Expose and Manage Massive Hidden Costs

Financial executives generally pride themselves on knowing what incurs costs. So it would probably come as a surprise to discover that the most valuable work is least likely to be measured, managed or subject to rigorous improvement. Suppose the dollar value of that surprise is at least twenty percent of the total enterprise labor cost. Would you care? If you could invest $100,000 and get a return of $1,000,000, would it be something worth exploring? Answering yes to either question recognizes a goldmine at your fingertips.

The financial executive embedded in the normal dairy farmer’s brain knows both the cost to produce one gallon of milk and the unit price it sells for. The same insight is common for the owners and executives of the manufacturing firm that makes fasteners. They know the unit cost of both their biggest bolts and their smallest thumbtacks. Farmers have had about 10,000 years to get this cost business figured out; manufacturers have been at it for about 250 years. 

Together, those who personally produce agricultural and manufactured products account for no more than 15% of the American workforce. The other 85% of us in the knowledge age do work we don’t even think of as products, let alone measure them that way.

It turns out that executives and professionals in complex organizations produce products, too. A product is a highly specific deliverable you can make plural and count. If you can’t make it plural with an ‘s’, it’s probably not a product. Plans, strategies, reports, budgets, emails and answers are classes of knowledge products. 

When asked how much time is spent producing answers, most will say at least 80% of their day is consumed that way. Even attending meetings can be considered time spent learning answers to questions, some that may not yet have been asked. Emails are how many answers are packaged.

If we were the financial executive of a manufacturer making bolts and thumbtacks, we would be viewed as derelict in our duties if we permitted the number, yield, cycle time, labor time and unit cost of bolts to go unmeasured. Ditto for thumbtacks. Of course, both are produced by line workers making close to the lowest hourly wage paid by the firm. There are fewer and fewer of these kinds of workers in today’s economy. So we are measuring the lowest skilled work performed by increasingly fewer people.

Meanwhile, those of us in the office produce emails that are not likely to be counted in any way. Would an email cost more to produce than either a gallon of milk or a thumbtack? You bet! By calculating the hours spent per day by everyone creating emails, we will get a gigantic, previously hidden, cost number. We still wouldn’t know the cycle time, yield, recipient satisfaction or error rate, but we can guess that the opportunity to better manage our knowledge assets is enormous. And that doesn’t even start to address what a well-designed email should be like. We don’t have written designs for excellent emails. Imagine if Boeing built planes with no designs.

A typical client organization uncovered the cost, time and satisfaction of several of their most important, mission critical knowledge products. The findings caused them to redesign each product, saving over $2 million for just one product in the first eighteen months. And the customers overwhelmed them with compliments for making the products easier to use.

We need a hall of fame for executives who practice what farmers have known for eons. Want to know more? Contact me at [email protected]