8 months ago

Money for nothing!

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Of course, the Money For Nothing (the title of this post) is a nod to the song of the same name by the 1980s band Dire Straits, but, if you will allow, we’ll just modify the next line: Cheques For Free! Okay, enough with the puns. But, seriously, did you know that many leaders are unwittingly giving money to suppliers and consultants when they could be returning it to the bottom line for reinvestment or distribution as dividends? Where does this money live? In the hidden universe of delay. In this article we look at how to avoid delay costs.

There’s a perennial issue that pervades leadership. Time. It’s no real secret: being in a leadership role means being constantly busy. There are multiple demands – project reports, performance reviews[^1], budget planning[^2], endless meetings, supplier slippage… the list goes on.

A cartoon that does the rounds every now and then goes like this: two men are pulling a cart with square wheels. A third man tries to offer them a set of round wheels. One of the two pulling the cart simply says, “No thanks, we’re too busy”. Of course, the cartoon illustrates the conflict between getting things done and learning new skills that can help reduce the time needed. Yep, we’re often so busy there doesn’t appear time to stop and look at something that could, in fact, be a time saver. But, if you delve into it, the truth runs a little deeper.

Saving time enable earlier realisation of value. All products have a finite time to live; they lose usefulness at some point and, thus, the customer base falls away. When that happens profits also disappear. In many cases, it’s impossible to say when that time will arrive, but what can be said is that it will happen. Effectively, these lost profits are delay costs. Now, you could argue that wheels aren’t going anywhere fast (pardon the pun) and you’d be right; however, the term wheel is really a class of product, not the actual product itself. The actual product is the specific type of wheel and these change frequently as a quick search of a patent database will confirm (for a more easily digestible read of wheel history take a look at this website).

The inevitable end of product life means that each day a product is unavailable to clients is a day the business cannot profit from it – by abstraction, the same is true at the feature level. This is known as Delay Cost because the delay costs the business money. Literally. The following diagram shows how this works:

Image of Delay Costs showing where costs are left of the table

The red hatched area to the left of the diagram, the red area shows revenue that is lost due to late delivery to the market. This holds not just for a product, but also for product features. The additional red at the top represents money lost due to the product (or feature) not achieving the sales it could have at its peak due to late entry. The green area is the actual money earnt. In reality, these areas will differ depending on such things as how late you are to the market, what product’s profile (some will have a longer lifecycle, for instance, affecting the loss lost peak), and the lines may be craggy rather than straight due to late implementation of features. However, delay costs; and whatever the duration and sums, there will be a red hatched are of some size. The question now is: do you want to avoid delay costs and make the red area as green as possible? Our suspicion is you do!

As you can see, delay costs leave serious money on the table (we’ve seen hundreds of millions of Pounds,  Euros, Dollars here). Even if one doesn’t know the exact end date for a product, it’s possible to deduce that the risk of delayed thinking is not a small inefficiency, as often perceived. As value delivery drags a correlated increase in business risk arises. In the worst-case scenario, this could even include business failure due to an inability to keep up with competitors, loss of faith from customers, or delay making it too difficult to get back into the market.

In modern businesses the following effects are at play:

  1. Ignorance. Most people just don’t realise the impact of delaying change. This is probably the biggest effect we come across at StoryPositive, and one of the biggest barriers there is to avoid delay costs.
  2. Inertia. Many people don’t like change. One way to deal with this is to simply ignore that it’s required or, worse, to expend energy fighting it.
  3. Personal Agenda. It suits some people’s personal agenda not to change aspects of a product or business process.
  4. Vendor Agenda. We’ve spoken of this before and it’s especially true where you have a large vendor who is earning good money from you for providing a service in a particular way. No one wants their cash cow to be slaughtered!
  5. Known Provider Insurance Paradigm (KPIP). Leaders who don’t want to risk being held accountable if things go wrong will often use large firms that are known to their superiors, despite exorbitant fees and (often frequent) poor performance. When things go wrong they either buy the excuses of the provider (if they can onward sell them) or agree a service credit which can be used as a Get Out of Jail Free card with management.
  6. Feeling OverwhelmedNew leaders often feel overwhelmed and, as a result, rely on established practices, even when they don’t understand them. In effect, they seek out psychological safety at the cost of efficiency and value. You can read about how this works and what to do about it here.
  7. Economic myopia. This is where people believe that by not spending money today, they’re saving money tomorrow. The problem here is that current accounting practices can appear to support this view. This is, in part, because delay costs are so invisible – they are rarely quantifiable in a way that makes sense to many accountants; however, they do exist and when explained most understand the concepts perfectly well.
  8. Innovation fear / Groupthink. This is where people don’t want to be the one to put their hand up and say, before anyone else has, ‘here’s the issue’. This happens for many reasons, but one is the related fear that if it goes wrong, they’ll get in trouble. No saying anything can feel like a safe option because you can’t then be labelled as the one who got it wrong. The phrase “fail fast” arose as a way to try to conquer this fear.

