In this 5th and final installment on our job shops dashboard series, we’re talking dashboard buzzwords.
I’m sure you’ve heard the buzzwords that are taking industry by storm: data driven decision-making, industry 4.0, industrial internet of things, digital manufacturing, smart factories, and on and on.
Unfortunately, these are the buzzwords many folks are obsessing over that will be looked back on as management’s current “flavor of the month” in a few years. It is part of the reason that so many dashboards have misleading metrics (#4 of 5) which can undermine the benefits of dashboards (#1 of 5). Don’t allow yourself to get dragged into the hysteria with the rest of the folks and lose sight of the key operational measures (#2 of 5) and financial KPIs (#3 of 5) that your dashboard should include.
You see, many folks start out with the best of intentions in the pursuit of better information for decision-making. A real, legitimate need even in today’s modern age of cell phones that are more powerful than the computers that landed on the moon.
You’ll hear phrases like, “we need to make data driven decisions”, “we must have analytics guiding our strategy” and all sorts of other euphemisms. Unfortunately, when we get sucked into this line of thinking we often have metrics for the sake of metrics on our dashboards and we don’t actually have the actionable information we so desperately need. This is exactly what Dr. Eli Goldratt discussed in his book, The Haystack Syndrome.
Data Driven Decisions in Job Shops
This article is intended to make sure you have the right mindset related to data driven decisions and the use of data in your shop. This means you must understand the real purpose of metrics to make sure you’re not “drowned in oceans of data” as Dr. Goldratt wrote about.
The first such craze I would like to squash would be that of “data driven decisions”.
This phrase is an ever so subtle supplantation of actually thinking, reasoning, and developing a real strategy for achieving results in our businesses.
What does the phrase, “data driven decisions” even mean? Does that mean folks have previously been simply ignoring data in their decision-making? Are people looking at weather reports and wearing parkas despite the 100⁰+ heat index in the middle of August in Florida? Not hardly.
Moreover, why has the phrase only gained traction in recent years? There’s been data for centuries, millennia even. Ever since man first started writing we’ve had data. So why now, all of a sudden?
-My personal opinion is that many folks have given up on actually knowing and making good decisions and place their desires at the feet of this “data driven” god. But it’s a false god, and I’ll tell you why.
Many folks think they can simply accumulate massive amounts of data, throw it into some type of digital blender, press the power button and have great decision-making come out. It’s as if though the computer is going to somehow automatically tell you what has heretofore been imperceptible.
What’s really going on is that folks are replacing the hard work of thinking, reasoning, and actively developing a strategy for their business with the euphemism of data driven decisions.
You may think I’m being accusatory or denigrating certain past decisions you have made, but that is not my intent. My intent is for you to have an awakening, as I have had, about what’s really going on.
We have seen folks insistent upon upgrading their ERP in the name of “better data”, “more analytics”, and “a better ERP”. And it’s a shame, because those same shops could have substantially increased their Net Profit, but instead spent tens, if not hundreds of thousands of their hard-earned dollars on an ERP system only to make the same or less money.
Business owners put many false hopes in ERP implementations – as if somehow the ERP vendors have it all figured out. I’ll often ask folks how they manage certain aspects of their business and the response is, “We use the ERP to do that.”
THAT’S NOT AN ANSWER! IT IS ABDICATION!
What is the ERP actually doing? Do you know, or are you just repeating what the ERP vendor put in their marketing materials?
You see, just because something “is on the computer” doesn’t make it right. Computers exist in the same reality we do – they don’t get to make up their own rules and bend reality to their rules.
So many folks mistakenly believe, as I did, that with the advent of the computer somehow just because we can track more data, we should. False.
Numerous shops have implemented ERPs yet their timesheets in the ERP don’t match their payroll system, setup times are not tracked, and workers do not properly clock into jobs. There were shops that had this information in the 50’s with paper timesheets and many shops with very expensive, sophisticated ERPs struggle to produce the same information.
Yet shops keep implementing ERPs all in the name of making data driven decisions.
