After we discovered that a manager’s output is represented by the output of the team plus the output of the neighboring teams under his/her influence, now let’s focus on how important is to have indicators and how we can assure quality and productivity.📈

📌Indicators as a Key Tool

The first rule is that a measurement – any measurement – is better than none. But genuinely effective indicator will cover the output of the work unit and not simply the activity involved. Obviously, you measure a salesman by the order he gets(output), not by the calls he makes(activity).

Finally, indicators can be a big help in solving all types of problems. If something goes wrong, you will have a bank of information that readily shows all the parameters of your operation, allowing you to scan them for unhealthy departures from the norm. If you do not systematically collect and maintain an archive of indicators, you will have to do an awful lot of quick research to get the information you need, and by the time you have it, the problem is likely to have gotten worse.

📌Controlling Future Output

There are 2 ways to control the output of any factory. Some industries build to order. For example, when you go shopping for a sofa, you are going to have to wait a long time to get what you bought, unless you buy it right off the floor. A furniture factory builds to order. When it learns what you want, the factory looks for a hole in its manufacturing schedule and makes the item for you. If you order a new car rather than buying one right off the lot, the same thing happens: the factory will paint the car in the color you want and provide the options you want, but you will have to wait for it.

But if the competition in the sofa business makes the same product but has it ready for weeks while you need for months, you are not going to have many customers. So even though you would much rather build to order, you will have to use another way to control the output of your factory. In short, you will have to build to forecast, which is a contemplation of future orders. To do this, the manufacturer sets up his activities around a reasoned speculation that orders will materialize for specific products within a certain time.

An obvious disadvantage here is that the manufacturer takes an inventory risk. Since the forecast is an assessment of future requirements, which the manufacturer commits resources to satisfy, the factory could be in an immense amount of trouble if the order do not materialize or if they materialize for a product other than the one anticipated. In either case, unwanted inventory is the result. To build to forecast, you risk capital to respond to anticipated future demand in good order.

📌Assuring Quality

As we have said, manufacturing’s charter is to deliver product at a quality level acceptable to the customer at minimum cost. To assure that the quality of our product will in fact be acceptable, all production flows, whether they “make” breakfasts, college graduates, or software modules, must possess inspection points. To get acceptable quality at the lowest cost, it is virally important to reject defective material at a stage where its accumulated value is at the lowest possible level. Thus, as noted, we are better off catching a bad raw egg than a cooked one, and screening out our college applicant before he visits Intel. In short, reject before investing further value.

In the language of production, the lowest-value-point inspection where we inspect raw material is called incoming material inspection or receiving inspection. If we again use a black box to represent our production process, inspections that occur at intervening points within it are called, logically enough, in-process inspections. Finally, the last possible point of inspection, when the product is ready to be shipped to the customer, is called final inspection or outgoing quality inspection.

Later, when we examine material productivity, we’ll see that when a manger digs deeply into a specific activity under his jurisdiction, he’s applying the principle of variable inspection. If the manger examined everything his various subordinates did, he would be meddling, which for the most part would be a waste of time. Even worse, his subordinates would become accustomed to not being responsible for their own work, knowing full well that their supervisor will check everything out closely. The principle of variable inspection applied to managerial work nicely skirts both problems, and, as we shall see, gives us an important tool for improving managerial productivity.

📌Productivity

The workings of our black box can furnish us with the simplest and most useful definition of productivity. The productivity of any function occurring within it is the output divided by the labor required to generate the output. Thus, one way to increase productivity is to do whatever we are now doing, but faster. Here we’ve not changed what work we do, we’ve just instituted ways to do it faster – getting more activities per employee-hour to go on inside the black box. Because the output of the black box is proportional to the activity that occurs within it, we will get more output per hour.

There is a second way to improve productivity. We can change the nature of the work performed: what we do, not how fast we do it. We want to increase the ratio of output to activity, thereby increasing the output even if the activity per employee-hour remains the same. As the slogan has it, we want to “work smarter, not harder.”

Here I’d like to introduce the concept of leverage, which is the output generated by a specific type of work activity. An activity with high leverage will generate a high level of output; an activity with low leverage, a low level of output. For example, a waiter able to boil two eggs and operate two toasters can deliver two breakfasts for almost the same amount of work as one. His output per activity, and therefore his leverage, is high. A waiter who can handle only one egg and one toaster at a time possesses lower output and leverage. The software engineer using a more cumbersome programming method of ones and zeros will require many more hours to solve the same number of problems. His output and leverage are low. Thus, a very important way to increase productivity is to arrange the work flow inside our black box so that it will be characterized by high output per activity, which is to say high-leverage activities.

📌 Automation

Automation is certainly one way to improve the leverage of all types of work.

Of course, the principle of work simplification is hardly new in the widget manufacturing arts. In fact, this is one of the things industrial engineers have been doing for a hundred years. But the application of the principle to improve the productivity of the “soft professions” – the administrative, professional, and managerial workplace – is new and slow to take hold. The major problem to be overcome is defining what the output of such work is or should be. As we will see, in the work of the soft professions, it becomes a very difficult to distinguish between output and activity. And as noted, stressing output is the key to improving productivity, while looking to increase activity can result in just the opposite.

---

This is the second article inspired by the book “High Output Management” by Andrew Grove. Enjoy it and feel free to leave a comment if you have questions or any kind of observations. And if you like it please share! Thank you for reading! 😊