experts. Continuous feedback means the project stays on track and the customers get what they want.

The diagram below illustrates the Agile Development model - a spiral. Each loop in the spiral produces a new prototype or production release of the application. Each cycle has a phase to specify requirements, prioritize, develop, test, review, and use. During the first iterations, subject matter experts review progress to verify the project is on track. As the spiral moves outward, more functionality is added, and more users are added.

Dexter believes that the Waterfall Development model, in which all the requirements are established before development begins, fails for most custom workflow applications. First, in our experience, customers cannot fully articulate everything they want upfront, often because the underlying business process is not mature. Second, building a complete set of requirements can be a lengthy process, burning time and money pursuing answers to ultimately unimportant details. Third, once the requirements phase is over, developers tend to focus on the requirements document and not focus on customer satisfaction.