And who benefits? Certainly not the business implementing the ERP. Go back and look at the years before and after your ERP implementation. Did your Net Profit double? What did it really put on your bottom-line?
My thought is that we need information – not data – to make decisions with. That’s what’s meant by making an informed decision.
Yes, data is used to create information, but the starting point of information, as Dr. Goldratt wrote in his book, The Haystack Syndrome, are the questions we ask. And without the right questions – defining what we need to know – it’s much more likely you end up feeding the ERP beast with more and more data but never getting better information out the other end.
Mistaken Metric Mindset
It’s not easy to admit, but before finding Throughput Accounting I had a mistaken metric mindset.
Not only did I fall victim to trying to make “data driven decisions”, I thought any and every thing required its own unique, specialized, customized set of metrics to evaluate performance. That meant even type of decision to be made required its own unique set of data.
Want to measure sales? I would have said we need to track number of sales calls, sales presentations, proposals sent, so on and so forth.
Tracking quality control? We would need number of RMAs, time spent reworking jobs, number of jobs reworked, a pareto of what department issues occurred in, a bar chart showing the number of quality issues caused by each employee, plus much more.
Financial performance? Oh boy, we could track days outstanding in receivables/payables, inventory turnover, the quick ratio, monthly recurring job revenue, monthly new customer revenue, average job revenue, average gross margin on a job, debt to equity ratio, we could show daily cash flows on a waterfall chart, track payroll expenses as a percentage of sales…the list goes on and on and on.
Want to invest in a new machine? Let me see, we could…
Do you get the picture?
I had the I-Need-A-Million-Mindless-Metrics mindset. The truth is I discovered that most of these metrics amounted to NOISE! And in business today, especially with our over-technologized world, the common thinking about metrics is only to turn volume up on this noise. More noise!
What was wrong with my mindset was that I compartmentalized everything into discrete and isolated decisions. I saw decisions being made in isolation, not from a holistic, systematic perspective. I was not looking at the big picture and asking myself the key question, “If we do this, will we actually make more money?”
As was said in the seminal classic, that true feat of the theatre, “Planes, Trains, and Automobiles” – “YOU’RE GOING THE WRONG WAY!” Don’t be like John Candy’s character and say, “How do they know where we’re going?” and ignore what we’re saying here.
Half the battle to becoming more effective is to stop being ineffective – that is in this case, eliminating the noise.
When Data Replaces Reality
There actually is a term that describes what happens when data takes the place of reality. Surrogation is the term for when the measures themselves replace the underlying thinking that resulted in needing the data for the measure in the first place.
We see this take place when there is an edict to reduce costs in a business. The lowering of costs (supposedly in the interest of making more money on the bottom-line) becomes supplanted by taking any and all actions to lower costs – even if it hurts the bottom-line.
Stories of purchasing agents run amok are common, much to the chagrin of the hapless folks in operations who have to deal with poor quality raw material and unreliable outside vendors – all in the name of making the metrics, like a purchase price variance, look good.
It really is time we “unplug from the Matrix” as the characters did in the Matrix Trilogy. To do this, you need the right metrics, used the right way. Not data for the sake of data.
The results? Getting more jobs done faster and making more money, faster than ever before!
Don’t waste another one of your hard-earned dollars in vain trying to satisfy an ephemeral requirement to make “data driven decisions”, request a Strategy Session for Velocity Scheduling System and/or Velocity Pricing System today to get your shop using the right metrics – the metrics that will help you make better decisions and improve your Net Profit on the bottom-line!
Wishing you success from the Science of Business TEAM:
- “Dr Lisa” Lang, Chief TOC Expert, Job Shop Whisperer, TOCICO Certified
- Brad Stillahn, Pricing Expert, CIPM, CIRM, TOCICO Certified, Certified Exit Planner
- Beau Ganas, Throughput Accounting Guru, CPA, CMA, CFE, CIA, CISA and TOCICO Certified
P.S. This is Part 5 of a 5 Part series. Read the entire KPIs and Dashboards series.
Copyright Science of Business, Inc. All rights reserved worldwide.