So how do you avoid delay costs? What can be done to take money that’s left on the table, off the table and returned to the company either as funds that can be returned to shareholders or be reinvested into further improvements, etc? Here are a few suggestions:

  1. Efficiency of delivery / decentralisation. A streamlined process freed from unnecessary red tape and not shoehorned into a one-size fits all project structure (often centrally administered) is able to organise and produce value far faster than its counterpart.
  2. The move to more efficient technology, e.g. Public Cloud and “no code” solutions. In this environment, engineers are able to plug solutions together in timeframes that are miniscule compared to more outdated technologies. This acceleration is multiplicative in its benefits; hence, those adopting such technology are going to soar away from the competition making it very hard for rivals to catch up.
  3. Support from Leadership. In years gone by, leaders simply provided a vision and some guidance (okay, this is very simplified, but…). In the Agile world, the function of leadership has changed. Now, the talk is of servant leadership. Your job is to remove blockers, to help the team in any ethical way you can to get the job done.
  4. Try running workshops to understand how, where, and why value is lost. Basically, educate the workforce. Once, our MD Toby Corballis, was talking to a programmer in a company he was working with. Why, opined the programmer, did he have to constantly have deadlines to work to, even if they were just two-weekly sprints? What, he wondered, did it matter is things slipped by a few weeks. So, Toby discussed the problem of delay costs. Look, he said to the developer, imagine you’re a pharmaceutical company that’s just developed a drug that cures a deadly disease. You apply for the patent, but you know it runs out in, say, five years. Each day you can sell the drug without competition is worth £1 Million. Now, what does taking ten days away do to your bottom line? And another 10 days a few weeks later? And so on? The programmer got it and was instantly converted.

Of course, there are more techniques one can adopt to ensure that money isn’t left on the table. One of the best is to ensure that you combine modern working practices (Agile) with modern technology (e.g. Public Cloud). Okay, these aren’t a panacea – some types of project are better suited to Waterfall and some types of technological endeavours require hardware that is onsite and looked after lovingly by your team. But they are fast becoming the exception rather than the norm. Independently, Cloud and Agile can bring benefits, but together they can accelerate benefit wildly. Failing to move to a more agile model when adopting Cloud has the potential to delay the ability for managers and engineers to learn how to adopt new technologies, itself a delay cost. You could get away with this when both were immature, but that’s not the case now. Agile has been around for twenty years in one guise or another – plenty of time to mature. The same is true of Cloud technologies.

When you understand their maturity, their power, and their dawning ubiquity you can start to understand their benefit. Not doing so creates a drag on resources and momentum. Why? Because resources – or talent in the modern vernacular – have more choice these days on where to go for work. People scour web repositories like Github looking at the technologies that companies are using. They also use websites like Glassdoor to get a feel for what the management team are like. Talent wants to be appreciated and to use modern tools. Would you expect someone with an engineering degree to work with square wheels? Probably not. The truth is that the best talent won’t even apply for work at companies that are behind the curve. This ‘drag’ increases risk and delays understanding so that when the truth dawns, management go into panic mode at best, survival mode at worst. Once panic and survival run their course, denial creeps in, but by then all one can do is watch as the building burns.

[^1:] The value of performance reviews is something we will cover elsewhere soon, but let’s say for now that our view is that they’re at best questionable. This isn’t just our view, you can also read about it in this Harvard Business Review article.

[^2:] By the way, if you work at a company that does quarterly or annual budget reviews based on projected delivery of functionality, that’s a pretty good sign that the Agile / Lean methodology hasn’t yet taken hold.

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